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Should a Board seat be lifetime employment?

March 30, 2009

It was interesting waking up to hear that Rick Wagoner resigned from GM. I was always amazed that he hung on as ling as he did, given that he was the protégée of Mr. Smith, the CFO-Finance-Bean Counter type who helped push GM off the cliff. Mr. Wagoner was also from the Bean Counter/CFO school, and not a car-guy, i.e. was always from staff. Think of having joint replacement surgery performed by the Hospital’s VP of Non-Reimbursable Expense Control.

So of course, I’m bracing myself for the usual arguments and finger pointing about GM’s Board of Directors, and why did Mr. Wagoner remain ‘their boy’ for so long. In fact, it was the White House who offered him what I like to call a ‘Rommel Resignation’, and not the Board. And it was this Board who watched from their hand made executive cars as the ship they were supposedly controlling went down for the count. So I went to the GM website and looked at the makeup of the Board in terms who pedigree and tenure.

I was expecting to find much too long tenures, but in fact, of the 12 Board members, 6 were first elected between 1990 and 1999 with another 6 elected starting in 2000. OK, tenure isn’t it. Their professional histories are what tells the story.

Two Directors are from ‘Academia’, that hallmark of efficiency. One is from the equally well run ‘Not for Profit’ sector (as is GM – sorry, could not resist). Three are from what I call ‘Viable Companies’ and 2 are simply ‘Retired from Viable Companies’ while another 3 from ‘Retired from Busted Companies’. Rick Wagoner was a Board member, and so prior to Friday he would have fallen under a new category of ‘Not Retired from Busted Companies’. Most tellingly, none of the companies I saw as part of the Director’s pedigrees were state of the art, consumer oriented, in touch with the buying public.

Let’s compare this with Apple’s Board. Genentech, Google, INTUIT, Current are some of the companies for which Apple’s Directors currently work. No retirees and no members from ‘Busted Companies’. They have a member from Avon and another from Current, i.e. 2 companies with the pulse of Apple’s typical customer.

My recommendation to the pundits on CNBC and elsewhere is to focus on showing not the tenure but the histories of Board members of those companies in trouble or at the most extreme, in Bailout. Carl Icon wrote recently that shareholders need more rights in the say of their companies. He’s right on the money. With more rights, shareholders could elect a new external Board every 3 years, bringing in fresh blood, what we’ll call ‘Board Term Limits’, combined with a slate of Board candidates from actual, viable companies. Would internal Senior Management be better off? With proper guidance and new ideas, the Board could become what it was meant to be – a sounding board for Senior Management and an oversight team for shareholders.

Here’s a telling story about what GM’s Board must be like. In the late 1980’s, I happened to be in GM’s then HQ on 57th Street in NYC and had a meeting in the Board Room. Table as long as a nuclear carrier with chairs lined up along both sides with Mr. Smith’s chair at the very far end. To his right was a console of lighting and Audio-Visual controls looking right out of Star Trek. Then I noticed, each chair had a brass nameplate on the top of  it’s seatback. Far, far, far from Mr. Smith’s chair was a nameplates for H. Ross Perot, who at the time was a thorn in GM’s side, demanding change. Based on seating arrangements, GM’s Board didn’t want anything to do with this troublemaker. Yes, H. Ross Perot proved he had a wild side during his bid to become President of the US, but perhaps GM should have listened to calls for change 20 years ago before it was too late.

So as not to replay the same mistakes of this Board from 20 years ago, we should adopt a more open environment where Board members know they have 1 shot during a 3 year window to get it right.

Rich Eichen is a Managing Principal of Return on Efficiency, LLC, who’s website is www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years experience reshaping companies and key initiatives as well as operating units of Global organizations. He can be reached at richard.eichen@growroe.com

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