Beleaguered boards still don't get it

Journal of Business Strategy

ISSN: 0275-6668

Article publication date: 1 June 2004



Mitchell, D. (2004), "Beleaguered boards still don't get it", Journal of Business Strategy, Vol. 25 No. 3.



Emerald Group Publishing Limited

Copyright © 2004, Emerald Group Publishing Limited

Beleaguered boards still don't get it

Donald MitchellChairman and Chief Executive Officer of Mitchell and Company (, and co-author of The Ultimate Competitive Advantage, The Irresistible Growth Enterprise and The 2,000 Percent Solution.

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

Colin B. Carter and Jay W. LorschPublished by Harvard Business School Press

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 potential audience for this book includes independent chairs of boards and chairpeople/CEOs who want to improve the effectiveness of the boards. A third audience is neophyte directors getting ready for their first meeting, and a fourth audience includes 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 reflects 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 additions to the literature. If the book stopped there, it would have been an excellent book.

The prescriptions that the book makes, however, 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. 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 include whether the CFO is capable of knowing if the company is under control and operating honestly and ethically. Most CFOs are chosen for their legerdemain with accounting to make the earnings per share work out. Another issue not addressed is whether the CFO is telling the board what is really going on in the company. Most CFOs would be fired by the CEO if they did. Note that until recently no director 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 boards to deal with these issues.

The book does not explore what 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 authors suggest looking at the expensive economic analysis programs (such as those sold by Boston Consulting Group, 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 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.

Also excluded from discussion is how the company actually performs versus competitors with customers, potential customers, desirable distributors, vendors, and in attracting top talent. There is no mention of that subject in the book (except 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 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 boards follow what the authors suggest, they will definitely make a lot of 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 is 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.

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