Restoring trust: six essential tasks for boards of directors and senior executives
-- Committee for Economic Development

If American business leaders are to restore public confidence in how companies are run, boards of directors must discharge six essential, closely interrelated tasks.

That is the message of a new policy brief, Restoring Trust in Corporate Governance: The Six Essential Tasks of Boards of Directors and Business Leaders, from the Committee for Economic Development (CED).  Ben W. Heineman, Jr., CED Trustee and former Vice President and General Counsel for General Electric Corporation wrote the brief, with the consultation and advice from the CED’s Subcommittee on Corporate Governance.

“These tasks require a redefinition of corporate mission and CEO role,” said Heineman, “to make fundamental the balance of risk-taking with risk management and the fusion of high performance with high integrity.  They are essential to restoration of trust in corporate governance but, more importantly, to make credible corporate accountability---the profound issue underlying corporate governance. This is not a “nice to do.”  Regardless of the outcomes of regulatory debates… it is  profoundly in the self-interest of private sector leadership energetically to  implement the six “must do’s”  in order to answer  powerfully the legitimate criticisms of  board and senior executive decision-making in recent years.

In synopsis, these tasks are:

1) A redefinition of the mission of the company—and the role of the board of directors and the CEO to create durable value for shareholders and other stakeholders through sustained economic performance, sound risk management and high integrity.

2) A revamped internal leadership training process. Such a process should be built on these integrated essentials of performance, risk and integrity—and on a culture in which all are honored and exemplified.

3) A refocused CEO selection process. This most important board function should flow from a revised leadership development process and seek a broader set of skills appropriate to a redefined mission.  The board of directors should explicitly articulate a redefined role when seeking a new CEO.

4) A restatement of fundamental but operational measurements for performance, risk and integrity. These metrics should expresses the near, medium and long-term corporate goals across all three dimensions in both financial and non-financial terms—with primary focus on clear steps that  create of sustainable value for shareholders and other stakeholders, such as employees and customers, essential to the company’s well-being.

5) A revision of compensation for the CEO and other senior executives. Such a revision for top business leaders —and for other employees with significant impact on the corporation—must be based on real actions measured against those restated operational performance, risk and integrity objectives.

6) A re-alignment of the board’s fundamental oversight function. Boards often complain of two much complexity in their jobs.  They should cut through the clutter and focus primarily on those high priority performance, risk and integrity operational objectives which are central to attainment of corporate mission and to assessing the fundamental actions on which executive compensation, over time, is based.