Corporate directors don't like it when shareholders accuse them of being management cronies, but how else can they be seen when they drop the ball on basic responsibilities like leadership development and executive pay?
Too many boards are being reactive when it comes to important matters of corporate governance. Just consider what happened at Bank of America Corp.
CEO Ken Lewis had been under duress for months, yet the bank's directors didn't have a plan in place for who would succeed him. Now they've been caught flat-footed since Lewis unexpectedly announced plans to retire by year's end.
It's as if not much has changed since the corporate scandals earlier this decade involving Enron, WorldCom and more. The implosion of those companies spurred calls for a drastic overhaul of boardrooms, and new corporate reforms were required under the Sarbanes-Oxley Act in 2002.
But clearly not enough was done to get boards more focused on their role of looking out for shareholder interests and being held accountable for their actions.
Just look at what boards are doing when it comes to developing new leaders, something that directors themselves say is critical to effective governance. An amazingly high 44 percent of directors say their boards have no succession plans in place for when the CEO leaves, according to a new survey of 632 board members at public companies by the National Association of Corporate Directors.
That means directors would be left scrambling to fill the CEO slot if someone suddenly departs or is struck by tragedy. A vacancy in the executive suite can be highly disruptive to employees, investors and customers.
"What kind of public message does that send out? How about chaos, disorganization and lack of preparedness?" said Marshall Goldsmith, who advises executives on leadership and authored the new book "Succession: Are You Ready?"
In the case of BofA, the lack of succession planning could hardly come at a worse time for the bank, one of the nation's largest and a recipient of $45 billion in government bailout funds. The Charlotte, N.C.-based bank faces an upcoming trial with the Securities and Exchange Commission and is under intense scrutiny from the attorneys general in New York and North Carolina, all relating to BofA's purchase of Merrill Lynch & Co.
Long before Lewis announced Sept. 30 that he was leaving, the board should have recognized the importance of crafting a succession plan. Shareholders last spring had stripped Lewis of his chairman title as losses mounted. Lewis has also been under attack for the bank's Merrill acquisition, which was forged at the height of the financial crisis in September 2008 and closed on Jan. 1. (continued...)
© 2009 Associated Press/AP Online under contract with YellowBrix. All rights reserved.
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