Rules for rock-solid governance: 'Sutton's Laws' won't solve all the problems that boards face, but they can filter the bad boards from the good and help directors sleep better.

• Author: Sutton, Gary
• Position: BOARD LEADERSHIP - Cover Story

SHOOT ME if I join another public board.

"Sarbanes-Oxymoron" adds cost and little else to having or being on a board. Anybody who's eager to join a public board is inherently unqualified. Anybody who's very eager is very unqualified. That's because there's huge downside and little upside, so candidates who lobby and lust for these "opportunities" are clueless and ought to be denied any further responsibilities.

I'm on 12 boards (11 of them private), and would chew fewer Tums if I could gracefully leave the sole public board I sit on. Yeah, I know, that's too many boards. But I'm retired, and most of these companies are startups with five employees and a company dog, with minimum risk and plenty of upside, so cut me some slack. Those that fail, I mourn, but those that succeed go public and, while celebrating, I immediately look for the nearest exit.

Out of this irony, I've figured out how those of you being recruited can filter the bad boards from the good. Call them Sutton's Laws. They make sense, bewilder Congress, yet give you rock-solid defenses in the courtroom and your own heart.

Let's first agree that boards have three jobs:

1. A board hires and compensates the CEO fairly.

2. The board fires and replaces CEOs fairly.

3. The board approves any financial restructurings that affect the balance sheet--be they mergers, annual budgets, dividends, or acquisitions.

   That's it. If you go beyond, to a point at which the board is managing the business, then there is no CEO. And if you've traveled, seeing many statues in many parks, you know that there's not one yet erected to a committee. One thing makes it easy to confuse a board with a committee: They are identical.

   The trick is this: A board cannot intelligently handle these three tasks, when they arise, unless each director understands the business. To do this, board members must contact a few customers, auditors, employees, and vendors every year. Yet this intrusion must be casual, graceful, and low-key to avoid undercutting the leadership. These customer and vendor calls should be made with an employee. The employee contacts should be one-on-one.

   Now, here are Sutton's Laws:

1. Voting directors should be all outsiders with one insider. Anybody who has been on the board for more than five years has become an insider. Period. Restrict terms to five years. Rational perspective is lost with time. History is less relevant in a fast-changing world. Outside directors are best but not infallible: Using Calpers's guidelines on outsiders vs. insiders, we'd all invest in Enron but dump Dell.

2. Meet quarterly. This lets the board review financials without getting buried by monthly detail. Those who argue against quarterly reporting, claiming that it hurts long-term thinking, seem to have...