from the or-fire-those-that-do-not-perform-well dept.
“Boards aren’t working,” declare Dominic Barton, global managing director of McKinsey & Company and Mark Wiseman, president of CEO of Canada Pension Plan Investment in an article in the January-February 2015 issue of Harvard Business Review. That’s true, but should we, as they suggest, reward poor performance with a big bonus?
The delinquencies of board directors, the authors rightly point out, are “shocking.” The authors cite research showing that:
Only 34 percent of directors “fully comprehend their companies’ strategies.”
Only 22 percent are “completely aware of how their firms created value.”
Only 16 percent have “a strong understanding of the dynamics of their firms’ industries.”
Worse, fully 74 percent of directors themselves consider “the source of pressure most responsible for their organizations’ over-emphasis on short-term financial results and under-emphasis on long-term value creation” is the board itself.And for these catastrophic results, each director is currently paid on average the meager sum of $249,000 for a backbreaking workload of 20-30 days of work per year.
The solution proposed by Barton and Wiseman? Ask these delinquent directors to increase their workload to a grueling 35 days of honest work per year and also—get this—give them “a substantial raise.”
“Good capitalists believe in incentives. If we are going to ask directors to engage more deeply and more publicly, to spend a lot more time exploring and communicating long-term strategy, and to take on any attendant reputational risk, then we should give them a substantial raise.”
(Score: 2) by kaszz on Wednesday December 31 2014, @07:50PM
When the members of the board act badly they should be made to feel the pain or else there's no incentive to do the right thing. The alternative is a moral hazard.
(Score: 0) by Anonymous Coward on Wednesday December 31 2014, @10:17PM
...we must bail them out with billions in taxpayer dollars!
amirite?
(Score: 3, Insightful) by frojack on Thursday January 01 2015, @12:22AM
You misunderstand the purpose of the board.
The board, in most corporations are major stock holders or their designates. You can be voted onto the board or you can negotiate your way onto the board (usually in mergers, its common for one of the demands to be one or more seats on the board, which usually has to be approved only by other board members).
Large stock holders simply nominate some lackey to sit on the board, and vote them on with their shares. That guy might sit on a dozen boards (interlocking directorships) to represent the interests of the major stock holders.
CEOs WANT the board to do nothing, except rubber stamp their decisions. After the Board appoints/hires a CEO, they are expected to butt out, and let them run things. That is his job. Its not the board's job to run things, or even know about day to day operations.
Punishing the board is kind of like kicking your boss in the shins. You'll feel smug till your ass lands out on the street.
So why is this CEO bitching? Probably because he didn't get his way.
No, you are mistaken. I've always had this sig.
(Score: 2) by kaszz on Thursday January 01 2015, @01:24AM
This means the board is indirectly responsible for the actions of the CEO. And the final responsibility of the action of a company should rest with the board.
(Score: 2) by Immerman on Thursday January 01 2015, @02:21AM
Or with the CEO. Take your pick. But it should definitely rest *somewhere*, which seems an antiethical claim to the current situation. As humorously expressed:
Corporation: (noun) a legal construct for generating personal profit without personal risk.
(Score: 3, Insightful) by Blackmoore on Wednesday December 31 2014, @07:52PM
My proposal is that we execute any executive who works less than 200 days a year; and we cut top level management pay by 25%
See - instant value.
(Score: 2) by edIII on Wednesday December 31 2014, @08:31PM
Yes. We have to ask ourselves, was Darth Vader really wrong with his management skills? If anything took down the Empire, it was the engineers who kept asking for more time to sleep. I think Vader should have been rewarded more, yet, asked to visit engineering more often and demonstrate his more rarely seen force trick the "dangling testicles".
Technically, lunchtime is at any moment. It's just a wave function.
(Score: 2) by Blackmoore on Friday January 02 2015, @03:56PM
Look Buddy, the engineers and the construction teams are a Union gig. Do you have any idea of the scale of that project? One of our suppliers said they had stripped two systems of asteroids, and at least a couple of moons just for the material to build the test unit and the first Death star. Our systems worked up to spec; and we lost hundreds or people when the rebels took it out. On the other had the project has been employing over a hundred thousand entities in the Imperial shipyards; keeping the economy of four systems going.
Vader isn't in our chain of command, and he has no say in the build process for any of the capital ships. On the other hand he can use whatever force he wants over the Military personnel; that's not of our business.
(Score: 1) by curunir_wolf on Wednesday December 31 2014, @08:51PM
My proposal is that we execute any executive who works less than 200 days a year; and we cut top level management pay by 25% See - instant value.
Boards of Directors aren't really considered "management." They only provide strategic direction for the CEO and executives that actually run the company. Instead of management, they provide "governance." The only real influence they have over the actual operations of the company is providing the major sources of capital (that is, issuing bond and stocks), and the appointment of the chief executive (the guy actually paid to run the company.)
The board will do things like issue an organizational "mission statement" (typically in collaboration with the chief executive), and provide some strategy on the company's "public image".
I am a crackpot
(Score: 3, Insightful) by hemocyanin on Wednesday December 31 2014, @10:28PM
And that's worth $250k/year for working one day in every 12? I feel like such an idiot -- what's it take to get a gig that pays so much for so little?
(Score: 2) by dry on Wednesday December 31 2014, @10:38PM
Choose the right parents.
(Score: 1) by Bill, Shooter Of Bul on Wednesday December 31 2014, @10:40PM
5- 10 years experience in working on a board of directors for a major company.
(Score: 2) by Tork on Wednesday December 31 2014, @11:25PM
Slashdolt Logic: "25 year old jokes about sharks and lasers are +5, Funny." 💩
(Score: 1) by Mr Big in the Pants on Thursday January 01 2015, @03:56AM
You have it all backwards. They are paying them to STAY AWAY.
Everybody knows that 99% of boards exist purely to stoke the egos of those on it and do more harm than good to companies.
Even warren buffet sort of agrees with me.
(Score: 0) by Anonymous Coward on Friday January 02 2015, @05:25AM
HP and Nokia are both examples of boardroom insanity...
(Score: 0) by Anonymous Coward on Thursday January 01 2015, @04:07AM
Membership on a corporate board is a part-time gig. Most board members have a day job or are retired. Most people who get themselves into these things have generally passed their Peter Principle point and are unable to balance their different commitments. By itself it seems like a sweet gig, but this sort of thing is why you sometimes see rich people whining about how challenging their lives are.
Basically the article is right, the current board framework is stupid, but increasing the time commitment won't help given that the people involved have already oversaturated their day planners with dumb bullshit and they'll hust nod and say they'll put more time in to meeting prep, but nothing will actually be done.
(Score: 3, Interesting) by VLM on Wednesday December 31 2014, @07:58PM
One problem with leading from the top is they might have nothing useful to say. Being able to claw and scratch your way to the top doesn't necessarily imply having any skill other than clawing and scratching to the top. What could the worlds best backstabber or best teflon spinner realistically have that they can bring value to ... anything?
They obviously aren't worth their salaries, but asking them to meddle is likely to screw up more than they fix.
(Score: 3, Insightful) by kaszz on Wednesday December 31 2014, @08:51PM
Perhaps college should start teaching clawing and scratching to students. It seems to be the skill megacorps value very much. ;-)
MBA:s are exempted. They have this function built in at manufacturing. :P
(Score: 0) by Anonymous Coward on Wednesday December 31 2014, @09:11PM
> doesn't necessarily imply having any skill other than clawing and scratching
That explains all the cats on corporate boards.
(Score: 0) by Anonymous Coward on Wednesday December 31 2014, @10:19PM
the dilbert principle comes to mind
http://michaelscutt.co.uk/wp-content/uploads/2013/10/20881.strip_.print_1.gif [michaelscutt.co.uk]
(Score: 2) by ticho on Thursday January 01 2015, @03:29PM
What the fuck? If you want to link to a Dilbert strip, at least link to the original site, where the strip is in an actually readable size: http://dilbert.com/strips/comic/1995-02-05/ [dilbert.com]
(Score: 0) by Anonymous Coward on Wednesday December 31 2014, @08:00PM
I'm sure one or two guys in India can easily replace the entire board of all fortune 500 corporations and still increase productivity without being overworked.
(Score: 1, Insightful) by Anonymous Coward on Wednesday December 31 2014, @08:16PM
I blame big mutual fund groups that have the leverage to make big changes, but refuse to do so. That's because their performance metric is the stock market as a whole, or whichever subset each fund is drawing from, e.g. the S&P 500 for large stock funds.
It doesn't matter to them that CEOs who should be paid $500K are instead routinely paid thirty times that. And it does make a big difference, aside from the unnecessary expense of $15-20 million/yr. These CEOs are wildly incented to wring every last hundredth percentage point in quarterly earnings, which in turn has an outsized effect on the company stock price. And how do you do that? It's sometimes hard to increase sales in maturing industries (or maturing sub-industries of fast growing industries like IT) but it's easy to think of ways to cut costs. Guess how.
(Score: 2) by dcollins on Wednesday December 31 2014, @08:46PM
How much do they actual control of the overall stock market? E.g., Vanguard Total Stock Market Index Fund has a total value of about $380 B, while the total U.S. stock market cap seems to be in the vicinity of $22 T. So that biggest Vanguard fund controls about 1.7% of the overall stock market? (I guess you could add in other funds, but Vanguard's total control is $3 T, and much of it is in bonds, foreign stocks, etc.)
I wouldn't mind if Vanguard, et. al. were more proactive, but it's hard to see that this falls entirely at their feet. Vanguard is the only investor-owned investment company that I know of, so it stands out almost uniquely in this economy for at least not being incented to fleece the little guy trying to build a savings.
(Score: 0) by Anonymous Coward on Wednesday December 31 2014, @11:21PM
"Co-determined boards" [googleusercontent.com] (orig) [aworldthatjustmightwork.com]
Have the workers involved in the selection process.
It can't possibly be worse than what currently exists in North America.
-- gewg_
(Score: 2) by TheRaven on Thursday January 01 2015, @10:44PM
sudo mod me up
(Score: 0) by Anonymous Coward on Friday January 02 2015, @03:23AM
My bookmark is to Google's Cache of Terrence McNally's site (the actor, not the playwright).
That isn't so much because I admire that guy (though I do) as it is that it's almost impossible to get a Cache of one of AlterNet's pages when the article is long.
I've mentioned before the crappyness [soylentnews.org] of Alternet's tech personnel. [soylentnews.org]
They are completely clueless about how to get more page-hits via Google.
...and "original" is an odd word when you consider who conducted the interview.
-- gewg_