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Authors: Walter J. Salmon
Published by: Harvard Business Publishing
Published in: "Harvard Business Review", 1993

Abstract

The two crucial responsibilities of corporate boards--oversight of long- term company strategy and the selection, evaluation, and compensation of top management--were not well met during the 1980s. There should not be government reform of board practices, but the size of boards should be limited and the number of outside directors on them should be increased. Three insiders belong on a board: the CEO, the COO, and the CFO. There should also be reform in the functioning and responsibilities of audit, compensation, and nominating committees. On a revitalized board, directors have enough confidence in the process to challenge one another, as well as the CEO. A group of experts, including CEOs, consultants, and institutional investors, propose specific strategies to help strengthen corporate boards. Some argue for appointing more independent outside directors. Others focus on improving shareholder/management relations. Suggestions for immediate action include board-member retreats, annual CEO evaluations, regular meetings with institutional shareholders, and the general admonition that directors must start asking more difficult questions.

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Abstract

The two crucial responsibilities of corporate boards--oversight of long- term company strategy and the selection, evaluation, and compensation of top management--were not well met during the 1980s. There should not be government reform of board practices, but the size of boards should be limited and the number of outside directors on them should be increased. Three insiders belong on a board: the CEO, the COO, and the CFO. There should also be reform in the functioning and responsibilities of audit, compensation, and nominating committees. On a revitalized board, directors have enough confidence in the process to challenge one another, as well as the CEO. A group of experts, including CEOs, consultants, and institutional investors, propose specific strategies to help strengthen corporate boards. Some argue for appointing more independent outside directors. Others focus on improving shareholder/management relations. Suggestions for immediate action include board-member retreats, annual CEO evaluations, regular meetings with institutional shareholders, and the general admonition that directors must start asking more difficult questions.

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