Recent developments at Enron, Tyco International, ABB, and other international corporations have severely undermined trust and confidence in the behavior of corporate leaders ("Restoring trust in Corporate America," Cover Story, June 24). Legislators, stock exchanges, and commissions respond to these concerns by defining ever more structural requirements for boards on issues such as composition, independence, compensation, committees, etc.
The limited value of structural elements can be seen in many boards that have truly independent external directors, follow all the official rules and recommendations, but still perform poorly in difficult times. Every director knows the real difference between a good and a bad board is not primarily determined by structural elements but rather by the personalities involved and the way they interact.
When boards want to become more effective, they have to look inside and analyze their unwritten rules and processes and become aware of their blind spots and hidden agendas.
One element to improve board performance can be a board review. In such a process, directors have the opportunity to express individually their assessment of the board, its limitations, and their suggestions for improvement. The results are usually surprising: Over 40% of the 3,000 largest U.S. companies are carrying out some type of board review, and over 90% of those say it has made their board more productive.
International Board Practice
Heidrick & Struggles
Asking business leaders to stand up and speak out is akin to having criminals stand up against crime. Indeed, the situation is such that the business community's icons are at the very forefront of unbridled, shameless greed.
These people are unable to set an example and hence should have an example set of them. If people are jailed and labeled as criminals for stealing a car or television set, what should happen to individuals who are entrusted to lead an organization with thousands of employees and who then summarily defraud them of their life savings because of unbridled greed? We frequently read about similar goings on elsewhere and quickly belittle those countries as "banana republics." Is the U.S. a banana republic now, too?
The good leaders I have had the opportunity to work with over some 30 years in business were fully aware of the dangers of the CEO role: a false sense of self-importance, arrogance, entitlement, and the ability to influence their personal economic gain.
What those of character did was quite simple: They surrounded themselves with expert and independent people and required them to challenge any action that put the CEO's interests before those of the shareholders, customers, and employees. Envision a "team of three" consisting of the chief financial, legal, and human-resources officers working together and individually to insure that the CEO does the right thing!
The CEO defines the way business is conducted and selects his/her team. Take a look at that team, and you will get a good read on the quality of the leader and the way the business is managed.
Oak Brook, Ill.
Your recent editorials lambasting Corporate America for its lack of oversight, greed, and outright wrongdoing are excellent, timely, and desperately needed ("Corporate governance: The road back," May 6, and "Rebuilding trust--before it's too late," June 24). BusinessWeek has railed for years against the growing obscenity of executive pay packages, yet the gap between CEO and worker pay (currently at 600:1) continues to grow. I am at a loss as to how those in the boardroom who have even the slightest comprehension of trust, honor, and fairness can approve such pay packages and not see the damage such excess inflicts throughout the employee ranks. This inequity leads to an erosion of confidence that further erodes the commitment to performance, as employees see the rewards of that performance lavishly showered on those at the top. Please continue to speak out. Let's hope someone will hear the message.
Chadds Ford, Pa. "Why Berlusconi should help Fiat shrink" (European Business, June 24) discusses how Silvio Berlusconi should help to reshape Fiat for its own benefit and that of Italy. I agree wholeheartedly. It also occurred to me that if you changed the Italian Prime Minister for the American President and Fiat for the U.S. steel industry, you would have an equally good lesson for how President George W. Bush should really treat that industrial dinosaur. The protection enacted by Bush against steel imports was purely political, and all of the reasons claimed by the U.S. government were totally false.
The U.S. steel industry is in a bind of its own making, and the U.S. government should act as a catalyst to enable it to reform into a modern, efficient industry that can survive on its own merits. This would also have the extra effect of removing one of the current tensions that exists between Europe and America and would benefit everyone--including the U.S. steel industry.
Barton Seagrave, Britain Re: "India may pay dearly for the war scare" (Asian Business, June 24): All is not gloom and doom for the Indian economy. In general, market fundamentals are strong, and core sectors of the economy are showing signs of recovery. Valuations are attractive, and there has been a rally in mid-cap stocks over the past two months. The initial-public-offering market is also looking strong, with two big IPOs in Bharti Telecom and Citibank India subsidiary I-Flex Solutions already hitting the market, and India's largest software company, TCS (Tata Consultancy Services), preparing to go public. Interest rates are softer, and national banks have shown an improved performance.
The big story this year has been the aggressive privatization work done by the government, such as auto major Maruti Udyog going to Suzuki Motor and Telecom company VSNL being sold to Tata. Oil companies HPCL and BPCL, Container Corp. of India, and Shipping Corp. of India are in line for privatization. Also, airports and ports are on the path to being leased out or privatized.
If the Indian government keeps its promises and the economy is allowed to grow at a projected 5% to 6%, then it's only a matter of time before foreign institutional investors are back investing in India.
Bangalore, India I was planning to skip "A whistle-blower rocks an industry" (People, June 24), but after the first paragraph, I could not stop reading. Most appalling was that this was in the field of medicine, where we are talking about life and death of human beings. I hope the efforts of Mr. Durand will work like a pill and expunge society of such diseases as unethical and probably criminal activities in the pharmaceutical industry.