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Why good leadership has gone by the board
Jack and Suzy Welch



Q DO YOU think boards today are running better or worse than before?

Name withheld, Phoenix

A Actually, too many of them are running scared. While that may give some governance groups a twinge of self-satisfaction, a defensive board is bad for employees, companies and the economy.

So what's going on? We've been speaking recently with groups of CEOs . . . a total of about 300 . . . mainly in small, in-depth sessions. They've come from a variety of companies and industries.

But one thing they have all shared, to varying degrees, is a pressing concern about the changed nature of their boards. . . a direct result of the governance scandals and the reform measures that followed.

As one CEO put it, "Every meeting starts in one form or another with the question, 'Has anything happened since we last met that's going to show up in the papers and embarrass us?' And then we hunker down over financial reports and risk assessments to give everyone a sense of comfort."

Now, a board getting a strong dose of comfort is fine. Boards have to feel confident that their companies are abiding by the spirit and letter of the law. No one wants another WorldCom or Enron to erupt, let alone to be held responsible for it. But hunkering down over numbers and downside scenarios is just not what boards should be doing with all their time.

Compliance doesn't take place because a group of over-extended, far-flung executives flies in 10 times a year to examine the books.

Compliance takes place because today's control systems are carefully monitored by internal managers, who are understandably in a state of hyper-awareness.

Control systems today are also being monitored by newly energised outside accountants. Ironic, isn't it?

The same accountants who failed to catch many of the scandals are now their biggest beneficiaries. All those additional billed hours for extra, extra due diligence! Regardless, the outcome is accounting data that has never been more meticulously scrutinised.

This all should free boards to do their real work . . .

developing a healthy dialogue with management about building a better future, together. Boards should be asking manager:

"How big can we get?" and "How fast can it happen?"

After all, what is a company without growth?

Who wins? Not employees, who don't get the opportunity to improve their lives with better jobs. Not shareholders, who don't get the equity appreciation from successful acquisitions or the payback from daring organic growth initiatives.

And not communities, who don't get the extra tax revenue from thriving companies, new and old.

Importantly, wide-ranging debate about growth and risk can only happen in an atmosphere of sharing and trust. That's why we're so opposed to another result of the fall-out from the governance scandals: the recent push by some activist shareholder groups to change Securities and Exchange Commission rules for the election of directors.

This would open the door to the possibility of boards filled with special-interest 'representatives'.

Just imagine the union organisers who are taking their campaign against WalMart sitting on that company's board. What a disaster! We guarantee there wouldn't be much candid debate about inevitable management crises . . . let alone growth opportunities . . .

in that war zone.

No, constructive dialogue occurs only when a board comprising savvy leaders and experienced entrepreneurs uses its wisdom, character, courage and common sense to help the CEO and top team get to the right answer.

Of course, the board must assess and challenge management. It must get out of headquarters to see if employees are really feeling the mission and values that top team espouses in the boardroom. But ultimately, a board and management must play on the same team, not at cross-purposes.

There's just not enough of that happening now.

Directors are too paranoid.

Which is why change . . . and change is imperative . . . must be led by CEOs. Now, many of them are paranoid too;

this is an era of a shortened tenures. But for the current impasse to break, CEOs must put themselves on the line with a commitment to their boards that controls are fully functioning. They must earn and demand trust of the board, and the board must give it, or put the right CEO in place.

With that dynamic, boards can let go of their crippling fear. And together, the CEO and lead director can set a new tone and create a new agenda, where Item One deals with any financial (or other) bumps ahead and Items Two to Ten concern exciting strategic objectives.

To your question, then, boards today are running better, but only when they run for cover. To run better for the sake of employees, shareholders and communities, they need to climb out of the bunker and get back to the future.

Jack and Suzy Welch are the authors of the international best-seller Winning. You can email them questions at Winning@nytimes. com




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