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Management article
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Reference no. R0209H
Published by: Harvard Business Publishing
Published in: "Harvard Business Review", 2002

Abstract

In the wake of meltdowns at WorldCom, Tyco, and Enron, enormous attention has been focused on the companies'' boards. It seems inconceivable that business disasters of such magnitude could happen without gross or even criminal negligence on the part of board members. And, yet, a close examination of those boards reveals no broad pattern of incompetence or corruption. In fact, they followed most of the accepted standards for board operations: Members showed up for meetings; they had money invested in the company; audit committees, compensation committees, and codes of ethics were in place; and the boards weren''t too small or too big, nor were they dominated by insiders. Corporate Governance Expert Jeffrey Sonnenfeld suggests that it''s time for some new thinking about how corporate boards operate and are evaluated. He proposes thinking not only about how to structure the board''s work but also about how to manage it as a social system. Good boards are, very simply, high-functioning work groups. They''re distinguished by a climate of respect, trust, and candor among board members and between the board and management. Information is shared openly and on time; emergent political factions are quickly eliminated. Members feel free to challenge one another''s assumptions and conclusions, and management encourages lively discussion of strategic issues. Directors feel a responsibility to contribute meaningfully to the board''s performance. In addition, good boards assess their own performance, both collectively and individually.

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Abstract

In the wake of meltdowns at WorldCom, Tyco, and Enron, enormous attention has been focused on the companies'' boards. It seems inconceivable that business disasters of such magnitude could happen without gross or even criminal negligence on the part of board members. And, yet, a close examination of those boards reveals no broad pattern of incompetence or corruption. In fact, they followed most of the accepted standards for board operations: Members showed up for meetings; they had money invested in the company; audit committees, compensation committees, and codes of ethics were in place; and the boards weren''t too small or too big, nor were they dominated by insiders. Corporate Governance Expert Jeffrey Sonnenfeld suggests that it''s time for some new thinking about how corporate boards operate and are evaluated. He proposes thinking not only about how to structure the board''s work but also about how to manage it as a social system. Good boards are, very simply, high-functioning work groups. They''re distinguished by a climate of respect, trust, and candor among board members and between the board and management. Information is shared openly and on time; emergent political factions are quickly eliminated. Members feel free to challenge one another''s assumptions and conclusions, and management encourages lively discussion of strategic issues. Directors feel a responsibility to contribute meaningfully to the board''s performance. In addition, good boards assess their own performance, both collectively and individually.

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