Abstract

http://ssrn.com/abstract=357722
 
 

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What's A Director To Do?


Joseph Fuller


The Monitor Company

Michael C. Jensen


Harvard Business School; Social Science Electronic Publishing (SSEP), Inc.; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)


Harvard NOM Working Paper No. 02-38

Abstract:     
The recent wave of corporate scandals provides continuing evidence that boards have failed to fulfill their role as the top-level corporate control mechanism. Destroyed companies, ruined reputations and in some cases jail sentences have created an environment in which substantial changes in the role of the board may occur. To solve the problems boards must change fundamentally their approach to the job. We recommend that boards focus on the following areas:

- Be clear about the decision rights and role of the board - being careful to see that the board holds and exercises the top-level control rights in the organization, including the rights to initiate and implement decisions such as the right to hire, evaluate, compensate, and fire the top management team, board members, and the auditors.

- Change the structural, social, psychological and power environment of the board so that board members are no longer effectively the employees of the CEO.

- Change the philosophical mindset of the board from one of careful review and compliance to one of insatiable curiosity and clarity.

- Take seriously the role of the board as the body ultimately responsible for ensuring the integrity of the organization in all matters. This means individual board members must come to understand and institutionalize the notion that honesty and integrity in our actions and our words are most valuable to others when it costs us something to adhere to them. Yet we tend to forgive ourselves the obligation to uphold these values in exactly those situations where there are high costs (whether monetary, psychological, and/or reputational) to ourselves, the CEO and others, or the company. Restoring integrity to the system will require men and women of courage and conviction on boards and in management teams to incur costs in the short run to preserve their reputations and the reputation and value of the organizations they serve.

Number of Pages in PDF File: 18

JEL Classification: G34, D23, M14

Accepted Paper Series


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Date posted: February 17, 2004  

Suggested Citation

Fuller, Joseph and Jensen, Michael C., What's A Director To Do?. IN BEST PRACTICES: IDEAS AND INSIGHTS FROM THE WORLD'S FOREMOST BUSINESS THINKERS, Cambridge, MA: Perseus Publishing and London, Bloomsbury Publishing, 2003. Available at SSRN: http://ssrn.com/abstract=357722

Contact Information

Joseph Fuller
The Monitor Company ( email )
Two Canal Park
Cambridge, MA 02141
United States
Michael C. Jensen (Contact Author)
Harvard Business School ( email )
Soldiers Field
Negotiations, Organizations & Markets
Boston, MA 02163
United States
617-510-3363 (Phone)
305-675-3166 (Fax)
HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=6484
Social Science Electronic Publishing (SSEP), Inc. ( email )
7858 Sanderling Road
Sarasota, FL 34242
United States
617-510-3363 (Phone)
305 675-3166 (Fax)
HOME PAGE: http://ssrn.com/author=9

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
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