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Back to the Drawing Board: Designing Corporate Boards for a Complex World

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Back to the Drawing Board will be of most value to those who have never sat on a Fortune 500 board or been present during the meetings of one. Much of the current concern about boards reflects a lack of understanding of how they operate. By reading this book, you will get a good sense of what the average and better boards are doing . . . and what their continuing problems are. A unique resource in the book is a survey of 150 CEOs around the world concerning their perceptions of how to improve boards. Although the total is too small to be statistically meaningful, the directional evidence will help many to see what the most glaring issues are.

A second audience for this book will be independent chairs of boards and chairpeople/CEOs who want to improve the effectiveness of the boards.

A third audience for the book will be neophyte directors getting ready for their first meeting.

A fourth audience for the book will be those who want to improve governance practices through legislation and regulation.

As a management consultant who is often asked to speak with public boards about shareholder perceptions of company management, strategy and performance, I found the material accurately reflected my experiences. Boards are overwhelmed, overscheduled, undereducated and often uncoordinated in addressing key concerns of the enterprise and its stakeholders. I had no disagreement with any of the descriptive materials that begin the book. They are valuable addition to the literature. If the book stopped there, it would have been an excellent book.

The prescriptions though that the book makes fall short of what is needed when you get past the idea of building a board and processes to fit the tasks appropriate for that board.

Here are some of the enormous issues relating to effective monitoring of a company's performance (the minimum standard for the board) that the book fails to adequate address:

Is the CFO capable of knowing whether the company is under control and operating honestly and ethically? Most CFOs are chosen for their legerdemain with accounting to make the EPS work out.

Is the CFO telling the board what is really going on in the company? Most CFOs would be fired by the CEO if they did.

Notice that until recently no director in the company needed to know anything about finance or accounting. With Sarbannes-Oxley, one person does. Big deal! Most companies could use several ex-CFOs on their board to deal with these issues.

What do the shareholders (and potential shareholders) think of the company's management, strategy, alternatives and performance? The authors suggest talking to security analysts. That's a waste of time. They just want to sell the company something. As a back-up the author suggest looking at the expensive economic analysis programs (such as sold by BCG, where Mr. Carter works). For a lot less money, you can just talk to shareholders and get regular reports on this. Many firms will do this for you at a very modest cost. In most organizations, the CEO knows less than anyone else about what is going on. Well, the board knows even less than the CEO. You have to get direct information from those you are supposed to serve, both institutional portfolio managers and individual investors.

How is the company actually performing versus competitors with customers, potential customers, desirable distributors, vendors, and in attracting top talent? There's no mention of that subject in the book (expect indirectly in suggesting that Balanced Scorecard companies share those measures with their board).

I could go on, but you can see that the prescriptions here are ones that reflect an incomplete understanding of how to inform a board and make it effective. You need someone who knows how companies work who can set up direct access to the cutting edge information that CEOs often do not go out and acquire themselves. They usually focus on meeting the budget. That's how they get their bonuses.

If a board follows what the authors suggestion, they will definitely make a lot of helpful progress. That's good. But will they be adequately fulfilling their responsibilities to monitor the company on behalf of the shareholders? Usually not. Only where they have a great CEO in place who wants to share information with them will they know what they need to know.

It's very disappointing to me that top experts like Mr. Carter and Mr. Lorsch cannot come up with better prescriptions than these after the round of awful collapses in corporate governance we have just experienced. Investors deserve better.

Carter and Lorsch have noted that "around the world, scandals and company failures have provoked a storm of criticism and well-meaning reforms. In response, a variety of 'best practices' have emerged, but can such ad hoc adjustments fundamentally change the capacity of boards to provide good governance?"

I attended a Forum for Corporate Director's meeting featuring Professor Lorsch from Harvard Business School - it was an outstanding morning filled with additional insights, confirmations, and new ideas concerning corporate governance. This excellent book extended that rewarding experience and will likely be a constant reference in my corporate governance work. Carter and Lorsch have extensive research (included in appendices) behind their suggestions for change in corporate boards. In a refreshingly clear writing style, they expose the gap between theoretical board design and the practical results of board design. Further, they acknowledge that these gaps cannot be closed completely, nor can they be legislated out of existence. Instead, as always, we must rely on the women and men who sit on boards to have a deep understanding of their mission, the boards mission, a commitment to integrity, and knowledge of the workings of their executive suite.

Back to the Drawing Board is laid out in a logical manner, and approaches this complex issue of properly designing boards in an equally logical manner. The face, head on, the issue of increased time and energy that will be required of new board members. The clearly address the issue of independent directors and squarely address the advantages and disadvantages of independent directors versus executive directors. They also address the concerns of the executive director who, in many respects is required to sit in judgment of her boss. Perhaps most refreshing is the concern that we not throw the baby out with the bath water, that we not think that Sarbanes-Oxley is the complete answer, and that we not expect a "one size fits all" board structure. Rather, we must do the hard work of defining a particular board's role, redesign accordingly, and rethink the processes, practices and policies of our decision makers.

This book is a must read for anyone involved in corporate governance whether they are on a board, aspire to be on a board, consult to those responsible for corporate governance or are a member of the "c" suite. Thank you Mr. Carter (of the Boston Consulting Group) and Professor Lorsch (Harvard Business School) for this excellent work.

Back To The Drawing Board: Designing Corporate Boards For A Complex World addresses what expert professional consultant Colin B. Carter and Harvard Business School professor Jay W. Lorsch see as the greatest challenge facing corporate boards today -- that many national and international corporate boards are composed of member with limited knowledge of the companies they must be responsible for, and too little time to make even the most crucial decisions. Recommending a major corporate board of directors redesign based on experience and a "what works" approach, Back To The Drawing Board offers methodologies that can be customized for each unique corporate board of directors to the benefit and bottom-line profitability of the corporation and all who serve it. Back To The Drawing Board is a strongly recommended revolutionary analysis with emphasis on practical needs and reasonable expectations.

Very feasible practices and real life suggestions for an increasingly complex and risky job.
Since 1989's "Pawns or Potentates", this is the best book about director's activities.
I recommend this book: very focused and structured contribution for actual corporate board members around the world.

A gradual consensus about what constitutes best practice in corporate governance has emerged over the past two decades. At its core is the basic proposition that boards must be empowered to govern well. The best way to achieve empowerment, the thinking goes, is to ensure that boards are controlled by directors who are independent of company management, and that directors' incentives are closely aligned to those of the shareholders. More broadly, the global corporate governance agenda is concerned with ensuring shareholder protection and high levels of financial disclosure. Boards that are empowered, independent, and aligned are, in theory, the means to achieve these goals.

Even boards that have adopted the entire current array of best practices, however, find the actual work of carrying out their responsibilities problematic. One reason why these best practices do not always translate into improved performance is that most of the recommendations for change coming from external groups focus only on those characteristics of boards that are visible to outsiders. They pay too little attention to what actually happens inside the boardroom, and leave the specifics of board design beyond their scope. Another reason is that each board's responsibilities are becoming more challenging and time-consuming. There is a significant gap between what boards are expected to accomplish and the time and knowledge available to directors to do their work. Put simple, the job is difficult if not impossible to carry out in the time most directors can devote to it. New requirements placed on audit committees by the Sarbanes-Oxley Act in the United States have raised the bar even higher.

But there is more. According to Colin Carter and Jay Lorsch, there are unresolved contradictions in board design that have never been acknowledged either internally or by reforms sought from outside the boardroom. For instance, the truly independent board, which is in many ways desirable, will struggle to achieve an adequate understanding of its company's business. Directors who have no other relationship with the company will have a lot to learn; what's more, they will be reliant on management in doing so. There are fundamental tensions and unresolved contradictions embedded in the best practices for board effectiveness: between independence and understanding, between the reliance on generalists and the need for specialization, between stock ownership and long-term goals, between shareholder value and stakeholders' well-being, etc. How boards should deal with such contradictions and other design problems is not yet on either their own radars or the broader governance agenda.

The solution, according to the authors, is to bring boards back to the drawing board and to redesign them from the bottom up, one board at a time. Boards must go back to the basic questions, starting with their roles and obligations. They must first address the tensions between their three functions of advising, deciding, and monitoring the corporation, and figure out how engaged in the company the board needs and wants to be. They must then design an organization to make their work more effective, raising fundamental questions of board structure (its size, leadership, and the committees it requires to accomplish its role), board composition (the mix of experience, skills, and other attributes of its members) and board processes (how it gathers information, builds knowledge, and makes decisions). As a last step, boards must address the issue of boardroom culture, define the set of behaviors they wish to encourage or prohibit, and develop a more open and productive working relationship, putting emphasis on candor, trust, robust discussion and debate, and legitimate dissent.

Although the authors' focus is practical and down to earth, they also raise fundamental questions. Why has the conventional wisdom on corporate governance acquired such authority, given that the best practices on which it rests are fraught with tensions and contradictions? How can society as a whole delegate so much power to an institution which is obviously not working properly? As the authors put it in their last chapter, "Boards are a conundrum. Take a group of part-time directors and present them with an extremely difficult job, but give them very limited time together. And then charge this institution with ultimate responsibility for ensuring that the nation's most important economic assets are well managed. How can such an unlikely arrangement work?"

And yet, this unlikely arrangement is becoming the norm for a wider range of social functions. Boards are not limited to private-sector, for-profit, publicly-listed companies. The board model is now extending its reach beyond corporate governance and is being adopted by the public sector as well as non-profit organizations and international institutions. Boards now play a prominent role in monitoring public service agencies, charitable foundations and NPOs, and institutions that provide public goods on a global scale. "Government by committee" gives board-like structures a commanding role in steering public policies. And are international gathering such as G8 and G20 summits not akin to board meetings? Boards provide the missing link that connects corporate governance to global governance. Although not addressed by this book, the issue of board design therefore raises challenges that go much beyond the corporate world.

An excellent study of world-wide corporate "Best Practices" and real life. This book starts out with a review of best practices in use today, and a critique of them. It is fascinating to see the variations in thought and practice throughout the world. We are all trying to solve the same problem of transparency, corporate direction, and management oversight, but there are many different solutions.

Carter and Lorsch have studied corporations worldwide, and have been on many boards. Their background and research make for good reading, while their recommendations are quite insightful.