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| | | 05/10/07 - Denver, CO | Denver area CEOs watching from the sidelines as Hewlett-Packard CEO Mark Hurd lost control of his board of directors need to face reality. You, too, could quickly find yourself in damage control mode, publicly accepting the blame for a misbehaving board. In fact, it may be happening to you now.
Why? Since enactment of the Sarbanes-Oxley Act in 2002, corporate America has accepted a shift from the culture of the all-controlling CEO with weak-kneed directors to a culture featuring frequent director revolts in which they literally have taken back the boardroom. Some would say that's a good thing (Mr. Hurd notwithstanding, perhaps). Today, however, the pendulum has swung so far that we are witnessing the unintended consequences of Sarbanes Oxley. The evolution of runaway boards is a symptom of a senior management environment in which the CEO has become too busy focusing on other initiatives instead of effectively managing the board, in pre-Sarbanes Oxley terms. Two of those critical CEO initiatives are:- Interaction with direct reports, essential to effective company leadership
- Strategically managing the operations of the organization to improve shareholder value (a CEO's primary reason for living)
No one is questioning whether Mark Hurd was doing a superb job in those two essential areas. He certainly was and is. Although former CEO and Chair Carly Fiorina is attempting to take credit for H-P's fortunes in the past two earnings seasons (how amusing), it was Hurd who brought about a 72 percent increase in stock value. In terms of increasing shareholder value, he is among the most effective CEOs in the nation today.
However, in juggling the balls in the air (another fundamental trait of a great CEO), Mark Hurd dropped the big one: He took his eye off the board long enough for Machiavellian mischief to become a happy little practice among his directors. Hurd may have righted the ship, but he soon found he had problems on the bridge, too.
Here are some recommendations for avoiding an unsavory H-P-like public spectacle:
If you think any member of your board is sharing insider information outside the boardroom, it's true. You feel it and you know it. And, because you know it, you have an obligation to have a closed-door meeting that goes something like this:- You confront the board with your knowledge that there is an illegal and unethical leak occurring. You ask the guilty party to raise his hand, promise not to do it again, and receive total amnesty.
- If no one comes clean at that point, you then vow before them all that once the perpetrator is identified (by only legal means, of course), he or she will simply be asked to resign in disgrace.
- The entire exercise will take only five minutes, and it will save thousands of hours of future pain and humiliation and millions in lost shareholder value. This takes courage and the ability to practice early recognition of reality (ERR) and unambiguous communications. This is about leadership.
- Have face to face monthly meetings with your board. It is impossible to manage the board of a modern public company without looking your chair and directors in the eye every few weeks. And, the fact that they know they'll have to face you every month will help to keep them focused on their jobs, reluctant to begin the drift into questionable directions.
- Don't take your eye off your board. Let's face it, the relationship you have with your board of directors is as least as important as the relationship you have with your key direct reports. Boards have to understand the strategy and the operational plan, and have to buy in. They don't get to manage it, but they get to approve it.
Sarbanes Oxley may have lulled our CEOs into a false sense of security, leading them to believe that newly empowered directors will always behave like law-abiding adults. Recent events at H-P are proving that from the CEO's perspective, there is no excuse for not paying attention.
Valant is president and CEO of Valant & Company, which has offices in Denver and Atlanta. Valant & Company is a business performance improvement consultancy with more than 30 years of experience helping business and industry to grow profits. He can be reached at 303.589.3840 or by e-mail at lvalant@valantco.com.
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