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Harvard Business Review

Independent Directors: Step Up or Step Off


Posted on Harvard Business Review: July 19, 2011 9:29 AM

News Corp. independent board member Thomas Perkins (79), a director since 1996, said this on July 18: “I have a lot of faith in Rupert Murdoch. He’s a great guy, he’s a friend of mine. He’s a genius. And I know he’s devastated by this. Just devastated. And I worry about him, you know, physically, being about the same age.”

News Corporation and the actions—or as some would note, the inactions —of its board highlight several important directions in the way that boardrooms need to be, and indeed are, moving. No longer will boards be able to conduct themselves behind closed doors without consequences. Investors have been loath to make waves when all was going well, but with the banking crises, HP, and now News Corp, investors are waking up to the fact that it is better to make changes in the good times than to be caught without trunks when the tide goes out.

Change is coming, and it is up to us as non-executive independent board directors sitting in board rooms all over the world to lead, follow, or get out of the way.

Independence
When we agree to serve as a non-executive board members we need to be willing to do what is necessary to be truly independent in name and deed. Directors will be held accountable. Directors should only take on a post if we are planning to be fully engaged and active.

Transparency
The landscape of board service is changing. As we see now by the attention being paid to the role of the directors of News Corp, light is entering a dark room. Boardrooms of companies will no longer be black boxes shrouded in mystery and untouchable by press, investor, and stakeholder enquiry. It will not only be ‘mavericks’, activists and occasionally politicians asking these questions. Tough questions will be asked more often by mainstream media, investors, employees, and the community at large. If the answers are not satisfactory, more questions, and even legislation, will follow.

Asking the right questions, and asking them all
We need to hold ourselves and those around us accountable for behavior in the boardroom. As non-execs it is time to ask ourselves are we doing enough? Are we asking enough? Are we not shying away from asking hard, uncomfortable questions as well? Are we holding ourselves and the boards on which we serve to a high enough standard? If not, it is time to get in gear and do that.

“See no evil, hear no evil” defense won’t fly
Being an independent board member means not only asking the right questions, including the hard ones but also digging deeper if the answers are not satisfactory or don’t ring true. Our liabilities, and more importantly, our responsibilities are no less if we are willfully ignorant of the actions of the institution.

It concerns me to see “very bad people at a very low level in the organization” blamed for actions and wide-ranging cultural issues with far reaching consequences. To me it means one of several things. The organization is too big to manage, and then the board needs to look at the entire structure of the company. Or the board has wilfully ignored signals bubbling up about lack of management. It is a bit hard to believe that the culture was created at a low level, given how hands-on Rupert Murdoch is in managing his holdings. Whatever the case may be, not seeing it makes the independent directors and the board no less culpable, and more importantly, once the board is aware of it, not acting on the information in a decisive and transparent manner is almost worse.

Separating the CEO & chairman roles
The need for separating the role of running the company and running the board has never been more strikingly illustrated than in News Corp.’s example: Rather than having a truly independent chairman, all the executive decisions, the entire agenda of the board room, and the entire course that conversations had within the boardroom, were (and are) determined by one person and one person only.

Building Trust
Crises like this one shake people’s trust not only in News Corporation but also in the private sector as a whole. This trust can only be rebuilt if boards commit in word and deed to being proactively transparent, to acting with independence, and to serving as responsible stewards of business.

As for the News Corp. independent directors, there is still a chance to step in. For them, as for all independent directors, there is never a wrong time to do the right thing.

The case of News Corp, and others like it, presents a clarion call to all non-executive board directors: it is time to step up, or step down.

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