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Published: February 14, 2003

 
 

Corporate Governance: Hard Facts about Soft Behaviors

Reprint No. 03106

The Seven Principles of Soft Governance

1. Select the right people. Recruit directors with the courage to challenge the CEO. Look for self-confident CEO-level candidates who can engage in real debate without dragging in their egos.

2. Train, train, train. Orient new directors by arranging face-to-face meetings with all the top executives. Provide briefing books, arrange site visits, and factor in time to build relationships. Remember ongoing education for all directors.

3. Inform and communicate. Deliver relevant information early and in multiple formats. Leave time on the agenda for open discussion. Don’t skimp on site visits and retreats; they can yield give-and-take.

4. Balance the CEO’s power. Make sure only independent directors recruit new directors, control the committees’ chairmanships, hold meetings without the CEO, and control succession. Remember that committees can appropriate power.

5. Establish new behaviors. Hire CEOs who value teamwork and want full feedback. Establish a tone of collegiality and “constructive skepticism.” CEOs and directors must nurture a culture of listening.

6. Devote the time. Board membership requires time to prepare, time to discuss, time to develop relationships. All directors must open up their schedules to absorb information and make decisions.

7. Evaluate and improve. Establish a tradition of continual improvement. Directors should examine and refine practices as do other professional teams. Evaluate the CEO, evaluate the board as a whole, and evaluate individuals.

Also contributing to this article were Bruce A. Pasternack (pasternack_bruce@bah.com), a senior vice president of Booz Allen Hamilton in San Francisco; Gary Ahlquist (ahlquist_gary@bah.com), a senior vice president of Booz Allen in Chicago; and Wolter Mannerfelt (mannerfelt_wolter@bah.com), a vice president of Booz Allen in London.


Authors
Paul F. Kocourek, kocourek_paul@bah.com is a senior vice president with Booz Allen Hamilton in New York. He focuses on strategic transformation of companies facing changes in the competitive landscape or the regulatory environment.
Christian Burger, burger_christian@bah.com
Christian Burger is a vice president with Booz Allen Hamilton in Munich. His principal areas of activity include telecommunications and technology, and the related consumer goods space. He focuses on strategic change and management control issues.

Bill Birchard, bbirchard@aol.com
Bill Birchard is a writer in Amherst, N.H., whose work has appeared in Fast Company, CFO, and other publications. He is coauthor, with David A. Nichol, M.D., of The One-Minute Meditator: Relieving Stress and Finding Meaning in Everyday Life (Perseus Publishing, 2001) and, with Marc J. Epstein, of Counting What Counts: Turning Corporate Accountability to Competitive Advantage (Perseus Publishing, 1999).
 
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Resources

  1. Jay A. Conger and Edward E. Lawler III, “From Meek to Mighty: Reforming the Boardroom,” s+b, Fourth Quarter 2001; Click here.
  2. Sanjai Bhagat and Bernard Black, “The Non-Correlation Between Board Independence and Long-Term Firm Performance,” Journal of Corporation Law, University of Iowa College of Law, Winter 2002
  3. Gurmeet Kaur, “The Stock Market Link,” Investors Digest (Malaysia), May 16, 2001
  4. Steve Lin, Peter Pope, and Steven Young, “Are NEDs Good for Your Wealth?” Accountancy, September 5, 2000
  5. Ira M. Millstein and Paul W. MacAvoy, “The Active Board of Directors and Improved Performance of the Large Publicly Traded Corporation,” Columbia Law Review, 1998; Click here.
  6. Dawna L. Rhoades, Paual L. Rechner, and Chamu Sundaramurthy, “Board Composition and Financial Performance: A Meta-Analysis of the Influence of Outside Directors,” Journal of Managerial Issues, Spring 2000; Click here.