The power and the process.

• Author: Stern, Paul G.
• Position: Board of directors

Boards must change. They cannot continue to be constrained by old-style structure and tradition. Here are some suggestions for revitalizing the board.

In the last few years, the foundation of the world economy has been altered dramatically by a series of enormous changes -- the onset of economic tripolarity among the United States, Japan, and Europe; the end of the Cold War; and the rise of economic issues to the top of the global agenda. Surely, no period in recent history has seen such a rapid and disorienting shift in global dynamics. As a result, executives in the '90s will spend more time responding to change, managing discontinuity, and dealing with uncertainty and complexity.

Those companies and their boards of directors that recognize the new international order -- and carry out the required changes -- will probably survive; many, indeed, will prosper as new industrial leaders emerge.

However, in a rapidly evolving international economy, those institutions that are not changing their ways of doing things and, most important, their thinking, are clearly headed for extinction. The Roman orator Cicero once said of a friend: "He remained the same when the same was no longer fitting."

The question for today is this: Will corporate governance remain the same when the same is no longer fitting? Will companies and their boards recognize that the management processes and governance practices of the global corporation must be dramatically different? Will they simply try to fine-tune or will they see the need to break loose from policies, attitudes, and governance practices that are no longer fitting?

Despite the fact that corporate governance has become something of an "in" topic these days, it remains rather arcane and abstract for most people. It's a lot like having a root canal -- essential to go through but hardly fun. Still, I'm sure everyone agrees that corporate governance has become the subject of lively discussion, and even controversy, as individuals and institutions examine the legalities, realities, and shortcomings of the way boards govern publicly held companies.

And when it comes to controversy, the prize for generating a lively discussion goes to Irving Olds, the former chairman of U.S. Steel, who opened a speech by declaring: "Directors are like the parsley on fish -- decorative but useless."

Hard to Define

One trouble with corporate governance is that it's hard to find a working definition for what it is. Experts who have researched and written about it agree that it's hard to define, but they also say it's something that every corporation concerned about its future place in society and the economy has to address and to practice effectively.

In a narrow and legalistic sense, corporate governance is the company directors, singly or collectively, carrying out their fiduciary responsibilities to the shareholders. These duties are summarized by the Business Roundtable. They are:

-- Overseeing of management and board selection and succession.

-- Reviewing the company's financial performance and use of resources.

-- Overseeing corporate social responsibility.

-- Ensuring compliance with the law.

Given these responsibilities, and the fact that directors are held accountable within the law to govern the corporation effectively, one can conclude that governance is an...