Deconstructing American Business II and Some Thoughts for Boards of Directors in 2007
National Legal Center for the Public Interest, Vol. 10, No. 2, 2006
34 Pages Posted: 11 Mar 2012
Date Written: March 9, 2012
The key issue for American business today is whether the institution of the corporate board of directors, as we know it today, can survive as the governing organ of the public corporation. Will the migration from director-centric governance to shareholder-centric governance overwhelm American business corporations? The fundamental questions are (1) whether we will be able to attract qualified and dedicated people to serve as directors and (2) whether directors will become so risk averse that they lose the entrepreneurial spirit that has made American business great. The principal problems that cause concern for the future are:
Pressure on boards from activist investors to manage for short-term share price performance rather than long-term value creation. The combination of activist hedge funds and investors who have no interest in long-term value creation puts tremendous pressure on a board to manage for the short-term at the expense of the company’s relationships with its employees, customers, suppliers and communities and at the expense of the company’s investment in research and development and capital projects, all of which are critical to a company’s long-term success.
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