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 / Fourth Quarter 2001 / Issue 25(originally published by Booz & Company)


Best Business Books: Corporate Governance

• Link a significant percentage of board members’ rewards to long-term firm performance through the use of stock grants and options.

• Conduct a regular evaluation of the board and its individual members that includes input from directors themselves, key stakeholder groups, and the firm’s managers.

• Use the results of the evaluation and benchmarking of other firms to review corporate governance procedures on a regular basis.

• Require directors to resign when they change their primary job or take on additional board memberships. This can help the board’s membership mix remain appropriate and independent.

• Have board members who can speak for stakeholders other than shareholders (e.g., employees, customers, and communities).

Once these fundamentals for an independent and accountable board are in place, directors can, as Charan suggests, concentrate their efforts on helping to identify potential threats to and opportunities for the organization, and on shaping the firm’s strategy to fit its changing environment. They can also build effective external relationships that extend the organization’s capabilities. Indeed, with the right safeguards in place, a board that is more actively involved in the strategy process and the formulation of strategic alliances can, potentially, provide more effective oversight of the organization than one that is not.

Without this involvement and the additional knowledge and information it provides to directors, boards are effectively confined to reacting to top managers’ decisions well after they have been made. In today’s rapidly changing global economy, such delays, even with the most independent and well-intended stewardship, may have dire consequences — far worse than a little sand in the face.

Jay A. Conger, [email protected]
Jay A. Conger is a professor of organizational behavior at the London Business School and a research scientist at the University of Southern California’s Center for Effective Organizations. He is the author of many books and is recognized throughout the world as an expert on leadership, organizational change, and boards of directors.

Edward E. Lawler III, [email protected]
Edward E. Lawler III is the director of the University of Southern California’s Center for Effective Organizations and a Distinguished Professor of Business at USC’s Marshall School of Business. Professor Lawler specializes in the study of human resources management, compensation, and organizational development. His previous contribution to strategy+business was “From Meek to Mighty: Reforming the Boardroom,” written with Jay A. Conger.
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