Finding the Right Balance
A recurring assertion by shareholder activists is that board members are too close to the CEO and won't make the tough calls when necessary. But reality is that even directors who have close relationships with a CEO have not hesitated to dismiss the chief executive when performance indicates a change is needed. Indeed, in recent years, across American business, CEOs turned over at a record pace—less than five years tenure in the job. Yes, shareholder-activist directors might throw the CEO out more regularly, but is that in the best interest of the company? Or is it better for the board and CEO to have a solid relationship working toward selecting the best strategy with successful implementation, where the board provides high-level advice, counsel, and when needed, direction to make the company most successful?
Without question, some boards haven't done this job. Perhaps bad judgments really were to blame. But do we truly believe having directors with specialized agendas, especially those that may be beholden to specific shareholder interests, would have done a better job? Perhaps they would have done better at cutting CEO pay or enabling greater shareholder say on key issues. But would those actions result in attracting and retaining the skills to best run the company and make the right decisions to grow share value?
As with many issues, the right answer lies in finding an appropriate balance, a theme picked up in a memo published by the Weil, Gotshal ...