Esteemed New York Time sbusiness writer Rogers Lowenstein floats an interesting ideain a recent article: To get ourselves out of this mess of a recession lets democratize boards of directors.
What a helluva an idea. Lets be honest for a minute. Business profs may teach that boards of directors are elected, and CEOs talk as if power runs from the board on down. But anyone who has a passing familiarity with the way the real world works knows that boards of directorsnominated by management using Soviet-style slates of accepted namesall end up beholden to the CEO.
That’s bad for the actual owners of the corporation (the shareholders). The CEO can pull all kinds of compensation out of the board and the owners have to pay that from their profits.
But if the real owners of a company were able to vote on candidates they put forward (rather than rubber stamping choices of management), we’d see a fundamental change in how corporate power works. Wed see arguments over compensation, and lower compensation overall. Wed see the quality of candidates for board appointment improve. Merit would be involved. Most importantly corporate decision-making would be hashed out from the perspective of owner/shareholders, not the managers. That is, power would actually flow as it is supposed to, from the owners through the board to management.
Most importantly, we might end up with a governance model that would make the system more responsive and resilient. The Canadian banks get credit for moving toward a Say For Pay system where shareholders have the right to vote on the compensation of the top bankers. Let’s hope the reforms don’t end there.