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Published: November 30, 2004

 
 

Best Business Books 2004: Governance

And what about the "be buff" injunction? Tapscott and Ticoll describe all sorts of areas in corporate life in which, they argue, it is easier for the outside world to see what companies are doing, whether or not the exposure is desirable. Their basic theme -- not surprisingly, given their past interest in things digital (their previous collaboration was Digital Capital: Harnessing the Power of Business Webs, from Harvard Business School Press in 2000) -- is that the Internet has turned the spotlight on corporate performance to an unprecedented extent. From that, they move swiftly to arguing that proactive communication and disclosure is a good thing, in all sorts of ways, and then to urging companies to do more of it. Companies should, for instance, come clean with nongovernmental groups; executives should avoid keeping secrets from employees; they should not be nasty to whistle-blowers.

Still, good information may be available but ignored. A study of the Enron message boards on the Yahoo Finance Web page, quoted by the authors, found enormous numbers of anonymous notes describing the company's problems. When the dot-com boom was at its height, few investors wanted to listen to voices of caution. Quite a few companies see no benefit in subjecting themselves to the scrutiny that being publicly traded now imposes on them. In August, for example, the public but family-controlled Cox Communications announced plans to go private. Still, most large companies have no choice but to remain public; smaller and medium-sized ones may increasingly choose to remain private.

In Authentic Leadership (also reviewed in "Leadership" ), Bill George has hardly anything to say about transparency as he describes what makes a good leader and examines the relationship between good leadership and good governance. He does, however, have much to say about ethics and authenticity, two key qualities he believes successful leaders must have. Companies that are led by people who are consistently authentic and ethical, one suspects, don't need to worry much about installing elaborate machinery for corporate governance.

George worries anyway. Like other authors reviewed in this essay, he sees the structure and behavior of the corporate board as the key to good governance. He therefore wants to "restore the power of boards of directors to govern corporations," and has some sensible, practical suggestions on how to do so.

The board's job, he says, is oversight of executives who are subject to external pressures that could lead even the most moral among them astray. Indeed, the most striking passage in George's book is not in his own words, but in those of Daniel Vasella, CEO of Novartis. "Once you get under the domination of making the quarter," he says, "you start to compromise in the gray areas of your business…. The culprit that drives this cycle isn't the fear of failure so much as the craving for success…. You are idealized by the outside world, and there is a natural tendency to believe that what is written is true." If such temptations assail such an honorable and capable chief executive as Daniel Vasella, how much greater is the threat to those with a lesser sense of honor?

To govern well, says George, the board needs a set of governance principles and a governance committee made up of independent directors who nominate new directors, assess the performance of the board and its members, and handle succession planning. There should also be, he believes, a senior independent director (usually referred to as a lead director in the U.S.) who has a good working relationship and shares mutual respect with the CEO. Above all, the independent directors should meet regularly without the presence of the CEO -- something George sees as "essential to good governance." These conditions, he thinks, are of more importance than whether boards should combine the roles of chairman and CEO (as is normal in the United States) or separate them (as in Europe).

 
 
 
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