This Week's Herman Trend Alert

Leadership in Normal 2.0

  The Herman Trend Alert

April 10, 2002

Board Turnover

The upheaval at Enron Corporation has caused a great number of people to re- think their positions, their roles, and their responsibilities in corporate governance. The fiasco has been profoundly embarrassing, to say the least. The shame and the blame are certainly not limited to the highly paid executives who failed to effectively execute their leadership responsibilities. The Enron board of directors has also been the focus of the bright spotlight of inquiry.

A corporate board is charged with oversight of the organization's senior executives. Members of boards are expected to ask questions, to raise issues, to serve as a double-check on behalf of the stockholders whom they represent. Unfortunately, this level of close attention, of challenging, of accountability did not take place the way it should have at Enron. Apparently too much was taken for granted, perhaps by people who were brought onto the board by friends or because they would "rubber stamp" policies, decisions, and actions of management. This happens all too often.

Many corporate boards have people who fill an honorary role. Sure, they offer some advice, but they don't dig deep into what decisions are made . . . or why. They lend their name or some influence in return for fees paid for their attendance at meetings. In many cases, board members of corporations are the chief executives of others.

The Enron debacle has caused many board members to reconsider their roles. They are wondering now about their involvement, their liability, their reputations. Some Enron board members resigned. Many people who sit on boards of directors of publicly traded companies are evaluating whether the risk of negative exposure is worth the return.

We forecast a surge of resignations from corporate boards of directors. As the spotlight on Enron gets brighter, illuminating more problems, board members of other companies will become less comfortable. Chief executives who serve on boards of other companies will be directed by their boards to resign and get back to running the businesses they were hired to lead. Watch the new blood: many new board members will be rising female executives.

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