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Do boards overlook more than they oversee?

The author has had a ringside view of the functioning of US corporate boards, by virtue of the fact that much of the practice of her executive search business since the early 1980s has consisted of recruiting, structuring, strengthening and benchmarking boards of directors.
Struck by the ‘value of good boards’ and the ‘wasted opportunity of those companies that could — but don’t — profit from their boards,’ Susan F Shultz set out to write a practical, hands-on book to document some examples of best and worst boards, a “how-to book to persuade more CEOs to recruit and use strategic boards.”

Again and again she says that her aim is to “underscore the power of good boards” and to “raise the awareness of the importance of [corporate] governance.” But if she was able to use her vantage position to develop analytical insights, the evidence presented in the book — whose underlying premise is that “great boards mean great companies”— is not very strong. Even making allowance for Shultz’s claim that hers is a practical, ‘how-to’ book, there are no great analytical insights by the author herself. Instead, the method used in the narrative is extensive quotes from nearly a hundred present and former CEOs, directors, analysts and representatives of institutional investors. If the insights they offer constitute one of the main strengths of the book, the author’s lopsided dependence on their analyses to the exclusion of her own insights is a glaring weakness. 

The author has certainly shown both energy (in having conducted so many interviews) and resourcefulness. While this style certainly enlivens the narrative somewhat, Shultz has clearly overdone the quotes. They are present in each chapter to the point of saturation. They follow each other in a breathless and unending stream that leaves the reader gasping. Most readers would find it hard to believe that after two decades spent in board-level executive search, an individual would still need to use quotes and insights from other experts as crutches. Or is it that people who are in the executive search business have to be careful about what they write, and find it more convenient to quote the views of other people? The book could also have done with better copy editing. 
How far does this book achieve its stated goal? Shultz starts by explaining why a great board is so valuable. It is the ultimate legal authority within a corporation, and its responsibilities “are mushrooming as boards are evolving in response to the explosive demands of the marketplace.” 
The author then contends that a company board can be considered ‘strategic’ only if recruitment to the board follows a procedure that she details. This involves creating a board charter or corporate governance guidelines; defining a company’s critical governance needs; defining the board structure; developing a profile for each vacant board position; specifying reasons why directors will find it advantageous to serve on your board; recruiting proactively to each profile; and ensuring that recruitment is a continuous process rather than an event. 
Shultz also devotes a chapter each to what she describes as ten common mistakes in creating and using strategic boards: failure to recruit strategically; appointing too many insiders; selecting too many paid consultants; bringing in too many family members; appointing too many cronies; getting the compensation wrong; fear of diversity in boards; starving board members of information or inundating them with it; passivity in boards; and failure of leadership. 
At the end of each chapter, readers are asked to grade their own board on a scale of 1 to 10 that she calls the “strategic board continuum”. A score of four or below indicates, according to the author, a passive board while a score of eight is a sign of a “value adding” board. 
Shultz did her research in 1999 and 2000, and the book itself was published almost a year ahead of the first of a series of corporate governance scams and bankruptcies that hit the US, starting with Enron in December 2001. A pity that she got her timing all wrong! Again, the Indian edition of this book is as late as 2003. However, she has detailed abuses that proved to be a foretaste of things to come. 

One chapter has a prophetic warning: “If abuses [relating to CEO pay] escalate, however, the potential for intervention by the judiciary and government is very real.” And again: “The even larger danger in this volatile issue is the potential for eroding public confidence in our corporate governance system.” 
The Board Book is too America-specific, and therefore of limited applicability in the vastly different environment that Indian companies function. Some of what it advocates will be simply too radical for Indian ears. However, what might be of interest to Indian readers is the section on independent directors, in light of the recommendation by the Naresh Chandra Committee on corporate governance and independent directors. 
What precisely is an ‘independent’ director? Shultz quotes the Council of Institutional Investors, a coalition of more than 100 US pension funds whose assets exceed $ 1 trillion, as defining an independent board member as someone “whose directorship constitutes his or her only connection to the company”. She cites a study in 1996 by US academics that proves the healthy impact of independent boards. Among Fortune 500 companies, Shultz writes, the trend is towards a decline in the share of inside directors. Shultz concedes that a culture of commitment and accountability cannot be achieved by legislative fiat, and warns against the danger of reducing governance to “a formula, a set of superficial lists.” She correctly concludes, “it always depends on the people. The quality of the directors is what matters.” 
She herself, however, uses checklists in most chapters bar none (there are checklists on virtually every aspect of corporate governance). 
Her explanation is that hers is a ‘how-to’ book, and that her aim is to build awareness of the need to unleash the power of strategic boards. 
If the job of a director is like flying an airplane — “boredom punctuated by sheer terror” this ‘how to book’ may help you understand how other pilots are coping with it!” 

Making Your Corporate Board a Strategic Force in Your Company’s Success 
Susan F. Schultz
EastWest Books (Madras) Pvt Ltd, 2003
Pages: 320/ Price: Rs 325 

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