Boards of directors have always, in all cultures, represented the shareholders in publicly traded companies—validating financial results, protecting their assets, and counseling the CEO on strategy and on finding, then nurturing, the next generation of leaders
If boards were doing their jobs, there would be no activist opportunities
Ddirectors were spending an average of around 240 hours per year across the S&P 500. That includes time spent at home studying, committee time, and board time. Today that number should be at least 50 percent greater—and if a potential director can’t put in 300 to 350 hours a year, she shouldn’t take the job
The only place outside directors can really add value—aside from policing and oversight functions—is in offering a different perspective on the competitive environment and the changes in that environment. That’s where their general business judgment comes in, helping management think through strategy and specific objectives for three to five years down the line. That’s where directors have their best chance of making a difference.
The United Kingdom has decided that in publicly traded corporations, 9 years is enough; they can extend that to 12, but from 9 years on, a director can’t sit on the audit committee, the nominating committee, or the compensation committee, so her functional utility drops by about 60 percent, and typically she just leaves.
Interestingly, family-controlled companies in Canada that are publicly owned have significantly outperformed the rest of the market. It’s kind of intuitive that they would have a longer investment horizon—you don’t invest in your kids’ education for the next quarter. By their nature, CEOs of family-controlled businesses think longer term than the hired gun you bring in from outside to be the CEO and pay with a lot of options. The average tenure of an external CEO in the United States is around five years, and of course he or she is thinking shorter term. You get what you pay for.
the English system, where there are more executives on the board than just the CEO. And the first executive I would add to any North American board would be the CFO. That would give the CFO certain specific responsibilities with respect to his or her relationships with the audit committee, as well as with the board chair and other directors. It would also significantly enhance the quality of decision making around the board table over the medium term and empower the CFO to have an independent point of view—not necessarily in conflict with the CEO, but simply to have an honestly transmitted perspective on the company.