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'Directors, board of': the 'up' chapter; A gem of governance wit and wisdom, newly dusted off.

Ed. Note: Robert Townsend's venerable management text, Up the Organization, returned to print in 2007 in a special edition. First published in 1970, the runaway bestseller galvanized the business world with the author's hard-slap directives for executive leadership. Townsend was a banker at American Express Co. before becoming president and chairman of Avis Rent-a-Car and making a name for himself in the pantheon of management gurus. He died in 1998.

THE HUGE, successful company is a dinosaur, but it has one decisive advantage over the middle-size outfit that's trying to grow public; also over the established company that's in trouble enough to be ready for change. The advantage: most big companies have turned their boards of directors into non-boards. The chief executive has put his backseat drivers to sleep.

This achievement has to be understood to be admired. In the years that I've spent on various boards I've never heard a single suggestion from a director (made as a director at a board meeting) that produced any result at all.

While ostensibly the seat of all power and responsibility, directors are usually the friends of the chief executive put there to keep him safely in office. They meet once a month, gaze at the financial window dressing (never at the operating figures by which managers run the business), listen to the chief and his team talk superficially about the state of the operation, ask a couple of dutiful questions, make token suggestions (courteously recorded and subsequently ignored), and adjourn until next month.


Over their doodles around the table, alert directors spend their time in silent worry about their personal obligations and liabilities in a business they can't know enough about to understand. The danger is that their consciences, or fears, may inspire them now and then to dabble, all in the name of responsibility.

Two simple tactics have been devised and time-tested in large organizations to head off this threat.

First, make sure that the board is composed partly of outsiders and partly of officers. Since all the important questions relate to the performance of key men and their divisions, no important questions will be asked. To do so would be a breach of etiquette, an insult to somebody at the table. Nor will any officer-director with an instinct for self-preservation (and a modicum of respect for the ignorance of the outside directors) ever bring a new or controversial idea before the board.

Second, be sure to serve cocktails and a heavy lunch before the meeting. At least one of the older directors will fall asleep (literally) at the meeting and the consequent embarrassment will make everyone eager to get the whole mess over as soon as possible. Caution: let sleeping directors lie. If one ever finds out that you rely on his somnolence, he will come to life with fierce and angry energy.

Unfortunately, smaller/newer companies often have directors who are investors or lenders able to exert the power of ownership. These directors are generally disastrous in their effect upon young managements. If not firmly under the thumb of the chief executive, they indulge a nervous impulse: they keep pulling up the flowers to see how the roots are growing.

Directors and the like spend very little time studying and worrying about your company. Result: they know far less than you give them credit for. What they know you can get best by a phone call. It is dangerous to take their formal advice seriously, or be too earnest about their casual questions. If they can ask important questions that the chief executive hasn't already thought of, he ought to be replaced.

Directors have one function, other than declaring dividends, which is theirs to perform: they can and must judge the chief executive officer, and throw him out when the time comes. (Since this task is painful, it is rarely performed even when all the directors know it is long overdue.) So the manager of a small/new company must come to these terms: he must make it clear from the outset that he accepts without question the right of the directors to assemble whenever they want and decide to replace him.

Having in effect signed a resignation datable at their pleasure, he must meet with them quarterly for a whole day and report to them on the state and trend of the business. These four meetings and the monthly statements should enable the directors to judge him and fulfill their one significant function when the time comes.

Replacements for retiring directors should be other chief executives in completely unrelated businesses or experts active in related fields of knowledge. But suppliers of goods and services--like lawyers, accountants, bankers and investment bankers--should be kept off the board if at all possible. Give one of these a seat, and you shut off healthy competition from his profession to serve your company.

From Up the Organization: How to Stop the Corporation from Stifling People and Strangling Profits, Commemorative Edition, by Robert Townsend. A Warren Bennis Book published by Jossey-Bass, a Wiley imprint ( Copyright 2007 The Townsend Family Trust. All rights reserved.
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Title Annotation:ENDNOTE
Author:Townsend, Robert
Publication:Directors & Boards
Date:Sep 22, 2007
Previous Article:Director index.
Next Article:Is 60 the time to move on?

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