Fix Corporate Behavior… Fix the Board

I have had some interesting discussions in the past few weeks with business leaders from many different industries and backgrounds in the United States. One of the areas that consistently comes up is poor corporate governance. As mentioned in my last blog most of the economic problems we have right now are due to the behavior of our leaders.

Being direct, alot of leadership behavior is not properly monitored. So, a key step towards fixing the problems we have today would be to change the corporate governance structures in publicly traded companies. In particular, I believe that the roles of Chairman and Chief Executive/President must be separated. You cannot have the Chief Executive of a company also its Chairman. This places far too much power in the hands of one person. Decisions for the company will largely be made by that person ? and while that leader may have many great strengths, he or she may also have alot of blind-spots and biases which will go unchecked. Further, that leader may be tempted to make decisions out of self-interest – whether it be remuneration, selling the company or make any decision which benefits him or her.

You only need to look at the evidence out there to see how many great companies have been destroyed in the last 10 years because there has been a leader who is too dominant and acted out of self interest which has gone unchecked through proper board governance. I do not believe investors should invest in companies who do not have the right corporate governance structure. Having the Chairman and CEO being the same person is very risky and at some point could mean the company is seriously endangered. So, as businesses restructure and investors start looking for good opportunities sound corporate governance should be one of the main factors considered. Taking this point further, the remuneration levels of the CEO’s should be reviewed. Frankly, in many companies they are way out of line compared to the value brought to the table by that person.

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