The answer to the problems of corporate failure in the managed corporation lies in the governed corporation. In the governed corporation, the focus is not on power – not monitoring or controlling the managers – but, on improving decision making. The objective is to minimize the chances of mistakes; and, even if they occur, to mutually work out effective ways to rectify the mistake rather than fire the management. The result is a positive change in the way companies discuss, decide and review policy.
The Managed Corporation v/s the Governed Corporation: Board’s Role, Characteristics and Policies
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The Managed Corporation
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The Governed Corporation
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Board’s Role
· Board’s role is to hire, monitor and, when necessary,
change failed management.
Board Characteristics
· Power sufficient to control the CEO and the
performance-evaluation process.
· Independence to ensure that the CEO is impartially
evaluated and those directors are not compromised or co-opted by management.
· Board methods and procedures to allow outside directors to
evaluate managers independently and effectively.
Policies
· Separate the CEO and chairman (or lead outside director).
· Board meeting may take place without CEO being present.
· Committee of independent directors to evaluate the CEO.
· Independent financial and legal advisors available to
outside directors.
· Measurable norms or yardsticks for judging CEO’s
performance.
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Board’s
Role
· Board’s role is to foster effective decisions and monitor
and reverse failed policies.
Board
Characteristics
· Expertise sufficient to allow the board to add value to
the decision-making process and performance.
· Incentives to ensure that the board is committed to create
organizational value.
· Methods and procedures to foster open debate and keep the
board apprised of shareholders’ concerns.
Policies
· Vital areas of expertise must be represented on the board
such as core industry and finance.
· Minimum time commitment by the board members (may be two
days in a month).
· Designated committee to evaluate new policy proposals.
· Regular meetings shareholders with large shareholders.
· Board members free to ask for information from any
employee.
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