With everybody debating big picture issues like corporate purpose & stakeholder v. shareholder interests, an “Ethical Boardroom” article by Harvard’s Stephen Davis is a reminder that when it comes to good governance, there are more fundamental issues that need to be addressed – like making sure directors have the information they need to do their jobs.
The article points out that directors are “on the short end of a massive information imbalance.” They’re entirely dependent on management for their information flow, and even when they retain outside advisors, those advisors may be primarily loyal to management. This disparity gives management a routine advantage in influencing what gets on the board’s agenda and how matters are addressed. This excerpt says that the solution to this information imbalance may be an independent staff serving only the board:
Cementing the information imbalance is the fact that the typical company board has no everyday dedicated staff. Instead, directors rely on an executive – usually a company secretary or general counsel – who is accountable to and works for management. These officers are often the silent heroes of corporate life, as they attend to multiple, sometimes conflicting, constituencies and do so with high ethics and professionalism.
But make no mistake: they are not employed by and for the board. Indeed, outside observers would find it hard to fathom how companies go to such lengths to recruit great independent directors – only to make them largely dependent for help on the team they are supposed to oversee.
One of the interesting things that the article points out is that some companies have taken steps in this direction – although most of them appear to have done so in response to massive scandals. In that regard, in the wake of the Carlos Ghosn scandal, Nissan announced that it would establish an “office of the board” to improve the board’s ability to access information independently.
-John Jenkins, TheCorporateCounsel.net September 6, 2019
