Former Hewlett-Packard director Thomas Perkins laments the rise of what he calls “compliance” boards filled with checklist directors who do not understand the business of the company they oversee and whose primary focus is ensuring that they live up to the letter of the law. He favors the “guidance” board, which he sees disappearing. Mr Perkins seems to believe that only the latter have any interest in understanding the businesses of the companies they direct or are capable of adding real value.
This is just one more rather poorly disguised attack on Sarbanes-Oxley legislation, which enshrined generally accepted minimum requirements that any board must follow if directors are truly assuming the responsibility of directing. No doubt about it, many directors don’t like the idea of rules in the boardroom and prefer the cushy, clubby old days when directors didn’t have to answer for their actions. The drive for change and higher standards of compliance and accountability that seem to bother people like Mr. Perkins came about after many decades of scandals where boards were given to regularly claiming they had no idea about the problems facing the company, usually because they were so disengaged from its affairs that the staff in the mail room were better informed than the directors in the boardroom. SOX sought to change that culture. I supported its enactment in submissions to Congressional committees at the time and remain committed to its groundbreaking role in raising governance standards and upholding public confidence in capitalism. Wise directors know they have a job on their hands to restore the image of a much disparaged institution and are working hard to bring the boardroom into the 21st century. They do not view, and none should be tolerated who see, compliance and creativity as mutually exclusive.
Directors do not hold office simply to advise the CEO and provide moral support; they are there to supervise top management. Of course, an exchange of views and experiences between directors and management is always important in the boardroom and good directors support CEOs in a number of ways. But the real issue is not what Mr. Perkins calls “plug to plug” directors. It is that in too many cases in the past, directors were little more than ornaments that only came to light when the CEO plugged them in –and much of the rest of the time they were left completely in the dark. Those were neither “guidance” nor “compliance” directors; they were disengaged directors. There are too many still in business today. Changing that culture is what lies behind the move to reform the boardroom.
How or if Mr. Perkins fits into this new world is something he can decide for himself. Personally, I thought the HP merger with Compaq was a disaster and I put that position on the record during the time of Walter Hewlett’s campaign opposing it. I find little evidence to suggest that HP’s shareholders were well served by that corporate marriage.
I agree that we don’t want directors who see their job as one purely of lawyering and bean counting. Directors of vision are always essential and should be encouraged, and, in my view, they are no more rare today than they were in the decades that preceded SOX. But the suggestion that keeping companies honest and accountable has reached such a burdensome level that it impairs the ability of directors, or relieves them of the duty, to understand their business and contribute significant value at various levels is…well, rubbish.
Sorry to be so blunt, Mr. Perkins, because I was rather looking forward to a spin on your new $100 million yacht, which I’ve been hearing so much about. I think I could have offered some sound guidance.