Monday, April 25, 2005

CEO's vs. Boards...

There is another interesting perspective in this months Corporate Board Member Magazine regarding the trust factor between the CEO and the Board of Directors.

It seems that there is still a major battle going on here with some companies but the question is why does it exist? More and more the shareholders are upset with performance and other key issues and they are putting the pressure on Directors to act. What is a shareholder to think when the annual shareholders meeting becomes a one-way conversation and the Q & A is herded into the last 15 minutes and there is no longer a live mic on the floor. If there are suspected hostile or threatening entities in the audience then security should do their duty and remove these individuals. However, when the executive management are clearly shutting down a meaningful open dialogue with the shareholders, then the Board of Directors should be questioned on their allegiance.

Of course there are many examples of where the Chairman of the Board is still the CEO and this is one topic for another date. What is interesting in the debate on the anxiety between the executives and the board these days is this:

After nearly three years of fallout from Sarbanes-Oxley, plus the frightening realization that directors may be held financially liable for their oversight failures, boards are no longer looking at their CEOs with wonder. In fact, they’re downright skeptical. “Trust in the CEO is not at the levels it used to be,” says Richard Koppes, a director of Apria Healthcare and Valeant Pharmaceuticals International. Adds Philip Burguieres, chairman emeritus of Weatherford International and a former CEO of Panhandle Eastern Corp. and Cameron Iron Works: “The element of trust seems to be gone. A few guys have done great harm.”

Obviously the vast majority of CEOs are trustworthy, but all have been slimed to some extent by the scandals of recent years. In 2003 a joint BusinessWeek/Harris Poll survey found that nearly 80% of Americans believed that CEOs of large companies put their own interests before those of workers and shareholders.

To say that boards don’t trust the CEO is not to say that they suspect dishonesty. If they did, turnover at the top of the corporate totem pole would be even higher than it is. Last year 663 CEOs decamped to other jobs, retired, or were fired, down from the high-water mark of 1,106 in 2000, according to Challenger Gray & Christmas, an outplacement firm that keeps track of these peregrinations. Rather, what boards fear is that their CEO isn’t leveling with them, that all information that directors receive about the company is filtered through the CEO’s ego.

When McKinsey & Co., a management consulting firm, surveyed 150 directors in 2004, 81% said that the CEO largely or completely controlled and shaped what board members learned about the company. Only 30% said they felt they really knew what was going on. Directors want to take more control of the information they are getting, and that’s a direct challenge to the CEO’s power.


The risks facing organizations today go way beyond the typical issues you hear about in the Board of Directors meeting or the Audit committee conference calls. The risk of a systemic failure of the corporation is at it's roots a failure of the way information is collected, processed and delivered. Think about the simple process of sales forecasting and you begin to see where the root problem is. At each step of the roll-up and the chain of management there is another layer of guess work and sanitization. If a Board member ever got the chance to ride in the field with a seasoned sales rep and also attend a district sales meeting during a pipeline analysis then they would begin to understand why the CEO is guarding the "Corporate Fort" at all costs.

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