Building a High Performance Board and the Duty of Care

While venture-backed company boards have unique challenges, the path to  to building a high performance board is a common one, whether your company is public or private, large or small.

Professor Michael Useem of Wharton published an article in the current issue of the Harvard Business Review, "How Well-Run Boards Make Decisions", that draws from the collective experiences of 31 public company boards.  Ironically, one of the boards that he highlights is the post-Kozlowski Tyco board.  Useem notes that, after Edward Breen took over this "infamous mess" in June 2002, 290 of the company’s top 300 executives were replaced.  By March of 2003, the entire Tyco board had resigned and been replaced.

I published two in-depth articles on Tyco– the first a prelude to the "mess"– "The Problem of Emotion in the Board Room" immediately after Tyco’s acquisition of AMP in 1999; and the second "Tyco’s Betrayal of Corporate Governance" in 2002, when Dennis Kozlowski left the CEO slot and began his rapid descent to his current prison home in upstate New York. Both articles were published in Directors & Boards magazine.

Professor Useem’s constructive observation on Tyco’s current and, in his view, highly effective board, is made in the context of assessing the company’s extensive divestiture program (undoing much of what Kozlowski did during his $63 billion acquisition binge):

"Ongoing informal dialogue between the chief executive and the nonexecutive chair or lead director can usefully guide which decisions should be taken to the full board and when.  And directors can helpfully review management proposals before making yes-or-no decisions.  By asking questions and challenging assumptions, they force executives to explain and justify their tentative decisions prior to execution, and in doing so they come to alter some of the provisional decisions before they are finalized."

This example encompasses a basic director duty encompassed under the fiduciary Duty of Care, which requires directors to make informed decisions, obtain information that they believe is reasonably necessary to make a decision, and make due inquiry.

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