Owning Up: The 14 Questions Every Board Member Needs to Ask

216 Pages·2009·1.05 MB·English

by  Ram Charan

“Advice that is both wise and practical”
Praise for Owning Up
R
from the foreword by Jack Krol, former chairman and CEO, DuPont OWNING UP
“This book is a most important contribution for both new and experienced A YOUR WORLD AS A DIRECTOR HAS SUDDENLY
directors, addressing contemporary corporate governance. The 14 practical R A M C H A R A N CHANGED. YOU’VE SEEN MEMBERS OF OTHER
questions represent the most vital issues that boards need to proactively M boards take the heat when their companies
imploded. The managements of Lehman
address and are particularly crucial now as boards deal with the aftermath
Brothers, Bear Stearns, Merrill Lynch, and
of the global fi nancial tsunami.”
New York Times bestselling coauthor of Execution Washington Mutual clearly failed, but so did their
—THOMAS J. NEFF, chairman, U.S., Spencer Stuart C boards. Now the board of every company beset
with problems is coming under scrutiny.
H
“If Corporate America’s board members had answered these questions, the The pressure is on. Your board must own up
crisis of ’08 would have been avoided. The book is that powerful. It should to its accountability for the performance of the
be required reading in every boardroom, executive suite, and business A corporation. Governance now means leadership.
O W N I N G Boards must change their modus operandi to
school on the planet. This book with its singular wisdom could change the
address the new and complex issues that are
face of corporate governance—with huge dividends to shareholders and R
emerging. These include
society.”
—RALPH WHITWORTH, principal, Relational Investors LLC A • ENSURING LIQUIDITY IN THE CONTEXT OF
THE GLOBAL FINANCIAL CRISIS
“Ram Charan always seems to get it right. Owning Up not only asks the right N
U P • SETTING CEO PERFORMANCE TARGETS IN A
RAM CHARAN is the go-to adviser for questions, it gives answers that can make a real difference for improving VERY UNCERTAIN ECONOMY
corporate directors and CEOs. Known for his board performance.”
• ASSESSING STRATEGY AND ENTERPRISE
insights and practical wisdom, Charan has —JAMES M. KILTS, former chairman and CEO, The Gillette Company
RISK UNDER EXTREME VOLATILITY
counseled some of the world’s most successful
business leaders. He is coauthor of the “As always, well-reasoned, insightful, and thought-provoking. A work that So what should boards do now? What should they
bestseller Execution and author or coauthor of every director will fi nd of value, particularly given the intense pressure of be talking about in their meetings and executive
sessions? What decisions must they make?
14 other books including Leaders at All Levels, these unprecedented economic times.” O
How assertive must they be regarding company
Boards That Deliver, and Boards at Work. He —PROFESSOR CHARLES M. ELSON, director of the John L. Weinberg Center
priorities and operating goals?
serves on three boards and was named one for Corporate Governance at the University of Delaware W In Owning Up, business advisor and corporate
of Directorship’s top 100 directors. He has an governance expert Ram Charan answers these
MBA and a doctoral degree with corporate “Here is the book that every corporate director needs today. With his and other burning questions on the minds of
governance as a fi eld of study from the decades of insider experience, Ram Charan brings more wisdom and N directors and business leaders. He describes
best practices that are emerging in boardrooms
Harvard Business School. insight to this subject than anyone else I know.”
he has observed fi rsthand. And he provides
—GEOFF COLVIN, Fortune editor and author, Talent Is Overrated: What Really I
practical recommendations on a range of issues,
Separates World-Class Performers from Everybody Else
N from compensation to dealing with external
constituencies. Wisely attuned to the human side,
he confronts the need for some boards to refresh
G
LEADERSHIP their composition and for others to rebalance
Jacket design by Gearbox
U.S. $29.95 Canada $35.95 their board dynamics.
Directors, CEOs, general counsels, and
www.josseybass.com U operating executives will fi nd here the guidance
THE 14 QUESTIONS
they need to meet the new and rising standards
for corporate governance in this demanding
P
Every Board Member Needs to Ask business environment.
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Owning Up
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Owning Up
The 14 Questions Every Board
Member Needs to Ask
Ram Charan
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Copyright © 2009 by John Wiley & Sons, Inc. All rights reserved.
Published by Jossey-Bass
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Library of Congress cataloging-in-publication data has been applied for.
ISBN 978-0-470-39767-1
Printed in the United States of America
first edition
HB Printing 10 9 8 7 6 5 4 3 2 1
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Contents
Foreword by Jack Krol vii
What Boards Need Now ix
1. Question 1. Is Our Board Composition
Right for the Challenge? 1
2. Question 2. Are We Addressing the Risks
That Could Send Our Company over the Cliff? 19
3. Question 3. Are We Prepared to Do Our Job
Well When a Crisis Erupts? 33
4. Question 4. Are We Well Prepared to
Name Our Next CEO? 41
5. Question 5. Does Our Board Really Own
the Company’s Strategy? 57
6. Question 6. How Can We Get the Information
We Need to Govern Well? 73
7. Question 7. How Can Our Board Get CEO
Compensation Right? 85
8. Question 8. Why Do We Need a Lead
Director Anyway? 101
9. Question 9. Is Our Governance Committee
Best of Breed? 117
v
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vi CONTENTS
10. Question 10. How Do We Get the Most Value
out of Our Limited Time? 127
11. Question 11. How Can Executive Sessions
Help the Board Own Up? 137
12. Question 12. How Can Our Board Self-Evaluation
Improve Our Functioning and Our Output? 149
13. Question 13. How Do We Stop from
Micromanaging? 163
14. Question 14. How Prepared Are We to Work
with Activist Shareholders and Their Proxies? 173
About the Author 187
Acknowledgments 189
Index 191
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Foreword

S ocietal demands and expectations have caused a tectonic shift
in the role of the board. The fi rst shock was felt in 1993 when
the board of General Motors broke the mold and forced out
a CEO who was not performing. Since then, boards in the U.S.
and U.K. have been prodded and pleaded with to take a more
active role, and in recent years, indeed they have. Expectations
for boards were raised further with the passage of Sarbanes-
O xley in 2002, which erased any doubt that boards must ensure
that their companies ’ fi scal houses are in order.
N ow boards fi nd themselves thrust into the spotlight yet
again and challenged to do even more. In the midst of the near
total breakdown of the global fi nancial system, shareholders and
other constituencies are looking to boards to help their compa-
nies fi nd a safe place to land. Even good companies with AAA
ratings have been swept up in the tsunami. Surely the board
can pick up and patch up what the CEO cannot, the thinking
goes. Directors have scrambled to meet this newest demand and
fi ll the void, adjusting their schedules and their priorities and
approaching their board work with increased rigor.
With this immense pressure and the sudden surge of engage-
ment by some boards, the break from the past is now com-
plete. Boards are no longer waiting for issues to come their
way. They are trying to identify them early and to get ahead
of them. This new set of circumstances creates new dynamics
between the board and management, between the board and
external constituencies, and among the independent directors.
vii
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viii FOREWORD
No wonder questions are arising in boardrooms nationwide. As
if the business issues were not challenging enough, boards are
also trying to reinvent their work on the fl y.
Fortunately, there are answers. In this succinct and timely
book, Ram Charan takes on the questions that are top of mind
among directors. A life- l ong student of corporate governance,
advisor to CEOs and corporate boards, and director serving
on three boards himself, Ram has an unparalleled experi-
ence base from which to provide the answers. He has observed
many boards in action and won the confi dence of many highly
respected directors. He has watched as boards have worked to
adjust to the new developments in corporate governance. What
he has found, and catalogues so well in this book, is a number of
cutting edge practices that are exactly right for the times.
In his inimitable style, Ram provides advice that is both
wise and practical. He takes into account the realities of human
behavior and group dynamics as well as the ambiguities of run-
ning a business in today’ s environment. He sees issues in their
entirety yet clarifi es the way forward. And he does not mask his
views about where boards need to take a stronger stance.
Directors, CEOs, senior executives, and anyone else who has
a stake in the quality of corporate governance will be interested
in the sound advice and insights found here. I encourage you to
keep reading, and learning, and making a positive difference
to the companies on whose boards you serve.
Jack Krol
Former chairman and CEO, DuPont
Director, Tyco International, Ltd.
January 2009
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