The power and the process.

• Author: Stern, Paul G.
• Position: Change and corporate governance - Putting In Place the Right Board for the 21st Century

Paul Stern's article is a powerful call for revitalizing boards still constrained by old-style structure and tradition. It's a paragon of the "bread and butter" article that DIRECTORS & BOARDS has always specialized in -- substantial, provocative pieces of writing that prod boards to be an influential force for good in the affairs of the corporation. It was published while he was serving as non-executive chairman of Northern Telecom Ltd., following a career that included senior positions with Unisys Corp., Burroughs Corp., Rockwell International, Braun AG, and IBM. Since then, Dr. Stern has served as a special partner at Forstmann Little & Co. and is now a principal with Thayer Capital Partners, a private equity investment firm based in Washington, D.C. He serves on the boards of Dow Chemical Co., LTV Corp., and Whirlpool Corp.

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?

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."

For years, many boards have lacked cohesion, operated within limited time frames, have had limited knowledge about operations of the business, and have held varying views within their ranks about what the corporations should be doing. Most important, directors have had a rubber-stamp mentality averse to "rocking the boat" or "criticizing the CEO" to whom they have all too often been beholden for their position on the board. The old style has been for boards to confirm and conform. This situation, I believe, is no longer tenable legally or morally. Shareholders expect and deserve more from their boards and so do other stakeholders.

Legally, boards have the power to govern, but they do not...