It is time to take the wraps off corporate boards. Corporate governance standards developed over the past 20 years have amplified the board's powers and responsibilities and increased the need for better communication. Directors are now so carefully scrutinized and so closely identified with their companies' economic performance that the traditional mode of closed-door, no-questions-asked decision making is no longer acceptable. Boards need greater freedom to communicate beyond the dictates of disclosure and explain how their policies and decisions relate to the strategic goals of the company.
Here are five suggestions to give directors a voice and open a window (not a door) into the boardroom without sacrificing collegiality, confidentiality, or competitive position:
Create a board equivalent of the MD&A. An annual "Directors' Discussion & Analysis" should deal with the board's governance processes, policies, decisions, and oversight responsibilities. The DD&A should be constructed around written reports from each of the board's standing committees supplemented by a forward-looking strategic overview that links board practices to the achievement of business goals. The DD&A could be published in the proxy statement (a safe harbor might be needed), in the annual report, or on the company's Web site.
Resurrect the annual Board Compensation Committee Report. Executive compensation is the board's responsibility and is viewed as a key indicator of directors' independence, competence, and focus on performance. The current CD&A, a management document, is no substitute for a substantive discussion of compensation incentives from the board, complete with performance measures and long-term goals.
Appoint a director to act as a spokesperson with a clear but limited mandate to speak proactively for the board on matters relating to corporate governance.