On the Brink: Boards’ Responsibilities and Roles
Originally published November 2010.
For companies facing bankruptcy, there is usually plenty of blame to go around and plenty of individuals on whom it should be smeared. The Tribune Company, however, seems to have more than its share of reprehensible characters in its executive ranks, coupled with a Board of Directors that seems unwilling or unable to make swift decisions that would benefit the company. According to the October 22, 2010 New York Times article by David Carr and Tom Arango (Tribune Company Ousts Randy Michaels as Chief) “…Lee Abrams, the chief innovation officer, [was] forced to resign recently after distributing a sexually charged memo to the entire company,” and the Board fired the CEO Randy Michaels “whose boorish behavior and cronyism became a dark sideshow to his bankrupt company’s financial struggles.”
There were three surprising and troubling aspects to this case all related to the Board of Directors’ decisions regarding the leadership of the company:
1) Why was Michaels hired in the first place? According to the NYT article, “Mr. Michaels arrived with a long career in the radio industry littered with outlandish statements and sexual harassment lawsuits.” What was the Board thinking when it permitted the Tribune’s owner and Chairman, Mr. Zell, to force such a character on the company? Did the Board believe that it had fulfilled its responsibilities simply by filling the CEO slot?
2) Why did it take nearly a month for the Board to remove Michaels from his post after an article concerning his “indiscretions” was published in the New York Times? When necessary but difficult decisions are demanded, the Board must be prepared to act – and act swiftly.
3) And then once Michaels was out, why did the board appoint “…an executive council to run the company”? Was this just a scheme to avoid making a decision that might have prompted one or more of these executives to depart? And are any or all of them the right ones to run a company facing such dire financial pressures?
So how can companies ensure that their Board’s role and structure are appropriate for the company?
Grahall’s research into Board contribution and pay provides us with keen insight into Board structures and roles. Especially in cases where companies face high-profile issues such as the Tribune, Boards would be wise to develop more specificity in corporate charters regarding what their responsibilities are. “Role confusion” may put a Board in a position of enhanced liability and shareholder suits. Also we see that Director roles are becoming better defined in the form of official position or role descriptions. Director descriptions will specifically outline the range of each Director’s responsibilities and duties, and will also determine the extent of and limits to accountability.
But it is important to remember that these roles and responsibilities change over time as the company changes.
As we said on our blog Companies differ, why not the roles of Boards?: The structure of the Board and role of its Directors must be appropriate to the organization’s individual situation. It must be structured to sustain and promote the organization’s goals, which will differ and change over time based on the company’s size, industry and developmental stage moving from start up to growth, maturity and then turnaround.
Essentially, Boards operate in one of four ways:
• Contractual: Directors function primarily as a “sounding board”
• Conditional: Directors provide advice and counsel
• Conventional: Directors help to set the agenda and review and approve business strategy
• Consensual: Directors have substantial influence over management and the organization, creating strategy and taking responsibility for its execution.
Company management and its Board must identify the appropriate structure and role of the Board and its directors. And then the Board and its Directors must carry out those responsibilities, regardless of the challenges and difficulties involved. Board positions are not for the weak of heart, especially in companies facing financial problems on the scale of those faced by the Tribune.