The New Board of Directors

The United States economy is facing a crisis in corporate governance. Since May, several companies have named "lead directors" in instances where the board chairperson is also the CEO.

The lead director is appointed by the outside directors. His/her function is to monitor and report on all issues pertaining to board governance.

According to the New York Times, more companies will name lead directors if the NYSE rules that independent (outside) directors must periodically meet without the presence of the CEO (inside director).

The appointment of lead directors indicates that boards will become increasingly proactive in overseeing corporate affairs. We forecast:

  • Reevaluation of the role of the board
  • Careful assessment of board membership
  • Avoidance of the "musical board chair game" (direct and indirect interlocking directorships)
  • Major redesigns of board and executive compensation programs
  • Tighter controls on the granting and execution of stock options
  • Reevaluation of the 'wisdom' of letting the interests of short-term investors drive business decisions
  • Reevaluation of the assumption that the use of stock options aligns the interests of executives with those of outside market investors
  • A strategic shift toward decision-making and rewards that focus on long-term (vs. quarterly) objectives

If you've spent any time watching Senate and House hearings on (what we have dubbed) "Enronomics" and "Andersonized auditing," as they rake auditors, CEOs and board members over the coals, then you fully understand that boards members aren't likely to take a laid-back attitude about their fiduciary and ethical responsibilities. "Let our auditors, attorneys and insurance companies worry about that" is likely to be just a mindset of the past. Hopefully, the day of the diligent, mindful, ethical, tough, independent board member has arrived. The free enterprise system, quite literally, is banking on these people!