Recent years have seen a growing number of regulations introduced to provide corporate boards with more oversight.  Alas, as research from the University of Georgia’s Terry College of Business demonstrates, this may not be a power that board members actually want.  Instead, the survey found that board members primarily see their job as hiring the best CEO and then supporting that CEO as best they can.

The researchers quizzed a number of board members about how their board operated, their motivations for serving, and what they believed their responsibilities to be, whether to the public, to employees of the firm, or to shareholders.

“We looked at what they said and then looked for common themes,” the researchers explain. “You’re using words like data, finding common themes and then aggregating what the interviews have in common.”

Well managed

Corporate governance entered the spotlight in 2001 with the Enron scandal and the introduction of the Sarbanes-Oxley Act in 2002, which fundamentally changed the makeup and responsibility of boards.  The act mandated that a majority of board members have to be independent to try and ensure greater probity of affairs.

When asked if they actually wanted this regulatory responsibility, however, most board members said they did not.  Indeed, a common complaint was that they simply didn’t have the time to fulfill such a role.  While in theory board members should be offering their approval (or disapproval) of the CEO’s strategy, in reality, they feel ill-equipped to do this.

“Let’s say I spent a week preparing for the meeting, and the CEO has spent the whole year working on a plan and preparing to present a plan,” the researchers explain. “And now I’m supposed to detect malfeasance. I’m supposed to figure out if a CEO is making decisions that are not the best decisions for the firm.

“How could I possibly know that? … It’s just hard to imagine that could possibly be true. How could a board member know what’s better for the firm than someone whose job it is full time to manage that firm?”

Serious business

Suffice to say, this should not be taken to mean that board members aren’t taking the role seriously or that they enter into it poorly prepared.  Indeed, most board members said they spend around a week preparing for each meeting, with those who don’t prepare moved on.

“They’re engaged; they prepare,” the researchers say. “They read all of the plans, and they talk to the CEOs regularly. They want the firm to succeed, and they feel like they’re helping the firm to succeed the best way they can—with advice and support.”

Instead, the survey found that board members typically hire a CEO because they believe in them and their capabilities as a manager.  They don’t, therefore, want to remove that trust in their decision-making prowess until given reason to do so.

“They’re not cheerleaders,” the researchers say. “They have no compunction about firing a CEO. … However, they implicitly trust the CEO to make the right decision until they don’t.”

This general theory of what board members should do was consistent across new board members and more experienced board members alike.  The authors believe their findings should prompt both the public and shareholders alike to be more realistic about just how willing and able board members are to monitor and regulate company activities.  It shouldn’t be regarded as the silver bullet for solving all corporate misadventure and other activities need to be a crucial part of the mix.