The real signs of a strong board – a USA perspective

In an article titled ‘Leading from the Boardroom’ in the April 2008 edition of Harvard Business Review the suggestion is made that many of the criteria used by corporate governance ratings agencies to assess board performance do not have much to do with board effectiveness.

Professors Jay Lorsch and Robert Clark, respectively of Harvard Business School and Harvard Law School, conducted a survey of Fortune 200 companies in 2005 and found that three of the most rated factors concerned the specific background, knowledge and abilities of directors. Also among the highest rated factors were specific governance activities or processes, such as manageable board agendas, appropriate allocation of meeting time and timely dissemination of information to directors before meetings. Less favoured factors included structural attributes favoured by governance ratings agencies such as size of board, mandatory retirement age for directors and separation of CEO and Chairman positions. According to Lorsch and Clark “the search for talismanic indicators of [board] quality continues.”

In their article, Professors Lorsch and Clark also contend that “directors must lead from the boardroom.” Thanks to Sarbanes-Oxley, they believe that directors have become “more hands-on with compliance [issues…..and] more hands-off with long-range planning.” They say that “Directors need to do a better job of balancing compliance with forward thinking” in an effort to reduce longer term risk to shareholders.

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