The Wall Street Journal has produced a fascinating report on corporate governance. What is most fascinating about it is that it repeats the same refrains and clichés that have been written about boards for the past century: directors are working harder than ever (that was the subject of a Fortune cover story in the 1950s); the days of the cozy club are gone (that was said in the New York Times and the Wall Street Journal on a number of occasions in the 1960s, 70s and 80s). Then there is the assertion that directors are beginning to take their responsibilities seriously. In 1932, in the wake of a series of Wall Street scandals culminating in the 1929 crash and the Great Depression, a future justice of the U.S. Supreme Court wrote in a seminal article in the Harvard Law Review, “A popular theme in recent years has been that directors should assume the responsibility of directing….”
In my submissions to committees of the U.S. Congress during hearings leading to the passage of the Sarbanes Oxley Act in 2002, I observed:
No other function of modern business has so consistently failed to perform as the board of directors. The spectacle of Enron’s board pleading ignorance to the advancing dangers that brought down the company is a scene that has been played out repeatedly in the great corporate disasters of the past century. It will be again.
When the scenes and words recur time and again, you are either watching an old movie with Bill Murray as the hapless hero destined to relive the same day over and over, or you have a seriously dysfunctional institution.
Most directors have no idea that they are repeating the mistakes their predecessors made over the course of 100 years, and even fewer know that they are also echoing the same clichés mouthed by their forerunners. Boardrooms constantly lurch from disaster brought on by slumber to a startled state of alarm when they wake up. Invariably, when the pressure recedes, so does the level of director engagement. But that’s only a symptom of underperforming boards and failing companies. The fundamental cause is that we continue to have the wrong people in the boardroom. In this long running play of what I call the disengaged director, the need for a change in cast has been evident for some time. Until that happens, it will continue to be Groundhog Day in corporate America.