The role of the outside director: if management seems too dense to benefit from your guidance, you may have the wrong management, or you may be too subtle in your stewardship.

AuthorWeidenbaum, Murray L.

Serving as an outside director can be an absorbing challenge because it involves balancing three important aspects of the role--representing the interests of the shareholders, making a contribution to the company, and maintaining professional independence. The way in which anyone works out these three aspects of the director's role must depend on the nature of the company, the problems and opportunities it faces, and the composition of the board itself. Therefore, I will limit my observations to my personal experiences, mainly explaining how I view my task on the boards I serve.

First of all, I believe it is clear that the directors of a corporation represent its shareholders. That certainly should be true of independent outside directors. I am a member of the traditional school who do not believe in constituency directors. Thus, I do not view my position as representing 56-year-old male Republican college professors from Missouri--or any other group that I happen to belong to, other than the shareholders of the company.

How do you represent the shareholders at the meetings of the board? Personally, I try to follow a variation of the Socratic method. I mainly ask questions. Of course, I try to avoid second-guessing the management. A company does not benefit from either a totally compliant board or from one that tries to dominate the management. My attitude is that a strong management is cultivated by providing some guidance to it. If the company has that type of management, asking the right questions may be sufficient.

If the management seems too dense to get your message, you may have the wrong management--or you may have been too subtle. But if you really get a brushoff on something you consider important, speak to the other directors. There is nothing like introducing a well-prepared motion to get the chairman's attention.

In any event, the director needs to exercise discretion in carrying out the role. If you are asking questions on every item on the agenda, you are probably becoming a nuisance and diluting your effectiveness. But, if meeting after meeting goes by and you do not open your mouth--except to second the motion to adopt the minutes--then you probably are not earning your director's fee.

Often, outside directors will be expected to draw on their particular expertise. If an acquisition is being considered, an investment banker--or the chief executive officer of another company--may point out some of the unexpected problems that could arise. A consideration of the sales forecast may benefit from the economist commenting on the business outlook. The review of international activities can be a useful point at which a banker on the board discusses the foreign exchange situation. None of this should be aimed at replacing the role of the internal management and staff, or to be competitive with them. It is more a matter of providing another, or at least a broader, viewpoint.

Relations with management

Interactions with the CEO are vital for the outside director. The subtlety of the relationship arises particularly because of the presence of other members of the senior management or the board--the inside directors. The outside director must remember that the CEO-chairman (assuming that...

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