Department of Good Ideas
James Surowiecki has a smart column this week wondering why boards of directors haven't come in for more blame throughout the crisis. They, after all, were the folks charged with protecting shareholder value and overseeing aggressive CEOs.
The answer, at least in part, seems to be that the boards have escaped blame largely through the soft bigotry of low expectations. Everyone knows boards are both compromised and incompetent. They couldn't rein in the CEO if they wanted to and, in general, they don't want to. Since we knew them to be impotent before the crisis, there's no real use in blaming them after the crisis. But that doesn't mean we shouldn't reform them so they can better help prevent the next crisis. In particular, I like this idea:
it’s time to revive an idea that was first floated by the corporate-law scholars Ronald Gilson and Reinier Kraakman, who proposed that big institutional investors create a cadre of full-time directors, people whose only job would be to sit on corporate boards and look after shareholder value. Most board members, accomplished as they may be in their real jobs, are amateurs when it comes to being directors. So it shouldn’t surprise us when they get buffaloed or pushed around by C.E.O.s, who are professionals. Right now, boards are made up of moonlighters. And, if the last few years have shown anything, it’s that protecting shareholder interests is a full-time job.
This happens on a small scale now -- at least in the non-profit world -- but there's no reason the model couldn't expand. Being a director of a company like AIG should be a job, not a title.
May 29, 2009; 11:00 AM ET
Categories: Financial Crisis , Solutions
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