Rethinking NIFO: "noses in, fingers out" may be an indefensible standard for board behavior in the post-Enron era.

• Author: Sickles, Mark W.
• Position: GUEST COLUMN

PRE-ENRON, directors were respected for the job they were in. But post-Enron, directors are only being respected for the job they're doing. To earn this higher level of respect, many directors will have to go through transformational change.

When success in the new environment calls for transformational change, experience from the old environment becomes a liability: IBM mainframe experience in the micro-computer era; quality control experience in the quality assurance era; Theory X experience in the Theory Y era; and now, pre-Enron board experience in the post-Enron board era.

One of the traditional mantras of the board function has been "noses in, fingers out," a clever way of making the valid point that "management does, the board assures." In some companies, being on the board is like being the Maytag repairman, and in such cases, you can most likely get away with the NIFO approach.

But if the dam is about to break, as it has in too many companies, "noses in, fingers out" is not only unacceptable, it's indefensible. Remember why it was so easy for FedEx to establish the No. 1 position in overnight delivery? UPS's rigid culture as a "ground" transportation service gave the skies to FedEx. "Fingers out" for boards whose companies suffered from Enronitis is equal to "ground" for UPS: In both cases, these words ruled out actions needed to assure shareholder value.

Unlike "fingers out," "the board assures" is absolute and timeless. If board members must insert their fingers, bodies, minds, hearts, and souls to assure shareholder value, then that's what the shareholders are paying them to do at that point in time. UPS has gone on to demonstrate an unbending commitment to long-term success by pushing aside conventional wisdom and pushing through the complexity of transformational change to achieve extraordinary results--off the ground--on behalf of their employees, customers, and shareholders. Directors should do the same.

Post-Enron, shareholders expect their directors to behave ethically, defined as managing the intersection of competence and integrity. This is a major departure from past practice. Did the boards of scandal-riddled firms like Enron and WorldCom assure their management teams had the competence needed to create organizational integrity? Did these boards even recognize that assuring management possessed this competence was one of their most important responsibilities to the shareholders?

Fulfilling these responsibilities...