Corporate Governance

Director Resignations and Board Diversity

By J. Robert Brown

The WSJ reports that the number of directors resigning from public company boards has increased, highlighting particularly the resignation of CEOs who are otherwise too busy to sit on board of companies in trouble.  The numbers in the article are actually quite small.  Only 46 outside directors who also served as CEOs and CFOs have departed in what the article describes as "three struggling industries -- financial services, retail and residential construction."  That compares with 31 the year before.

Nonetheless, it is interesting to see the spin placed on these modest changes.  Mostly, they suggested that CEO/directors were too busy to sit on other boards. 

• When DuPont Co. directors named Ellen J. Kullman the company's chief executive starting Jan. 1, she agreed to resign her board seat at General Motors Corp. next June, according to a person familiar with the situation. Now, Ms. Kullman faces pressure from some DuPont directors to quit the GM board sooner because she "lacks time to breathe," the informed person said.

The article did not mention reputation.  Having a CEO sit on the board of an ailing company might not be the best thing for a CEO's reputation in the market.

As the article notes, this is not a new trend. CEOs of S&P companies held, on average, one outside directorship in 2003, a number that had declined to 0.7.  In other words, the decline of CEOs on boards has been ongoing and likely reflects the increased demand of CEO positions and director position.  It also explains why there has been an uptick in the number of retired CEOs who sit on boards. 

The most important thing in the evolution of boards is to understand that, with the change in traditional configuration, comes opportunity.  There is greater opportunity to reach out to more diverse constituencies for replacements, constituencies that can give the CEO advice that is useful and not likely to be meted out internally.

Full post as published by The Race to the Bottom on November 22, 2008 (boomark / email).