Putting directors to work adding value.

• Author: Lytle, L. Ben
• Position: Acordia Inc.

Profile of one company's governance structure: each of its highly autonomous operating companies has its own outsider-dominated board.

The title of an entire chapter in "Management," the landmark book written by management consultant Peter Drucker more than two decades ago, is "Needed: An Effective Board." Much has changed for the better with regard to the effectiveness of boards since Drucker's book first appeared. At Acordia, we believe we have made a contribution to fuller utilization of boards of directors as a management tool.

Founded in 1989, Acordia Inc. is the seventh largest insurance broker in the world. Like other publicly owned firms, Acordia has a board of directors. However, unlike almost all other publicly owned firms, Acordia is a network of highly autonomous operating companies, each of which has its own board of directors.

Management consultant Tom Peters, co-author of the 1982 mega-seller, "In Search of Excellence," featured Acordia in his 1992 best-seller, "Liberation Management," and his 1994 book, "The Tom Peters Seminar." In one of my conversations with Peters, he commented, referring to our operating companies, that "the fact that you have gone to board of directors, I think, is really critical." Peters is right.

Because it is a network of highly autonomous operating companies, Acordia has no complex web of internal reporting requirements. We rely on the boards of directors of our operating companies, along with a system of incentives, audits, surveys, and other feedback systems, to ensure that the actions of our 29 operating companies are in the interests of our stockholders and consistent with Acordia's policies and standards.

Operating company boards are accountable to Acordia's board. In the interest of practicality, Acordia's board has delegated to Acordia's chief executive officer the authority to act as its "shareholder representative" in matters related to the operating companies.

Acting in this capacity, Acordia's chief executive officer elects the directors of the boards of the individual operating companies based on recommendations from the board chairperson, other board members, the CEO of the particular company, and people in the community.

Operating company boards consist of five to seven directors. Typically, all but one or two of the directors are "outsiders." These outside directors are recruited not for their names, their reputations or their "contacts"; they are recruited for their intellect, their...