205Chapter13. Directors at Work
A
n increasingly common lament sung across corporate America
is that directors are overworked. They are asked to do too much,
must satisfy too many competing interests, and so on. There is a
simple and sufficient solution to this condition. Directors should be
asked to do a short list of five things and do them well. The key jobs
entrusted to any board of directors are as follows:- Selecting an effective chief executive
- Setting executive compensation
- Evaluating takeovers
- Allocating capital
- Promoting integrity in financial reporting
Effective performance of these jobs ultimately depends not so
much on governance mechanisms as on board trustworthiness. An
investor should pay attention to how well directors perform these
tasks as a way to gauge where along the continuum from owner
orientation to manager orientation they sit. A management-oriented
position is suggested by fat executive paychecks for a dismal perfor-
mance. A stakeholder-oriented position reveals itself in poor returns
on invested capital that keep unproductive plants operating in a bow
to labor pressure. An owner orientation is reflected by good perfor-
mance, reasonable executive pay, and the cultivation of productive
workers in productive jobs.
As a management orientation example, as kyourself whose inter-
ests were really going to be served by AMP’s resistance to Allied-
Signal’s bid discussed in Chapter 11? AMP’s shareholders objected,
and so they obviously thought their interests were being disserved,
and AMP’s plan to boost the company’s profitability included cuttingCopyright 2001 The McGraw-Hill Companies, Inc. Click Here for Terms of Use