From the pages of 'The CEO's Boss'
Title: The CEO's Boss: Tough Love in the Boardroom
Author: William M. Klepper
Publisher: Columbia UP, 2010
ISBN-13: 978-0231149884, 192 pages
Review: The CEO's Boss
By Patrick Brigger, getAbstract
Enron. Global Crossing. WorldCom. Adelphia. Tyco International. These corporate cautionary tales point to the crucial importance of responsible corporate governance, something in shockingly short supply in recent years. In this book, Columbia Business School Professor William M. Klepper discusses why boards must show "tough love" to CEOs to keep them in line with corporate goals. He details how a "Social Contract" can set the working partnerships between directors and CEOs. Klepper, a management expert in board and executive relationships, has worked on executive education with some of the world's best-known firms, including AT&T, Sony and Johnson & Johnson. He tends to refer to these experiences and his credentials frequently, name-dropping with abandon. But maybe his self-promotion is justified, because he sure knows his subject. Board members and CEOs can learn a lot from Klepper's insightful, instructive and fascinating case histories.
"The Social Contract"
In 2005, then-Chairman and CEO Dennis Kozlowski and then-CFO Mark H. Swartz of Tyco International were convicted of embezzling $600 million from the company, and each received a stiff prison sentence of 8 to 25 years. In the aftermath, Tyco's new lead director, Jack Krol, and CEO and Chairman Edward D. Breen were determined to clean things up to save the firm. Breen decided to take on an entirely new slate of board members. He and Krol committed themselves, and the new Tyco board, to Tyco's "Ethical Conduct and Board Governance Principles."
This Social Contract sets "integrity, compliance and accountability" as primary ethical goals for Tyco's board and management, and it helped Krol and Breen return the company to respectability. All companies need a Social Contract to define the "beliefs and behaviors" of the CEO and the board. Prepare one for your firm and keep it "in the boardroom and on each member's board agenda." The path to outlining a typical Social Contract begins with outlining five corporate "behavioral standards":
1. "Commitment to values" - A "leadership credo" states an organization's bedrock principles. Johnson & Johnson's credo guided its response to the 1982 Tylenol crisis, when tainted medicine led to a massive drug recall.
2. "Commitment to the stakeholders" - A company's "four legs of the stool"--clients, workforce, investors and society--must be in balance.
3. "Commitment to risk assessment" - Responsibility compels both the board and the CEO to monitor a corporation's "strategic risk profile."
4. "Commitment to transparency" - Honesty and "full disclosure" ensure teamwork that is "hard on problems, not on people."
5. "Commitment to coaching" - A coach help directors and CEOs work better together.
What can happen without a Social Contract
Software company Take Two Interactive (TTWO), which created the wildly successful "Grand Theft Auto" series, had the super-hot video gaming industry by the tail when it went public in 1997. Started in 1993 by 21-year-old programming genius Ryan Brant, the company threw off strong sales and profits throughout the '90s. Brant could do pretty much as he pleased as CEO; his board of directors was packed with investors and insiders who cared more about short-term gains than about long-term stability and growth. The constantly changing makeup of the board and the company's opaque operations meant that instituting a viable Social Contract was nearly impossible.
In 2001, TTWO began to experience difficulties from the dot-com bust and watched its earnings and share price decline. The Securities and Exchange Commission investigated the company's accounting practices, and The New York Times published a story exposing conflicts of interest that compromised investors and management...
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