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    To Whom Should Boards be Accountable?

     
    9/1/2003
    A well-respected and influential newspaper was forced into a public auction by a hostile buy-out offer. Let's say you were on the board. How would you have reacted?
    by Jim Heskett

    In his newly published book, Authentic Leadership, Bill George reopens this question, based in part on his former role as CEO of a highly respected S&P 500 U.S. corporation. He makes clear his position by asserting that boards' almost single-minded devotion to shareholder returns may be an important cause of the recent shortfalls in corporate governance and leadership integrity, and a bias toward short-term thinking in general among corporate directors of U.S. firms.

    George's view brings to mind the story of a well regarded, widely read, influential regional newspaper that was forced into a public auction by a hostile buy-out offer. While the board was willing to accept a small discount in price in order to sell to an organization with a comparable journalistic reputation, the fear of a shareholder lawsuit limited the size of the discount, even in a company with a semi-public, family-controlled ownership. What, if anything, was the board's responsibility to the public? And what, if anything, would the courts have to say about it in response to potential shareholder lawsuits? As it turns out, the two final bids involved two news organizations, one with a stellar journalistic reputation willing to pay 20 percent less than its competitor who had a reputation for meeting its numbers by cutting the newsgathering budget.

    What is a board's responsibility to employees and customers, among others? And just how can it be exercised in the context of a rich history of shareholder (versus employee or customer) litigation against boards? Do you agree with Bill George? As a director of the newspaper described above, which of the two offers would you vote for?

    Curiously, the proposed Sarbannes-Oxley guidelines say little about this. What, if anything, should Congress or the legal establishment do to encourage more balanced board responsibility? Do governance policies and processes for non-U.S. companies provide any guidance in this matter? What do you think?

    Bill George, Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value (Jossey-Bass/Wiley, 2003).

    [ Buy this book ]

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