June marked the death of Bill Donaldson, former SEC chairman, longest-serving head of the New York Stock Exchange, and first dean of the Yale School of Management. Donaldson served as Under Secretary of State under Henry Kissinger, was an entrepreneurial investor who founded the investment bank Donaldson, Lufkin & Jenrette, and led the turnaround of Aetna as chairman and CEO, among many other accomplishments. Having worked with him for nearly 40 years, I was impressed by his understanding of the social and cultural dimensions of governance, which went far beyond checkboxes of legal, accounting, economic, and structural oversight.
Governance Model
Pictured above, Donaldson is seen at the Yale CEO Summit alongside two of his colleagues, Vanguard founder Jack Bogle and John Whitehead, the former chairman of Goldman Sachs and an eloquent pillar of Wall Street. In memory of Donaldson, here is an excerpt from the 1999 summit program in which he shared his views on governance and the role of the board of directors.
“Regarding board governance…corporate governance has become a small industry run by a lot of opportunists and there is a very superficial idea prevalent about what a board actually is.
“For me, there are at least two or three different models on the board.
“At one extreme, the role of the board is to sit in and ask strictly whether the CEO is doing his job, and if the answer is yes, the next question is, 'When is lunch?'”
“The other model is the corporate board as a public board with competing constituencies. Just like in the public sector and in politics, there are different people on the board representing different points of view and constituencies, and they are fighting tooth and nail to represent their point of view. There is no spirit of cooperation, quite the opposite.
“My view is that the board has many different functions. Of course, hiring and firing the CEO is an important function, but that's only one function. My view is that the board also has a function to support the CEO. I think there are times when the CEO needs the support of the board. The board is the ultimate authority group, and when you have a tough decision to make as a CEO, you say, 'I've got to take this to the board,' and the board supports you when you make the tough decision.”
“Third, I think the role of the board is to protect the CEO from short-term considerations. The board has a responsibility that goes beyond next quarter's profits or next year's profits. And it can't be shouted from the front of the newspaper, but it's a responsibility.” The Wall Street JournalTo provide something beyond shareholder profits. I think the board provides the insulation jacket for that.
“But what's least examined is that it's a social organization. There are human beings there. And those human beings start to make alliances. They start to behave like human beings in other organizations. And the longer you're there, the more allies you have, the more dislikes you have, the more irrational you become in terms of personal conflicts. Nobody talks about that much. Everybody says, 'Oh, we should have certain people on the audit committee because they'll be independent, etc.'”
“There's not really been enough research done on the social contract in boardrooms or awareness of what's really going on in boardrooms. And often what's actually going on is a breeding ground for horror stories, where you have a group that's maybe working inappropriately together, and that group dominates through tenure on the board or whatever, and no one's really aware of what the interpersonal dynamics are, so they allow bad things to happen.”
Timeless insights on directing from an inspiring colleague.
