Principles to govern by.

• Author: Kaback, Hoffer
• Position: ROAD TO XL - Excerpt

Ed. Note: Hoffer Kaback, president of Gloucester Capital Corp., had a remarkable 16-year run, starting in 1997, as a columnist for Directors & Boards. He made an enormous contribution to the thought leadership in corporate governance. His first appearance in the journal was with an article titled, "Principles to Govern By" [Summer 1995], in which he laid out 10 behavioral principles that should guide a director's actions. Following is an excerpt from the article with an abbreviated version of four of his suggested principles.

The basic legal principles concerning the nature and scope of directors' fiduciary duties (including a vast body of case law defining the contours of those duties) are well-established. They should be quite familiar to any reasonably sophisticated corporate director. So long as you are honest, loyal, act with prudence and integrity for the good of the corporation, and reach independent judgments on an informed basis rather than rubber-stamping management proposals, you can sleep well at night.

Less clear, however--especially to newer directors--may be:

1. what behavioral principles should guide ordinary course performance of the director's job?, and

2. what is the most effective way to apply or modify such principles?

Conscientious directors think about these things and sometimes struggle with them in particular Instances. The following is an incomplete (and subjective) list of some possible operating principles.

The Always Trust Management Principle: A variation of the hoary "old boys' network." Trust the CEO. Most likely he is the person who put you on the board in the first place and, therefore, obviously he has superb judgment. This is a prescription for disaster and for liability, and antithetical to the proper exercise of fiduciary duty. One need not be antagonistic in order to challenge management's assumptions, business reasoning, or any other aspect of management's performance if such challenges are warranted. The unwillingness to challenge, when...