August 24th, 2007
A Summer Revolt
Two weeks ago, I took Wall Street Journal Editor Alan Murray’s new book, Revolt in the Boardroom, with me to North Carolina. While it’s not a page-turning, John Grisham thriller, it did offer a good history lesson and sound insights on the changing landscape of corporate governance in America. So, as I pondered what my first JNJBTW entry would be, musings on this topic seemed like a good place to start.
From Revolt in the Boardroom:
Throughout the 20th century, American corporations were governed by autocratic, almost unaccountable chief executives. Their word was law and the only check on their power was a board of directors composed of their friends and allies. Then, in a stunning reversal … formerly unchallenged CEOs found themselves under fire, often from their own hand-picked boards.
Amidst the storytelling of recent CEO ousters, Murray delves deeply into the way CEO relationships with stakeholders have changed over time and how their accountability to dozens of stakeholders presents various new challenges. From pension funds and hedge funds to shareowner advisory services and activists, there is no shortage of influence or agendas competing in today’s corporate boardroom. And to Murray’s point, CEOs and the boards they report to can no longer ignore or marginalize these voices.
He writes of Jeffrey Immelt, GE’s Chairman and CEO:
Immelt recognizes that to do his job well, he has to keep the support of a broad group of new constituencies. That requires the skills and efforts and actions of a good politician.
With all the forces that CEOs must answer to today, I was left wondering if today’s CEO faces an insurmountable challenge. Does trying to satisfy all these constituencies lead to some type of inevitable corporate paralysis? I was challenged just to keep a house full of 15 guests in North Carolina from staging a coup d’etat.
In the healthcare industry, for example, you can see an untenable conflict forming between the shareowner demands for continued strong financial returns; the government’s focus on tighter price controls and increased scrutiny of product development and safety; and patients’ growing need for new medicines and earlier access to breakthrough treatments. Not to mention, the agendas of other shareowner activists and NGOs.
Granted, CEOs are chosen for their skills and abilities to lead companies through these types of turbulent environments, and history was certainly not devoid of its own unique challenges in each preceding era. But, I wonder in this new age whether a CEO’s performance may be hampered by serving too many masters. What kind of impact might this new environment have on a company’s ability to simultaneously deliver new innovations, serve its customers, generate fair returns for its shareholders, and act as a responsible steward for society?
Murray makes no sweeping conclusion to this thesis and I tend to agree:
There is no template, no right answer to the problem. The only thing that is clear is that in the new environment – with the growing independence of boards, the increased activism of pension funds, the heightened scrutiny of regulators, the new clout of NGOs, the muscular presence of hedge funds and private equity, and most important, the diminished support of the public – the old rules no longer apply.
Maybe next August, I should just grab the Grisham novel.
(P.S. In the spirit of full disclosure that seems to come with blogging territory, I should say that I did not purchase this book, but received a free copy from colleagues at a PR agency.)