Board and TopManagement
Changes over the Decades
Responses to Governance and CSR Issues
Jill A. Brown, PhD,
Lehigh University
H i s t o r y o f C o r p o r at e R e s p o n s i b i l i t y P r o j e c t
Working Paper No. 4
®
®
CONTENTS
3 | Overview
4 | Introduction
5 | Board Changes Over the Decades
Board Organization, Composition and Structure for CSR
Changes in Reporting Relationships between Senior Management and the Board
Specific Ways that Boards have Dealt with Corporate Governance and CSR
35 | Top Management Team Changes Over the Decades
Changes in Reporting Responsibilities of Senior Management with Respect to Corporate Governance and CSR
Development of New Management Positions Related to Corporate Governance and CSR
Library of Congress, Prints & Photographs Division, National Child Labor
Committee Collection, [reproduction number, e.g., LC-USZ62-108765]
Alternative Ways that Management has Organized to Deal with Corporate Governance and CSR
42 | Identification of Primary Causal Drivers for these Developments
44 | Conclusion
45 | Figures (1-3) and Tables (1-5)
50 | Endnotes
65 | References
Board and Top Management
Changes over the Decades
Responses to Governance and CSR Issues
®
®
Copyright © 2010 by the Center
for Ethical Business Cultures®
The CEBC History of Corporate
Responsibility Project
In mid-2008, the Center for
Our Approach
Ethical Business Cultures
The idea of corporate responsibility is not new; antecedents lie
in the 18th and 19th centuries. The 20th century, and particularly the last 60 years have witnessed dramatic social, economic, environmental and regulatory challenges to business. Two
volumes are envisioned: an initial volume focused on the U.S.
experience; a subsequent volume focused on the emergence
of corporate responsibility in countries and regions around the
globe. Pursuing a “double helix” approach, the project explores
the interweaving of the history of thinking about business responsibilities and the history of business practices. The interplay
of societal change and the emergence of the modern business
corporation provide the stage for exploring questions of purpose and responsibilities of business.
(CEBC) launched a multi-year
project to research and write
U.S. and global histories of
corporate responsibility. Funding for the project flows from a
major gift by Philadelphia entrepreneur Harry R. Halloran, Jr.
to the University of St. Thomas.
This grant followed earlier gifts
by Mr. Halloran to CEBC to
conduct preliminary research
and feasibility studies beginning in 2004 and convene a
national consultation among
scholars and practitioner in
November 2007.
1 |
To tackle the U.S. history, CEBC engaged a team of distinguished
scholars and supports their work with a series of working papers
and interviews with experienced business practitioners.
The Halloran Philanthropies
The Halloran Philanthropies, founded by Philadelphia entrepreneur Harry R. Halloran, Jr., is guided by Halloran’s belief that
business is one of the most powerful drivers for positive social
change. Halloran is the Chairman and CEO of American Refining Group, Inc., and founder and CEO of Energy Unlimited, Inc.,
both headquartered in Pennsylvania.
The Center for Ethical Business Cultures (CEBC)
The Center for Ethical Business Cultures (CEBC) at the University
of St. Thomas is a 501(c)3 nonprofit organization situated in the
university’s Opus College of Business. Working at the intersection of the business and academic communities, CEBC assists
business leaders in creating ethical and profitable business cultures at the enterprise, community and global levels. The center
was founded by Minnesota business leaders in 1978. Please visit
www.cebcglobal.org for more information.
Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
About the Author
Jill A. Brown, PhD
Assistant Professor, Department of Management
Lehigh University
Jill Brown received her Ph.D. from the University of Georgia in 2007 and
is an Assistant Professor and Axelrod Fellow at Lehigh University in Bethlehem, Pennsylvania. Her research and teaching interests include corporate
social responsibility, strategic management, ethics, and corporate governance.
Brown’s work has been published in the Journal of Management Studies, the
Oxford Handbook of Corporate Social Responsibility, Corporate Governance: An
International Review, Strategic Organization!, and the Academy of Management
Best Paper Proceedings, to name a few. Her current research interests include
the institutionalization of new governance mandates and the influence of
classified boards on financial and social performance.
Citation
This paper may be cited as: Brown, Jill A. 2010. Board and top management
changes over the decades: responses to governance and CSR issues. History of
Corporate Responsibility Project Working Paper No. #4. Minneapolis, MN:
Center for Ethical Business Cultures located at the Opus College of Business,
University of St. Thomas - Minnesota. www.cebcglobal.org (Keyword: Brown)
The views expressed in this CEBC History of Corporate
Responsibility working paper are those of the author(s).
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
Overview
T
his paper is a broad review of how boards of directors and top management teams have made changes over the decades in response to
corporate social responsibility pressures and expectations. These changes
have taken place in several areas: 1) in the organization, composition and
structure of these groups, 2) in changing reporting relationships between the
management, the board, and other stakeholders, and 3) in various initiatives that facilitate the interaction of internal and external stakeholders. I
conclude that while over the decades boards have developed infrastructures
to actively embrace their responsibilities to their stakeholders, they are still
challenged with managing their relationships with the CEO and the top management team through cycles of social, economic and political turbulence.
Board members react differently than management to the pressures of performance, and inevitably the monitoring portion of the directors’ duties gets
lost in the fray. Additionally, an examination of board/TMT changes shows
the possibility of a temporal pattern of reaction to governance and CSR
pressures, as boards and TMTs change first composition and then structure
before addressing their relationships. I begin with a review of board level
changes over the decades, and then proceed to the executive level.
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
Board and Top Management
Changes over the Decades:
Responses to Governance and CSR Issues
Introduction
S
ince the separation of ownership and control in the modern corporation1,
boards of directors have been responsible for making decisions on behalf
of their shareholders under corporate governance, a key element of corporate
social responsibility (CSR). Over the decades directors have had to respond to
pressures from an increasing number of stakeholders regarding CSR. How have
boards and top management teams evolved to address these demands? While
by definition responses are reactionary, boards have had to initiate changes to
their composition and structure and the way that they do business under such
scrutiny. We examine the evolution and decade-by decade changes that boards
and top management teams have made in response to CSR initiatives, pressures, and expectations from a variety of stakeholders.
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
Board Changes Over the Decades
Board Organization, Composition and Structure for CSR
T
o understand the role of the board of directors and their CSR orientation over the decades it is
important to appreciate some of the characteristics of publicly held companies at the time and the
legal, social and political environments that they faced during each decade. Therefore, for each decade we
first introduce the general governance setting, and then describe the key elements of board composition
and structure.
Board composition and structure, as part of a firm’s internal governance, are seminal to understanding
how CSR strategies are devised and implemented. Board composition consists of director qualifications
and membership criteria, the director nomination process and board leadership and independence.2
Board structure consists of the size of the board and the division of labor between the board and the
CEO.3 Demographic and relational characteristics of board members are the measures for qualifications and membership criteria, ranging from director tenure and occupation to committee membership.4
While research has tried to link board composition and structure to financial and social performance
over the years, the evidence of such a relationship has been inconclusive.5 Yet, these board characteristics
serve as starting points for understanding the nature of the relationship between the board of directors
and its stakeholders.
1940s and 1950s
Director level changes really began with the economic boom that followed the Great Depression. Financial market regulations that were set in place after the market crash and the Great Depression led the
way for investors to feel more confident. The Securities Act of 1933, the Banking Act of 1933 and
its Glass Steagall provisions, and the Securities and Exchange Act of 1934 offered US government
support for increased transparency from public corporations with the development of the Securities
and Exchange Commission (SEC), and many first-time investors began to invest in stocks. Berle and
Means published their seminal work on the separation of ownership and control in US corporations,
Joseph Schumpeter published his book, Capitalism, Socialism and Democracy on the inevitable cycle of
destruction to capitalism fostered by corporate greed, and John Kenneth Galbraith published The New
Industrial State, warning that the industrial sectors of modern capitalist societies would limit returns to
shareholders.6 Yet, despite the gloomy predictions from these authors, individual investments continued
to grow (see Figure 1). In essence, individual investors began to feel comfortable with corporate boards
as representatives of their interests, and these investors rode the wave of an economic boom that lasted
for the next 25 years.
With small groups of powerful men, the boards of the 1940s and 1950s concentrated on maximizing
stockholder wealth, with some limited attention to claims from other stakeholders.7 Organizations were
getting progressively larger and the separation of ownership and control widened, presenting challenges
to the information flow between directors, shareholders and management. Directors operated primarily
as advisors to management, often failing in controlling wayward managers who made decisions based on
their own self-interest. As early as 1934, Yale Professor William O. Douglas warned about these challenges and the “need for having a board divorced from the managers” in his Harvard Law Review article,
Directors Who Do Not Direct. 8 He goes on to chronicle the abuses by management in an organization
with an insider dominated board, with specific recommendations on how boards should put control
mechanisms in place. Douglas concludes with a plea:
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
“It is timely to consider the corrective measures necessary if the board is to be
employed as a medium for the protection and enhancement of the interests of the
corporation and the stockholders, rather than as a convenient devise for the exercise
of economic and political power for the selfish interests of those who happen to be
in a position of dominance.”9
In essence, Douglas was reminding directors to govern under what we now term a shareholder primacy model, adapting agency theory assumptions that the firm is a nexus of contracts, with management
as agents accountable to shareholders and directors taking on advisory and monitoring roles.10 Yet, during this time period, boards often consisted of directors who had political interests and had purchased
seats to be used as “trading posts.”11 The upside to this is that corporate philanthropy also grew substantially during this time period as directors exercised their influence through community donations (noted
below). Corporate governance, however, flailed during the 1940s and 1950s as it became apparent that
“the market within the corporation for control functioned imperfectly.”12
The Delaware Court of Chancery, while over a century and a half old at this point, became known
during this decade for its jurisdictional case law in the advent of major corporate litigation, with over
50% of US publicly traded corporations incorporated in the State. State law dictated that directors of
Delaware Corporations had a fiduciary duty to their shareholders under a duty of care and duty of loyalty. By the end of the twentieth century, the Chancery Court had a reputation for applying a “business
judgment rule” when shareholders brought suit against directors, by holding that directors who acted
in good faith, regardless of the outcome of their decisions, should not be held liable for these decisions.
While there has been debate over the years as to the parameters of these duties, cases during this time
period pointed to the “corporation friendly” atmosphere of the Chancery Court. For example, in the
1949 insider trading case of Brody vs. City Services Company, the Court firmly established that burden of
proof for shareholder lawsuits was placed on the plaintiffs if they felt that directors had operated negligently or in bad faith or with unreasonableness.13
In sum, board involvement in CSR activities at this point was primarily shareholder-focused in the
area of corporate governance, due in part to agency problems that were just heating up as corporations
grew larger with consolidations and acquisitions.
Board Composition and Structure in the 1940s and 1950s
Corporations in the 1940s and 1950s were few and large, characterized by groups or individuals with
small minority shares. Although still several years away from the establishment of the Standard &
Poor’s 500 in 1957, the top 200 publicly owned industrial companies early in this decade were said to
control about 50 percent of all corporate wealth in the United States.14 The ownership of these companies was highly diluted, with very little restraining influence from major investors. Approximately 91%
of U.S. stocks were held by direct owners, with the remaining 9% of institutional ownership made up of
mutual funds (8%) and pension plans (1%).15 In this setting, the corporate board was seen as the primary
mechanism to manage principal/agent issues in the “modern corporation”16, with the support of state
laws that provided a legal framework for operation.
Board composition at the time was primarily made up of white males, with the exception of a few
notable boards. In 1935, the General Foods board appointed Marjorie Merriweather Post to serve on
that board after she had successfully taken over the Post Cereal Corporation following the death of her
father. Coca-Cola Corporation was also proactive in appointing Lettie Pate Whitehead, a business
woman in the soft drink industry, to the board in 1934, where she served for nearly 20 years. Jeannette
Kittredge Watson, widow of IBM President Thomas J. Watson, Sr. was appointed to the IBM board in
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
1956, and Ida Rosenthal, widow of William Rosenthal was appointed to the Maidenform board in 1958
following the death of her husband. However, these few boards were exceptional in having women serve
as directors; in fact, many of these appointments followed the death of a spouse who had already served
on the board.
Despite calls for more board independence from early social activists17, boards were primarily comprised of insiders. In fact, outside directors were usually framed as helpful to gathering information and
resources, but not necessarily for the objectivism that might come from outsiders to manage agency
issues. The following example from Myles Mace in his 1948 book, The Board of Directors in Small Corporations, highlights the role of board outsiders at the time, as he describes a case study of a small board:
“In another case, an outside director on an otherwise family board brought to bear
on the management’s consideration of employee wage policies experience and data
on what other companies were doing and what was in prospect with regard to
further wage demands by the industry’s union. This counseling resulted in the management’s decision to raise the wage scale in anticipation of union demands, thus
keeping the company’s wage policies ahead of the industry.”18
The topic of outside directors as a governance mechanism was hotly debated, even at this early juncture. As early as 1945, John C. Baker discusses the efficacy of outside directors in his book, Directors and
their Functions:
“Certain stockholders believed that, human nature being what it is, executives in
the position of directors cannot be self-critical in an effective way and should not be
placed in a position of self-dealing or making decisions which involve conflicts of
personal interest with the interests of a company. Such reasoning, although sound
so far as it goes, fails to take into account certain other factors affecting a director,
such as his competence, knowledge of a company’s technical problems, undivided
loyalty, interst and incentive. It assumes that simply through having outside representatives, ideal or at least better directorates will be served…. As in other corporate
problems, there may be numerous answers rather than one. Reducing the various
problems of directors and their functions to the issue of inside vs. outside directors
is misleading.”19
Board composition and structure was relatively simple, compared to a current-day structure of multiple committees. Board size rarely exceeded 15 board members, and board turnover occurred approximately every 15 years, for an average of at least one vacancy almost every year of the corporation.20
For all intensive purposes, the concept of CEO duality (where the CEO also served as Chairman of
the board) was not highlighted in governance per se, most probably because at the time this practice
applied to the majority of publicly traded companies. Typical committees for board members included
the Executive Committee, the Salary Committee, The Audit Committee and the Accounting Review
Committee.21 As described, these were delineated by task function, however as the decades go on, these
committees evolved to serve more political functions as well (see 1970s below).
CEO succession planning, while considered good governance practice even at this time, was not a
standard practice for most US corporations, perhaps because a rash of corporate scandals in the 1940s
and 1950s created a corporate atmosphere of “replacing deviant leadership.” 22 Nevertheless, researcher
Myles Mace pushed for this practice, even in small corporations when he wrote,
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
“perhaps one of the most important single contributions which an active board of
directors can make in a small corporation is the provision for an adequate successor
to the existing chief operating officer…The fact that the owner is young and in good
health diminishes the urgency of providing for a successor, but it does not absolve
the board from the responsibility of being prepared for the eventuality”. 23
Qualifications from board membership, beyond stock ownership, were character-based; with a smattering of leadership qualities (see Table 1). Additionally, it was helpful if the director offered opportunities for capturing additional resources; however, this spurred controversies of conflicts of interest at times.
In 1944, Victor V. Boatner was denied by the Interstate Commerce Commission (ICC) the opportunity
to serve simultaneously as a director of the Norfolk Southern Railway Company as well as officer and
director of Chicago and Eastern Illinois Railroad Company. The board of Norfolk had recruited Mr.
Boatner for his railway expertise, but the ICC was worried about potential conflicts of interest, despite
the 690 mile distance between the two railroads at their nearest points.24 The ICC’s concerns may not
have been unwarranted, however, given there were significant examples of directors serving on multiple
boards during this time period.25
All of these characteristics of board composition and structure framed the way that boards approached
corporate governance, with little attention to CSR beyond the management of shareholder interests. The
exception to this came in the form of corporate philanthropy, which was documented by F. Emerson
Andrews of the Russell Sage Foundation in his book, Corporate Giving.26 He noted that, at the time, only
one-third of the major corporations he studied even had a distinct line for corporate contributions in
their budget, but annual fund drives for war causes and the American Red Cross were popular. This practice, however, bumped up against state statutes and case law when corporations with narrowly defined
charters made donations for purposes that did not directly link to the goals of the organization.27 By the
mid-1950s these statutes eased up, and corporate philanthropy became an accepted part of a corporation’s budget, fostered by community leaders who happened to also be serving on boards. Many boards
practiced trusteeship, subject to the whims of executives and board members.28 Ironically, philanthropic
giving by executives and board directors during this time period may have contributed to a subsequent
shift in board composition, with more outside directors over the course of the decade.
By the end of the decade, shareholders were becoming more involved in board issues through the
proxy process. An amendment to the Securities and Exchange Act in 1943 allowed shareholders to put
proposals in the annual proxy statements of publicly held companies; however, this litigation was expensive and proxy contests were therefore utilized by the few and the rich.
Peter Drucker touched on the composition of directors during this time period in his book, The Practice of Management.29 In essence, Drucker painted the picture that while board composition and structure
may be endogenous to issues taking place in society, there were always opportunities for the board of
directors to facilitate CSR under their supervision.
In sum, board composition and changes to structure in the 1940s/1950s were reactions to corporate
governance scandals, with little correlation to broader social issues. Ironically, many of the same complaints about board entrenchment and agency issues addressed by William O. Douglas in 1934 are noted
in corporate scandals sixty years later. See Table 2.
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
The 1960s – Shareholder Primacy Model
The conglomeration era of the 1950s brought a host of challenges to boards as they tried to manage
their CEOs and executives in an era categorized by a dispersion of ownership and a growing distance
between management and owners. Additionally, with considerable discretion afforded to management
and the chairman, who was most often also the CEO, the insider-dominated boards at the time deferred
to management’s goals, with little understanding, until it was too late, of the ramifications of management self-opportunism.30
In the 1960s, boards began to respond to pressures from federal and state regulators to take a more
active role in monitoring the “modern corporation” as the conglomeration era of the prosperous 1950s
continued. However, in actuality, the board often served at the beck and call of the CEO, who was also
the chairman of the board.31 Despite a general acceptance of the shareholder primacy model, a resurgence in governance scandals, followed by federal and state legislation, brought to light the power of the
corporations and the potential for abuses of minority shareholder interests.32 Insider trading and tacit
merger negotiations by senior management became more widespread.
For the first time, directors began experiencing the pressures of accountability and individual liability
in the courtroom. In 1969, a famous insider trading case, Diamond v. Oreamuno, set the stage for director liability when Mr. Oreamuno, chairman of the board of directors for MAI (a business that financed
computer installations) sold off 56,500 shares of MAI stock before news of a dramatic decline in MAI
net earnings was announced to the public.33 Mr. Diamond, an ordinary stockholder, filed a derivative
action suit for an accounting of the profits. Although insider trading was not a new phenomenon, for
the first time liability was imposed upon an insider for profiting from the use of corporate information,
regardless of the fact that the trade did not result in any real injury to the corporation (this would later
serve as case precedent for a more famous Lehman Brothers Insider trading in 1974).
In 1968, a federal court in New York State set the bar even higher for liabilities of directors of public
companies. Escott v. Barchris Construction Company was a case that involved fraud and false accounting
in securities sales.34 In 1962 the Barchris Construction Company, which developed bowling alleys, filed
bankruptcy and defaulted in the payment of interest on debentures. The plaintiffs were the purchasers of
15 year debentures who sued the directors, the controller, the officers, the underwriters and the auditors.
The courts made them all liable as fiduciaries with a federally imposed duty to investors. In the future
directors and other responsible parties would have to be able to demonstrate a due diligence defense if a
prospectus turned out to be defective. Following this lawsuit, many companies began to acquire liability
insurance for directors and officers (D&O insurance), and directors were forced to consider their responsibilities to a broader set of stakeholders.
Several other events took place that facilitated boards re-examining their corporate governance.
First, the government became committed to the Vietnam War and host of new social policies, perhaps
prompting corporate boards to take on broader social initiatives and become more involved in policy
making. Second, scrutiny from the media and academics also focused on extending directors’ duties
beyond making profits. For example, Peter Drucker wrote about the responsibility of executive leaders
to anticipate and respond to social problems,35 and William C. Frederick, suggested a “more adequate
standard to judge your responsibility, as a businessman, to society.”36 Third, several large companies
began to falter, and when they did, their boards faced intense scrutiny by the SEC, the stock exchanges
and the shareholders. These events are described under “CSR Initiatives” below, however the fall of
one large company, the Pennsylvania Central Transportation Company set in play a new set of state/
federal scrutiny.
The Pennsylvania Central Transportation Company Railroad went bankrupt in 1970, much to the
surprise of its shareholders who continued to receive dividends right up until the bankruptcy was
declared.37 While shareholders recognized that the railroad was financially unstable, the New York Central and Pennsylvania Railroad had merged in 1965 with much hope for success. The board at the time
consisted of a number of men with railroad expertise, and the merger was unique in that there was equal
representation of the two companies on the resultant board, with the CEO of Pennsylvania Railroad
emerging as Chairman of the new entity and the CEO of New York Central as the Vice-Chairperson.
Less than four years later they were both fired after the bankruptcy and a veteran railroader of Southern
Railway was recruited by the court-appointed trustees to run the operations of the company. The SEC,
in its investigation, criticized the Penn Central board for its lack of management oversight.38
Federal legislation also prompted directors to step up their monitoring. Federal Rules of Civil Procedure rule 23 was amended in 1966 allowing class action lawsuits to bind unnamed parties, essentially
expanding the locus for liability in situations of corporate malfeasance, while also allowing the class
action suit to become a vehicle for economic and social reform. Additionally, a plethora of unannounced
takeovers with the potential for management self-dealing prompted the passage of the federal Williams
Act in 1968. This Act forced directors to provide full and fair disclosure to the SEC regarding cash tender offers for the benefit of stockholders. “Full disclosure” required that shareholders also be informed
of the source of funds used in the offer, the purpose for which the offer is made, and plans the purchaser
might have if successful. This was just the beginning of legislation to provide more board accountability
and transparency in the decade leading up to the conglomeration phase of the 1970s and 1980s.
And so directors began to understand that they could no longer operate purely as advisors to the
CEO; they needed to become better monitors of management under the basic governance doctrine that
they were representatives of shareholders. As such, changes in board composition and structure took
place in response to scandals, lawsuits and legislation that highlighted the need for improved director
objectivity and better representation of shareholder interests.
Board Composition and Structure in the 1960s
Board composition and structure began to shift towards more independence during this time period in
response to increased state and federal scrutiny of directors, as well as the growing influence of other
groups like the New York Stock Exchange (NYSE), the SEC, the Conference Board and institutional
investors like the California Pension and Retirement System (CalPERS). 39 In 1967 The Conference
Board weighed in with its first published Corporate Directorship Practices, which focused in on the duties
and composition of directors.40 As conflict of interest cases began surfacing, boards began to recruit more
outside directors and by the middle of the decade they began to make up the majority of directors41,
despite that fact that early research by Vance (1964) suggested that firms with insider-dominated boards
outperformed firms with outsider-dominated boards.
By the end of the 1960s, corporate governance for directors had begun to expand slightly beyond its
shareholder centric model to encompass more stakeholders (discussed below under CSR initiatives).
This may have been attributable to the beginnings of growth in institutional ownership, which grew to
approximately 16 percent of the United States’ corporate equity during this decade as pension funds
grew.42 Although these investors focused primarily on takeover issues, the additional scrutiny pushed
directors to consider the interests of their employees, customers, suppliers and community.43
Other areas of board composition, beyond growing board independence, remained static from the
1950s-1960s. CEO duality became institutionalized during this time period. As such, the benefits of
rich information from the CEO insider were deemed to outweigh the costs of CEO entrenchment with
management. Despite the women’s liberation movement of the 1960s, there was little progress in plac-
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
ing women on boards.44 Committee structure remained functional; however, in a review of corporate
governance researcher Mitchell noted that while directors served on functional committees with task
guideline, there were few standards regarding “how” a director should function.
In sum, board changes in composition and structure in the 1960s were minimal. The relationship
between business and society was described by Frederick as one where “the businessman’s role is defined
largely, though not exclusively, in terms of private gain and private profit.”45 Boards were characterized
as passive, with entrenched, profit-driven directors that served as advisors to the CEO. By the end of the
decade, directors were only just beginning to respond to watchdog groups and state/federal legislation
with reforms that primarily focused on increasing the number of outside directors.
The 1970s – Focus on Change and Transaction Costs
This decade is characterized by board reforms in response to the volatile political, economic and social
climate in the US at the time. The term “corporate governance” began to emerge as a framework under
which to describe corporate scandals that surrounded agency issues of opportunism and greed.46 The
SEC began to take a very active in role in investigating conflicts of interest and abuses of power by
management and directors following the failure of Pennsylvania Central Transportation Company, as
noted above. A bid-rigging scandal involving General Electric, Westinghouse and twenty-nine other
electrical firms highlighted the need for board reform, as GE was successfully sued for almost $8 million
by the US federal government and New York State.47 Beyond a rash of governance scandals, the 1970s
were also characterized by several ethics scandals, most notably the Nestle infant formula scandal, which
began in the late 1970s but ran well into the next decade. While not a US company, the Swiss Nestle
Company boycott extended from the US to Europe, affecting radical change in international marketing
code. Additionally, there was a general call for businesses to divest from South Africa over human rights
issues during this time period as well.
However, social problems were overshadowed by economic issues as many large corporations failed
during the 1970s, and many of these failures were associated with “weak governance.”48 The term
“monitoring board” became popular to describe the role that boards assumed following some of these
scandals, suggesting a more normative model of corporate governance, albeit still within the shareholder focus.49 Myles Mace was critical of boards’ ability to monitor agency behaviors in his book,
Myth and Reality, which characterized directors as ineffectual and passive, serving more of an advisory
capacity for management, with the true power of the board situated with the CEO. 50This was also
supported by Peter Drucker in his 1946 book, Concept of the Corporation, where he described outside
directors as “figureheads”.51
Governance models shifted to a transaction cost economics perspective of governance.52 While
agency theory issues of monitoring for agency costs were still highlighted in research, the transition to a
transaction cost economics perspective meant that researchers began focusing in on board composition
and structure to understand the interaction of internal governance mechanisms and the external market
for corporate control (the latter being especially relevant with the swell of hostile takeover activity in the
1980s).53 “Checks and balances” became a topic of discussion for practitioners, as well as transparency
and disclosure to shareholders.
Shareholder lawsuits grew during this time period, with allegations of directors’ failure of duty and
breach of faith, perhaps in response to the acquisitions that gave professional outsiders control. As an
example of this, Sante Fe vs. Green was a case tried in the Delaware courts where minority shareholders
of Kirby Corporation were upset by a “short-form merger” that board members approved with Santa Fe
Corporation.54 Under the short-form merger statute in Delaware Corporation law, a parent corporation owning at least 90% of the stock of a subsidiary was allowed to merge with that subsidiary upon
11 |
Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
approval of the parent’s board of directors. The statute did not require the consent of, or advance notice
to, the minority stockholders; however, the minority stockholders of Kirby brought suit in federal court
on the grounds that the purpose of the merger was to freeze out minority shareholders at an inadequate
price, with allegations of fraudulent appraisals and tricking the minority shareholders. The court found
in favor of the defendant, Santa Fe, on the grounds that the minority shareholders were given all the
information they needed. Once again, the Delaware Chancery Court deferred to the business judgment
of the board of Santa Fe.
The Santa Fe lawsuit brought up another issue regarding shareholders and directors ----the need for
shareholders to become more involved regarding the companies that they invest in, rather than blindly
allowing directors to represent their own interests. The era of large-scale acquisitions had resulted
in weak financial performance due, in part, to the “managerial capitalism” of managers bypassing the
board of directors and/or directors failing to be involved. 55 Dispersed shareholding contributed to
shareholder apathy, and shareholders who owned small interests did not have the incentive to incur the
costs to participate. 56
Hirschman’s (1970) book, Exit, Voice and Loyalty suggested that investors have the power take a stronger role in influencing corporate governance by either withdrawing from the relationship (selling their
stock) or voicing their objections through voting or complaints to evoke change if they see problems.
Nevertheless, shareholders were passive as shareholder resolutions were expensive, laborious, and as
noted in the Santa Fe case, often ineffectual. The exceptions to this were a few court cases where “tired”
boards gave in to shareholder resolutions. AT&T, which had opposed all shareholder resolutions for
years, finally supported a measure calling for secret balloting at annual meetings in 1977.57 Also that year,
Exxon supported a resolution submitted by a group of churches to disclose their strip mine activities.58
In sum the focus for directors in this decade was on formalizing board structure and processes to avoid
litigation and pacify an expanding group of stakeholders.
Board Composition and Structure in the 1970s
Directors in the 1970s found themselves under the scrutiny of additional stakeholders as watchdog
groups began weighing in on board independence as a key to more objectivism in governance. In 1978,
the American Bar Association’s published the first Corporate Director’s Guidebook, reinforcing the monitoring role of the board and the need for “independent judgment” by directors, while not specifically calling for board independence. 59. However, this was quickly followed by a Business Roundtable initiative in
a statement title, “The Role and Composition of the Board of Directors of the Large Publicly Owned Corporation,” promoting enough outsiders “to have a substantial impact on the board’s decision process.”60 The
American Law Institute, a nonprofit organization created to “clarify, modernize, and otherwise improve
the law”, published its first Principles of Corporate Governance, with heavy weight to director independence.61 In 1978, the NYSE revised its listing standards to require that all listed companies have an
independent audit committee.62 However, while corporations responded in practice by ramping up the
number of outside directors, it was also noted that this was an easy way for boards to insulate themselves
from liability while also catering to a variety of stakeholders.63
By the mid-1970’s, board membership began to decrease again, averaging approximately 13 members,
with about five insiders and eight outsiders.64 By 1975, 11% of corporate boards featured a single woman
and 9% had a minority on the board as corporate boards began to realize that board diversity could add
value to strategic processes.65 However, conflicts of interest became a hot button for controversy as the
concept of interlocking directorates took shape.66 While interlocking directorates were supported for the
industry skills and expertise that a director might bring to another company, they were also criticized for
contributing to the “overboarding” of directors, where one director might serve on as many as a dozen
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
boards, potentially spreading a director too thin with too many commitments. Bankers, for example, were
often sought-after on corporate boards at this time, but increasing competition in the financial services
industry reduced the number of available bankers and created a strong market for banker/directors.67
Despite the CSR focus of directors on corporate governance to this point, directors as whole began to
receive criticism from shareholder activists that they needed to become more socially conscious. In 1976,
Nader, Green and Seligman published Taming the Giant Corporation criticizing the lenient governance
standards imposed on corporations through state charters and proposing that for the sake of shareholder
and other stakeholders, large corporations should be federally chartered.
As a whole, the pressures for board changes were beginning to escalate as new stakeholders began to
voice objections to the cronyism of directors during this time period. While this scrutiny could might
have prompted boards to move forward under a new wave of reform, the economic problems of the
1980s brought a halt to this and board composition and structure changes were minimal until the 1990s.
The 1980s – Focus on Damage Control
As stated by Walter Salmon, a longtime director, “The two crucial responsibilities of boards—oversight of long-term strategy and the selection, evaluation and compensation of top management—were
reduced to damage control during the 1980s.”68 While social activists targeted specific companies for
better employee working conditions and human rights in the wake of Nike and WalMart sweat shop
scandals, directors as a whole had to respond to multiple governance challenges including: 1) a swell of
hostile takeover activity and restructuring, 2) the growing role and influence of institutional investors, 3)
growing shareholder litigation in the Delaware Chancery Court, and 4) notable insider trading scandals
like Ivan Boesky, Michael Milken and Drexel, Burnham and Lambert that focused attention on the
inner dealings of directors. Additionally, the Savings and Loan scandals in the early ‘80s resulted in over
1,000 directors of savings-and-loan corporations being sued for failing their fiduciary duties.69
The 1980s is known as the “takeover decade” when substantial returns were afforded to shareholders as
their share prices went up through large-scale acquisitions and mergers. Along with this, however, came
more evidence of managerial capitalism, as managers continued to bypass the board of directors.70 Takeovers and leveraged buyouts tested the market for corporate control argument that market discipline and
efficiency would allow shareholders the power to replace bad managers with good ones. While research
supported the idea that corporate takeovers generated positive gains and were best viewed “as arena(s) in
which managerial teams compete for the rights to manage corporate resources”71, these takeovers were
also critiqued as failing to address the “real problems” of poor behaviors, personalities and politics in the
“managed corporation.”72 While it was suggested that the takeover wave during this time period was in
response to the disappointment with conglomerates that had been assembled in the acquisitions of the
1960s, the new assembly of owners of corporations included corporate raiders, financiers of leveraged
buyouts and institutional shareholders.73
The challenges from this highly volatile market caused some to speculate that directors might focus
on short-term shareholder “valuism” following these political upheavals, and LBOs and corporate raiders helped to fuel these speculations.74 In 1985, for example, shareholders brought suit against Shell Oil
Company (a US-owned subsidiary of Royal Dutch Shell) for understating the asset value of the company
prior to its complete takeover by Royal Dutch Shell Group, resulting in $140 million in total judgments
against the US Shell Oil Company.75 These “raids” often brought controversial executive changeover as
well. In the late 1980s, the Stop and Shop Supermarket Company went private in response to a hostile
takeover bid from raider Herbert Haft. Chairman Avram Goldberg and the Stop and Shop board of
directors solicited leveraged buyout specialists Kohlberg Kravis Roberts (KKR) to acquire the company
in 1988.76 However, disputes between KKR and Goldberg soon followed as Stop and Shop was divested
of several of its subsidiaries. Goldberg and his wife, Carol (the Stop and Shop President at the time)
resigned shortly thereafter , effectively ending 70 years of Goldberg family management.77 As another
example, in 1991, after a five-year battle to have steel company USX Corporation restructured following
his failed takeover attempt in 1986, Carl Icahn succeeded in having a separate class of stock issued for a
US Steel subsidiary, subsequently installing a new CEO in the process.78
While regulatory changes were still being made under the modern corporation challenges, shareholders began to increase their participation in monitoring management through proxy contests and direct
communication with management. Institutional investors were often the initiators and facilitators of
these proxy contests, however at the time the SEC did not allow shareholder access to a company’s proxy
materials for the nomination and election of directors. In 1980 the SEC issued a Staff Report on Corporate Accountability revisiting this topic after shareholder suits and activists’ requests for more input
into the director electoral process following insider trading scandals. 79 However, the staff rejected the
idea after concluding that a shareholder access rule was not needed with the emergence of nominating
committees. This only served to further anger shareholder activists, like CalPERS, the California Public
Employees’ Retirement System, which was embroiled in many shareholder suits relating to corporate
acquisitions at the time.
Oftentimes, these institutional investors would bump up against rulings in the Delaware Court. During this time period, the Court ruled on multitudes of corporate takeovers, revisiting and refining the
basic concepts of fiduciary duties of directors. 80 Poison pill adoptions were legally affirmed in one
important case, Moran v. Household Finance, when the Delaware court ruled that independent directors could adopt a poison pill shareholder rights plan under informed business judgment.81 In Revlon v.
McAndrews & Forbes Holdings, Inc. the Delaware Supreme Court narrowed the fiduciary obligation of
the directors of a target company by ruling that the role of the board of directors in a takeover situation
transforms from “defenders of the corporate bastion to auctioneers charged with getting the best price
for stockholders at a sale of the company.”82
Anecdotal evidence in this time period also suggested that, in anticipation of a takeover, boards scrambled to approve poison pill adoptions even as many states were revoking these. As an example of this, in
the late 1980s Conrail Corporation, a regional railroad, had proven itself enough of a money-maker to
generate takeover attention. Upon learning that its incorporated state of Pennsylvania’s takeover protection was expiring in 1989, its directors approved a poison pill provision in 1988.83
Ironically, in the wake of hostile takeovers and junk bond scandals, executives were reminded that they
should act as “political and social participants…of the firm” under stakeholder theory.84 This applied to
corporate governance under the idea that the stakeholder-serving organization would be more productive if internal stakeholders, like directors, worked as conduits to external stakeholders. In general, this
model served to re- focus governance from purely controlling for agency issues to expanding director
fiduciary duties beyond shareholders to other stakeholders. 85 However, agency issues of opportunism,
perquisites, adverse selection and moral hazard were also being documented in research, while being
played out in corporate scandals in a “greed is good” environment.86
Board Composition and Structure in the 1980s
Throughout the 1980s, outside directors remained the majority of directors for corporate boards. Contrary to empirical evidence that board size had no relationship to financial performance,87 boards became
larger again in size, averaging 15 members, although those companies who were involved in takeover
activities from leveraged buyouts often had smaller boards that closely monitored management.88
Approximately 80% of US public boards had CEO duality throughout the decade, despite growing
awareness of the potential for board entrenchment and managerial hegemony with CEOs having power
over their boards.89
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
As noted above, institutional investment grew during this time period, fostered by opportunities for
short-term shareholder profits.90 However, this growth did not spawn institutional shareholder activism at this point in time; rather, these investors were said to fuel the operations of corporate raiders as
well as leveraged buyouts (LBOs) and high-yield securities for purchasing other companies. Nevertheless, towards the end of the decade, this changed with the additional involvement of pension funds.
Beginning in 1988, pension funds like California Public Employees’ Retirement System (CalPERS) and
TIAA-CREF with defined benefit plans were required by the SEC to vote their shares (unlike mutual
funds), incentivizing them to play more of a vital role in monitoring management and exercising their
rights.91 During this takeover period, management would often promote poison pill resolutions to make
acquisitions prohibitively expensive, but pension funds would lead the way in influencing management
to withdraw these. In general, institutional investors worked to improve accountability and transparency
in their corporations of interest. For board composition and structure, this meant that pension funds
now had the ability to dictate board changes, starting with board independence. While outside directors
were now the majority, pension funds began pushing for even more outsiders, and asking for validation
of true independence.
The question of “true” independence was fueled by the growing number of board interlocks as the
“business elites” developed.92 The number of new boards to which directors were appointed in the 1980s
depended on 1) the number of other boards of which they were already members and 2) the network
interlock centrality of boards on which they already held directorships.93 Interestingly, there seemed to
be little discussion by activists regarding directors sitting on too many boards or questioning industrylevel board entrenchment, despite evidence that, the median Fortune 500 firm interlocked (shared directors) with seven other large firms, on average during this time period.94
The 1990s – CEO Scrutiny
This decade of corporate governance has been characterized as a period of both “governance status quo”’
and general “recovery” following the excessive diversification of the 1980s generated by a large number
of corporate takeovers.95 It was a time of rising activism by institutional investors and shareholders after
the SEC relaxed proxy rules in 1992, allowing investors the ability to coordinate among themselves to
advance governance initiatives. Governance watchdog groups like the Council of Institutional Investors (CII) and the Institutional Shareholder Services (ISS) highlighted the need for more governance
provisions and called for boards to pay more attention to their stakeholders under a social focus.96 Shareholder resolutions from public pension funds increased substantially during this period following the
first corporate governance resolution from institutional investors in 1987.97
The 1990s placed the CEO as a focal point of contention for many boards and shareholders. CEO
pay packages began to receive more attention in part, because of exorbitant golden parachutes and pay
packages received by CEOs during the mergers and takeovers of the 1980s. Concerns over CEO executive pay fell under three categories: 1) the failure of boards to tie pay to performance, 2) the excessive
pay for CEOs, and 3) the manipulation of pay for executives under board approved equity devices like
the backdating and repricing of stock options. These criticisms continued into the new millennium when
individual shareholders and institutional investors took action and made board members the direct target of their anger.
While up to this point, boards responded to calls for governance reform with changes in board composition and structure, this decade is marked by radical changes in the authority and roles of board
members, described later in this paper. These changes were attributable, in part, to case law developments
in the Delaware Chancery Court that provided judicial guidance to the ways that directors should act.
For example, the position of U.S. courts to this point had been that the fiduciary duties of the directors
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
were owed to the firm as a whole and to its owners, but not to other firm stakeholders, such as creditors.
However, this changed with the Delaware Court’s ruling in the 1991 Credit Lyonnais v. Pathe Communications bankruptcy case, where the Court ruled that when a firm is in the “zone of insolvency”, directors
may owe duties to creditors as well.98 The case was widely perceived to have created a new obligation for
directors of Delaware firms that extended their duties beyond shareholders to include other stakeholders. This coincided with a strong movement for board members to take control back from management
and reach out to other stakeholders.
Perhaps in frustration at the ineffectiveness of board control, frivolous class-action shareholder lawsuits grew during this decade, resulting in the passage of the Private Securities Litigation Reform Act
of 1995, which mandated that investors could not proceed with a case unless they had facts in-hand
that strongly suggested deliberate fraud. Additionally, the Act mandated full disclosure to investors of
proposed settlements. In response to this, many directors called for more D&O insurance under the fear
of liability.99
While agency theory was still the focus of governance researchers in the 1990s, new research analyzed
decision makers under a behavioral agency model, highlighting the risk taking behaviors of individuals
and the internal mechanisms of the firm.100 Additionally, researchers wrote about the considerable variation across firms regarding the strength of shareholder rights, once again heating up the notion that the
over diversification of companies in the 1980s had resulted in disparate shareholder representation.101
Stakeholder theory was applied more often to a governance context102, and towards the end of this
decade, the stewardship model was introduced to identify “a model based on manager-principal choice
rather than determinism.”103
Institutional shareholders continued to target boards for poor stock performance, with some indications of social activism. In 1991 CalPERS publicly supported shareholder activist Robert Monks against
the wishes of the Sears’ board of directors.104 Similarly, in 1995 CalPERS announced its intention to
vote against the board of Phillip Morris when they would not meet with CalPERS staff to discuss concerns over the tobacco industry.105
Board Composition and Structure in the 1990s
While, as noted above, the value of outside directors had been accepted in practice for several decades,
these directors became increasingly important in the 1990s for their changing power and authority over
management., discussed below (see “changing relationships”). Lawrence Lorsch alluded to this when
wrote in Harvard Business Review,
“The 1990s (were) the decade where empowerment (was) sweeping corporate
boardrooms. Empowerment means that outside directors have the capability and
the independence to monitor the performance of top management and the company; to influence management to change the strategic direction of the company if
this performance does not meet the board’s expectations; and, in the most extreme
cases, to change corporate leadership.”106
Perhaps as an example of this, several strong boards like IBM, Maidenform, Kodak and Honeywell fired
their CEOs in this decade.
Governance researchers in the 1990s sought empirical evidence of the value of the outside director,
as well as evidence of the influence of board composition and structure on firm performance overall.
While many studies found that outside directors were better for firm performance along different measures of performance107, several other studies found insiders more favorable to outcomes like corporate
philanthropy.108 Additionally, Dalton, Daily, Ellstrand and Johnson, in a meta-analytic review of board
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
composition, leadership structure and financial performance found little evidence of a systematic governance structure/performance relationship.109 Despite nebulous empirical evidence of the relationship
between governance characteristics and performance noted above, “governance” became a metric for
KLD Research & Analytics, Inc. (KLD) under their first index for sustainable and responsible investors
in 1990. 110 Again, investors were seeking evidence that independent directors would gain control of
rogue CEOs and managers during this time period.
In addition to the changing role of outsiders on the board, average board size continued to grow during this decade, supported by new research that showed that larger boards were associated with superior
performance.111 These findings were contradicted by other research that suggested that the benefits of
smaller boards for more communication and ease of decision making outweighed the benefits of the
increased monitoring by larger boards.112 Board tenure also became a focal point as The National Association of Corporate Directors in 1996 issued a call for director term limits of somewhere between 10
and 15 years, although the Council of Institutional Investors was quick to dispute this.113 Board diversity
also grew, albeit it very slowly. For the first time in history, in 1994, more than half of the Fortune 500
companies had at least one woman on their boards; however, this represented only 9.6% of all directors, and allegations of significant underrepresentation of women and minorities on boards continued
throughout this decade.114
In sum, by the end of the 1990s boards had to make changes to control the CEO, satisfy pension fund
activists and protect themselves from liability. While independent directors were to lead this initiative,
shareholders also realized that they had to become more involved in the director nomination process, or
rely on large scale block shareholders to do it for them.
The 2000s –Director Scrutiny and the Director Primacy Model
The beginning of the new millennium was highlighted by controversies that once again questioned the
legitimacy and efficacy of the board of directors in representing shareholder interests. In October 2001,
the Enron Corporation, an energy conglomerate with over $63 billion in assets, announced that it was
restating its financial statements to reduce earnings over the previous four years by $628 million.115
Within weeks of the announcement the SEC began investigating Enron amidst allegations of corporate misconduct and fraud. Information soon became known that company executives spearheaded by
CEO Kenneth Lay, CFO Andrew Fastow and President Jeffrey Skilling had engaged in off-the-books
partnerships, aggressive accounting practices, and market manipulations to inflate the price of Enron
stock. But Enron was just the beginning of such governance scandals. In August 2002, Forbes Magazine
published a “corporate governance scandal sheet”, limited only to accounting scandals since the October
2001 Enron debacle. The list identified 22 companies with allegations ranging from Adelphia’s off-balance sheet loans to Xerox’s earnings overstatements.116 Every one of these scandals pointed to a failure
in board oversight, resulting in convictions and settlements. As a result of these governance scandals,
board composition and structure became the starting point for measures of transparency, accountability
and board vigilance.
Board composition was now debated with a focus on board independence, instead of merely outside
representation on the board. Despite years of legal, political and social pressures for boards to have
more independence, anecdotal evidence of board level conflicts of interest was widespread. Most notable
was the failure of Enron’s majority board of “outside directors” failing to control Andrew Fastow, its
insider Chief Financial Officer. The US Senate Subcommittee on Investigations, in discussing the role
of the board of directors in Enron’s collapse, noted that while the majority of board members of Enron
were “outsiders”, the independence of the Enron Board of Directors was “compromised by financial ties
between the company and certain Board members.”117 At least ten of the “independent” directors at
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
Enron had conflicts involving consulting or legal work within the Company, or were associated with
charitable organizations to which the Company had made significant charitable donations.118
But Enron’s board was not unique in this regard. In 2003, following an SEC investigation into
improper accounting at Qwest Communications International, a proxy plea by a shareholder group read,
“Our Board’s lack of independence is unusual among leading public companies. As we document in the
proxy and below, we believe that as many as eight of Qwest’s twelve directors (66%) have or recently had
material financial relationships with the Company….We believe that very few companies have demonstrated a greater need for a majority of truly independent directors…”119 In addition to shareholder
resolutions for more independence amongst directors in organizations, there were also calls for more
independence between companies and their outside accounting firms, following conflicts of interest that
were noted in Enron and other companies.
Shareholder derivative suits continued to grow as many were also frustrated by their limited ability to
have access to ballots to initiate shareholder proposals and nominate directors, as well as growing frustration with legal decisions in the Delaware Chancery Court that some perceived to be overly directorfriendly.120 Such was the case with the Disney case involving the hiring and firing of Michael Ovitz.
In 2006, the Delaware Supreme Court finally resolved a Disney shareholder lawsuit that began in
the late 1990s in the Delaware Chancery Court. At that time, shareholders sued Disney directors and
officers for damages arising out of the 1995 hiring and 1996 firing of Michael Ovitz. Michael Eisner,
the CEO of the Walt Disney Company at the time, hired Michael Ovitz, a talent agent and head of
Creative Arts Agency (C.A.A.), to become the company’s new president. In September the Disney
board unanimously approved Ovitz’s appointment. However, soon after Ovitz and Eisner began working together they began to have differences. After only 14 months, Eisner fired Ovitz and paid him
$140 million to settle his contract. The Delaware Chancery Court determined that Disney directors had
not breached their fiduciary duties in letting Eisner set such a high severance fee, and that the directors
had operated in good faith. When the Delaware Supreme Court in 2006 affirmed the Chancery Court
decision, it gave credence to the business judgment rule that, as long as directors exercise due care and
operate in good faith, they do not have to fear that “bad” business decisions will give rise to potential
director liability.121
However, during this time period the Delaware Supreme Court also reversed quite a few Delaware
Chancery Court decisions to take a tougher stand on directors who violated their fiduciary duties.122
While shareholders were happier with these rulings, this stirred new debate regarding the best arena to
promote and enforce new governance reforms; whether at the state or federal court level.
With a plethora of scandals at the beginning of the decade, governance reform came from legislation with the passage of the Sarbanes Oxley Act of 2002, as well as new mandates for board members
that came from a host of increasingly salient secondary stakeholders. These included the media, private
governance ratings agencies and independent auditors. Additionally, the New York Stock Exchange
and NASDAQ approved new governance listing requirements and the Securities and Exchange Commission endorsed these.123 In December 2009 the SEC finalized rules on new proxy disclosures that
place directors’ reputations on the line by affording shareholders the opportunity to more effectively
judge board members’ fitness to serve. The new disclosures include: 1) an assessment of the relationship between compensation and risk across the business, 2) changes in compensation and equity awards
disclosure tables 3) information on directors’ and nominees’ experience, qualifications and skills, as well as
discussion of any legal proceedings they might be involved in 4) information about the board leadership
structure 5) a description of the board’s role in risk oversight 6) disclosure of compensation consultant fees,
and 7) an explanation of diversity considerations in identifying and recruiting directors for nomination.124
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
With institutional shareholders owning more than 60 percent of all outstanding shares of US publicly
traded companies, professional fund managers would now take part in the monitoring of boards and
CEOs.125 Pension funds, in particular, became part of a group of institutional investors described by
Monks and Minow as, “the most visible of the institutional investors with regard to governance issues”,
and noted to be “ideal owners” in governing the corporation for their long-term horizons and ability to
influence boards in their monitoring of the TMT.126 However, they go on to note that collectively, these
pension funds can be over-inclusive in their activism, given the heterogeneity of their overseers. 127
Even after these early millennium controversies settled down, a new wave of controversies began
with the financial collapse of 2007, when a wave of bank and mortgage fraud, as well excessive executive
compensation scandals rocked the corporate governance world. “Earnings management” became the
buzzword for corporate fraud as companies manipulated their numbers to meet short-term stock market expectations, often with sophisticated methods that were hard to decipher. Bear Stearns, Lehman
Brothers, Fannie Mae and Freddie Mac, AIG and other companies collapsed with fraudulent mortgagebacked securities. The Dow Jones Industrial Average slipped from a high of over 14,000 points in July
2007 to below 7,000 points in March 2009.128 At the height of the economic crisis, consumer and commercial bankruptcy filings reached 6,000 filings a day by May 2009.129
Theoretically, this era sparked discussion of a proposed a new model of corporate governance calledthe
director primacy model, which specifically highlighted the board of directors as the focal point of centralized decision making and an “essential attribute of efficient corporate governance.”130 Under this
model, directors provide a structure that will maximize the sum of risk-adjusted returns enjoyed by all
groups, but with accountability for maximizing shareholder wealth as a central component. In essence,
this model brought the focus of strong governance directly back to the board, going beyond board composition and structure towards board processes (discussed in “changing relationships” below).
At this writing, new legislation in the form of a Wall Street Reform Bill was making its way through
the legislative system, with board-level directives including federal mandates for: 1) majority vote of
shareholders in the approval of new directors (rather than the highest number of affirmative votes), 2)
the declassification of classified or “staggered” boards where directors serve multiple-year terms with
only a subset of directors elected any given year, 3) “say on pay” initiatives that mirror NYSE and NASDAQ requirements that shareholders have to approve all new compensation plans that include equity,
4) separation of the CEO/Chair position, and 4) the establishment of risk management committees.
All-in-all, these reforms are designed to give shareholders more opportunity to “voice” their suggestions
and concerns, while limiting the board’s ability to entrench themselves with the CEO and management.
Board Composition and Structure in the 2000s
Once again, board independence was at the core of change in response to corporate scandal as board
composition continued to be the scapegoat for board governance failures. A trend toward a ‘supermajority’ of independent directors was reinforced by NYSE and SOX requirements that the audit, compensation and nominating committees have only independent directors.131 Beyond the proposed federal
reforms noted above, other director-specific directives from ratings agencies (discussed in detail below),
included regularly scheduled director sessions, codes of ethics, board self-assessments and limits on
‘over-boarding” by directors who sit on multiple boards.132 In practice, boards began to comply with
many of these mandates, with more independence and more diversity, often accompanied by a change in
leadership. In addition, boards began to put in place infrastructures including controversial new practices like advisory boards, lead directors, and term limits.
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
More board independence was accompanied by CEO firings that became known as the “CEO shuffle”
following corporate scandals and financial underperformance. Media coverage of boards increased as
high profile firings featured chief executives who had celebrity status.133 Average CEO tenure dropped
to 6.8 years in 2007 in North America, down from 8.6 years just one year earlier.134 By 2010, the turnover
rate of CEOs at the 2,500 biggest publicly listed companies was at a high of 14.3%, although CEOs
promoted from within the organization were dismissed less frequently.135 Notable CEO firings during
this decade included Disney’s Michael Eisner, Hewlett Packard’s Carly Fiorina, Boeing’s Harry Stonecipher and AIG’s Hank Greenberg. 136
It should be noted that even CEOs who were brought in to clean up after governance scandals did not
always survive for long. Charles “Chuck” Prince became CEO in CitiGroup in 2003 with the plea that
“he (didn’t) want any more bad publicity (for Citigroup).137 Yet, in his first year as CEO, traders on CitiGroup’s London bond desk violated ethics standards by dumping European government bonds onto the
market and then buying a third of them back in a half an hour at a discounted price. This ethics scandal
was shortly followed by Japanese authorities ordering CitiGroup to shut down its local private bank and
close down its government bond auctions there for legal and ethical violations. Prince was criticized for,
“being unable to drive a sense of integrity very deep into the bank”, despite its financial success at the
time.138 He lasted several more years as CEO, and then Chairman until 2007 when he retired after an
unexpected third quarter loss that year.
As the financial crises heated up in this decade, board diversity resurfaced as a top priority for governance under broader stakeholder management. First, while board diversity had been increasing for
several decades with some momentum, it began to receive substantial shareholder support.139 Shareholder proposals from individuals, unions, church groups and institutional investors either requested
some acknowledgement that boards were recruiting women and minorities, or confirmation that they
had placed a woman or minority on the board. Second, studies by academics, the Conference Board,
Korn/Ferry and other special interest groups confirmed that board diversity was part of governance “best
practice” in that diversity “sensitized the corporation to the interests of employees and consumers.”140
However, despite this evidence, progress for more board diversity appeared to be slowing by the end of
the decade. A 2006 study by Korn/Ferry of 896 of the Fortune 1000 companies confirmed that from
2001-2006 the percentage of boards with at least one female board member had grown by only 7%, and
boards with at least one minority member had only grown by 4% over that time period.141 A 2008 study
of Fortune 100 corporate board members showed that white men still held a disproportionate share
of board seats, with smaller net gains for women and minority men than white men over the previous
two years. 142 Women and minority men held 24.7% of all 1,219 board member seats on Fortune 100
boards—essentially the same as was held in 2004 Once again, while directors may have been slow to
catch on to the benefits of diversity and respond to shareholders, the SEC stepped in to force directors’
hands with new 2010 SEC proxy rules requiring disclosure of diversity considerations in identifying
directors and nominees.
Also in reaction to the financial crises at the end of this decade, new debates now ensued regarding the
need for directors with similar industry knowledge and experience. From the 1970’s on, boards tended to
be progressively more heterogeneous in business background and experience, in part as an outgrowth of
more independence, but also as the monitoring function of boards required more diversity of opinion.143
However, after the economic collapse of 2008, anecdotal evidence suggested that this might be reversing. For example, in 2009 after receiving federal monies during the federal T.A.R.P. bailout, the Bank of
America board replaced four of its non-banking board members with outside directors who had experience in banking and financial services.144 In the wake of financial collapse, the need for board consensus
on seminal strategic issues appeared to be pushing the pendulum back to more director homogeneity.
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
Director term limits resurfaced during the 2000s as a “new” option for creating a better infrastructure
for board governance. Despite little evidence that term limits improve performance, boards began to
use them to get rid of less productive directors and encourage fresh ideas, despite criticism that they
could be used as a “cop out” for companies instead of using performance reviews to evaluate director
performance.145Examples of company statements, displayed in Table 3, provide insight into the controversial nature of these limits as companies are careful to explain their positions in their published
governance principles.
Select Comfort Company is an example of a company who, in 2006, imposed a 15-year term limit on
directors, with a mandatory director retirement age of 72. However, it reversed its decision in 2008 to,
instead, set up lighter parameters for director dismissal.146 Select’s history provides some insight into this
decision. In 2000, Select Comfort’s new Chairman and CEO, William McLaughlin joined an all-white
male board, the majority of whom had little industry experience, but served on multiple boards. By 2006
the Board had recruited several female board members and additional independent board members, but
the Board decided to impose term limits. After another several years where they experienced increased
board turnover and some financial hard times, the board decided to cancel the director term limit and
instead impose some general parameters to “ensure an appropriate balance between new perspectives
and experienced directors.”147 Select was not the only company to reverse its decision; Sprint set term
limits in 2004 and later reversed them as well.148
In sum, the new millennium saw board changes in composition and structure in reaction to new legal
mandates and more corporate scandals that vilified the CEO first, and then the board. However, as we
see below, these were accompanied by significant changes in board relationships with the CEO that targeted more monitoring, with additional infrastructure to facilitate better CEO/board communication.
Changes in Reporting Relationships
between Senior Management and the Board
Ideally, the relationship between senior management (the CEO and the TMT) and the board should
be a supportive one. The top management team (TMT) is the, “relatively small group of most influential executives at the apex of an organization—usually the CEO (or general manager) and those who
report directly to him or her.”149 These members are usually teams of five to seven key personnel who
are assigned the duties of orchestrating the formulation of company strategies while also operating as a
liaison between the organization and the external environment.150 The board of directors, as monitors of
managerial activity under agency theory, receives information from these key company constituents and
ratifies their decisions. 151 Until the early 1990s, the number of insiders on the board operationalized the
top management team; however, with the steady decline of board insiders over the decades, the TMT
began with the identification of a “core” group of decision makers.152
Top managers have been noted to be potential drivers of corporate social responsibility due to their
decision making discretion and their roles in corporate social responsiveness.153 However, their ability to
do this also depends on the level of managerial discretion that they are afforded,154 as well as the moral
leadership and influence of the top executive or CEO.155 While these influences should generally be
positive, we have already noted above that when the CEO has objectives that differ from the owners, he/
she can engage in agent behaviors that can be detrimental to corporate governance. Over the decades, it
is evident that agency issues never go completely away. Additionally, one oft-noted precursor to unethical behavior is the pressure exerted on employees by superiors, which is particularly notable in poor
financial times.156 Over the decades, many corporate scandals can be attributable to failures to control for
agency behaviors, as well as the pressures on management and directors to perform for their sharehold-
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
ers. Therefore, changes in reporting relationships between senior management and the board first begin
with the balance of power as well as the ethical orientation of the top managers.
Power is a key factor in discussions about board vigilance.157 The relationship between the power of the
board and vigilance of the board is important because the CEO can affect the functioning of the board.158
While there are many factors that can affect reporting relationships between senior management and the
board over the decades, we concentrate on the relationship between the board and the CEO (as a representative of the top management team) in response to CSR initiatives/pressures/scrutiny.
1940s and 1950s
Measures of board vigilance include many of the characteristics described in the board composition/
structure section above, including (high) outside director ownership equity, (low) director compensation,
(low) number of directors representing large block shareholders and (high) relative board tenure.159 In
the 1940s and 1950s, as noted above, boards had a large numbers of insiders with high equity ownership
and long tenure, contributing to board/TMT relationships where management had a lot of influence.
Perhaps as a phenomenon of this, there is not a lot of documentation about tensions between the two
during this time.
Rather, insight is provided into the relationship between the CEO and the board during the 1940s in
the following description by Copeland and Towl in 1947. They reference the fact that the CEO during
this period would most likely be an insider, as described below:
“The chief executive is a position, as well as a person. When a man is elevated to
the position of chief executive, he must establish new and different relations with
vice presidents with whom he formerly may have been associated as one among
several specialists. It is in this connection that the board of directors may serve as
supports for helping a man establish himself in the position of chief executive with
a minimum of stress. …If members of the operating staff are aware that the chief
executive has the support of an active, informed board of directors, there will be
fewer petty challenges of his authority and less likelihood of jealous attempts to
hamper his plans….If there is to be a fundamental change in the direction of the
enterprise when a new chief executive takes office, the board must be prepared to
back him up.”160
The insider/CEO was the “planner” at this time, with the board as his backup. However, Copeland
and Towl also note that, “the oft-expressed doctrine that in filling the executive position the authorities
should hire a good man and then leave him alone is valid only within certain limits.”161 The ethical orientation and solid leadership of the CEO was seminal to good CSR practices at the time. Unionization
put the CEO to the test; however, when issues of employee wages and human resources began to heat up
in the 1950s, squaring off management and boards in contract negotiations with union employees. For
example, AT&T had serious labor troubles in 1947 with the National Federation of Telephone Workers
as management and workers faced off over wages, working conditions, and benefits. 162 Despite management’s pleas with the AT&T board, a nationwide strike took place in 1947, causing severe challenges to
the company’s financial stability. Public opinion went against the strikers and the eventual compromise
favored AT&T.
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
1960s
This decade began with a growing awareness that directors should and could participate in broader
institutional and social issues. Selznick wrote about the institutionalization of the social structure
of boards—with the implication that boards represented the institutional purpose and reflected the
values and norms of the organization in society.163 This was supported by Davis, who brought this to
the managerial level and expanded this concept by noting that managers should also reflect professional norms that support social goals.164 Yet, in practice, discussions between the board and management were almost exclusively regarding financial performance. The relationship between TMT and the
board was described as one where executives managed their division in the organization consistent with
strategies dictated by the CEO, who was most likely the Chairman of the Board, and who handled strategic affairs and external relations while the COO reported to the CEO regarding internal operations.165
As such, communication between senior management and the board was largely through the CEO or
through committee reports.
Despite business/society issues of civil rights, ecology, consumerism, quality and women’s liberation,
to name a few, there was little impetus for top managers to take part in initiating and/or implementing
corporate social programs, even when the board came up with a stated corporate social policy. There
were two possible problems at this time noted by researchers. First, some saw problems with a “policyimplementation gap” when managers failed to embrace the corporate social policies of their employers.166 Second, others noted problems in the autocratic infrastructure that contributed to a failure of
managers to execute CSR strategies.167
It is possible that the passivity of corporate boards in the 1960s extended to board/TMT relationships
regarding social initiatives. With the CEO as an insider and the board serving in an advisory capacity,
any engagement with social activities was left in the hands of the CEO. However, sometimes the social
issues of the 1960s demanded that the TMT and the board respond collectively to activist groups and
protesters. Vogel documents several examples of businesses in the late 1960s that were involved in urban
affairs programs, where executives worked together to better their economic and social environment,
albeit with mixed feelings about the expenditures that did not necessarily contribute to their companies’
bottom lines.168
1970s
In the 1970s, board/TMT relationships were significantly challenged by the excessive corporate diversification, weak governance and managerial capitalism noted above, as well as rising social activism that
had begun in the 1960s.169 The relationship between the CEO and the board was an incestuous one, as
boards were less diligent in dealing with powerful insiders that often came from corporate restructurings. Executives with financial backgrounds gained prominence as “financial CEOs” at this time, setting
the tone for a “finance concept of control” that contributed to the potential for short-term valuism in the
management of the corporation.170
There were a few notable exceptions to this, especially when unions were involved. After United
Airlines acquired Capital Airlines in 1961 to bolster its network in the eastern United States, an insider
engineer named Keck replaced United President Pat Petterson in 1969. Keck had risen from the company’s maintenance department to the top position, but according to some reports, his authoritarian
personality offended management and the unions, as well as the Civil Aeronautics Board. In 1971 Keck
was forcibly removed in a “corporate coup” instigated by two members of the board, Gardner Cowles and
Thomas Gleed, with the help of the union.171
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
This time period also saw the beginning of board subcommittees to assist board members in gathering
information as well as to provide for more accountability. Ironically, Dow Corning, considered a model
of product safety right up to the time of its breast implants scandal in 1991, had one of the first “Business
Conduct Committees” in the 1970s.172
This was a time of boycotts, placing the CEO in the forefront of the corporation as the “face” of the
business. In 1977 the AFL-CIO launched a boycott against Coors Brewing Company for grievances
that included allegations that the brewery put prospective employees through polygraph tests to determine, among other things, if they were homosexual.173 Activists targeted President Joseph Coors of the
Coors family when it was revealed that Coors did not have an anti-discrimination policy at the time. In
1978, after several years of ignoring the boycott, the Coors board finally announced a non-discrimination policy.174 In 1977, a national campaign boycotting the Florida Citrus Commission was waged when
Anita Bryant, the spokesperson for the Commission founded an organization called Save Our Children
to repeal a Dade County, Florida ordinance that protected men and lesbians from discrimination in
employment and housing. The boycott lasted years and while she was only a spokesperson, Bryant was
vilified as if she ran the Commission.175 Finally, as noted above, 1977 was the beginning of the Nestle
boycott as consumers protested the company’s promotion of infant formula over breastfeeding in underdeveloped countries. This eventually led to a US Senate public hearing and an international meeting of
the World Health Organization, UNICEF and advocacy groups. The International Baby Food Action
Network (IBFAN) was formed by six of the campaigning groups at this meeting and continues to monitor the actions of Nestle.
Only at the end of the decade did boards become more active in curbing the agency behaviors of
the CEO. This turned around with the growing power of the Securities and Exchange Commission to
enforce tighter controls as securities laws were elevated to the federal level and CEO/board relationships began to come under scrutiny. Boards also began to put in place more infrastructures to facilitate
the monitoring of CEOs with board assessments and oversight committees. However, true changes
in the relationship between the CEO and the board did not occur until the late 80s, when directors
began to put in place additional committees and formalized CEO assessments to assist them in their
monitoring function.
The entrenchment of the CEO could even be seen in corporate philanthropy, as CEOs were often
more familiar with their corporate charities than the board during this time. This period is described as
one with an “old style” philanthropy that involved quid pro quos and “over the hill executives” that were
giving money away without much thought.176
1980s
TMT/CEO relationships were forced to change radically in this takeover decade as insider scandals
and the S&L crises highlighted agency costs in practice. Information asymmetry between management
and the board forced boards to re-examine their information-gathering processes and the authority
structures in their organizations. Financially savvy CEOs were seen to lose power in a study of CEOs
who rose to power from the 1960s-1980s; this occurred under a “circulation of corporate control” when
finance and operations became less clearly delineated.177
Additionally, directors began to be thought of as part of a system of entrenchment during this takeover period, resulting in several Delaware court cases where shareholders brought suit. The cases of
Unocal Corporation v Mesa Petroleum, Revlon v McAndrews & Forbes and Smith v VanGorom resulted
in significant curtailments in the powers of directors after finding issues with directors’ duties of care
during merger mania. Discussions of entrenchment were supplemented by litigation against directors
who jumped at merger proposals too quickly, participated in unfair and scrupulous board practices, and
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
engaged in management-led LBOs to stave off takeovers. In fact, many companies’ boards arranged
mergers on their own to escape corporate raiders, with subsequent CEO and top management turnover.
Such was the case in 1984 when Philip Morris took over General Foods, leading to a complete restructuring of their corporate framework.
Despite the concerns over board entrenchment in this takeover environment, it should be noted that
there were some examples of powerful boards in this same takeover environment. In 1984 a boardroom
coup led by Roy Disney ousted Walt Disney’s son in law, Ron Miller, under the threat of corporate raiders. Director Stanley Gold, a good friend of Walt’s and a Disney director argued that in an era of hostile
takeovers, the best takeover defense for Disney was “new management.” After ousting Miller, Gold and
two other directors orchestrated the hiring of Michael Eisner as new chairman and chief executive.178
Institutional investors, concerned over the takeover environment and anti-takeover defenses began to
use shareholder resolutions to combat both board and management entrenchment. In 1987 the first corporate governance resolutions from institutional investors were submitted to 34 companies, with moderate voting success.179 Changes in reporting relationships between management and the board also took
place during this time period in response to shareholders’ complaints over CEO compensation practices
(discussed in detail below). Prior to the 1980s, most CEOs were paid salary, bonus and contribution to
a retirement fund and compensation was set by the board at the recommendations of the compensation
committee. However, following hostile takeovers in the 1980s, CEOs and key managers were given
“golden parachutes” to compensate them for loss of office, and salaries began to climb. Toward the end
of the decade, tax law changes facilitated the escalation of CEO salaries as well, contributing to a general
state of CEO compensation termed “excessive.”
To avoid litigation, power and authority within many companies shifted from the CEO and the board
to independent, professionally advised outside directors, as well as to internal committees like the audit
committee. This was a switch from earlier decades where internal committees were primarily functional
and served little political purpose.180 In fact, the growth in types of committees during this time provided
infrastructure to the corporate machine, as well as facilitated directors’ attempts to shelter themselves
from liability.181
Managerial theorists in academe, interested in the changing relationship between the board and the
CEO, began to concentrate on the ways that boards and management interact in board processes.182
Social structural theorists focused on networks of elite board members and the way that they formed
their decision processes and interacted with management.183 By the next decade, the Chancery Courts,
proxy advisory firms, ratings agencies and even the United Kingdom were prescribing changes to CEO/
board/shareholder relationships.
1990s
The 1990s saw a significant change in reporting relationships between management and directors as
directors tried to reclaim their authority. First, a dramatic speech by the Vice Chancellor of the Delaware
Supreme Court in 1991 reprimanded boards on their failure to adequately monitor their senior management.184 Second, in 1992, the United Kingdom issued the Cadbury Report, which produced a “Code of
Best Practice” following several notable pension fund scandals in that country. US companies reacted to
these as well as US shareholders, advisory firms and activists jumped on the bandwagon of “best practices.” Boards were forced to reinvent their monitoring role, and expand their authority into more strategic and policy planning. They did this with significant changes to their companies’ infrastructures(noted
below), as well with new processes such as, 1) performing strategic audits to solicit information bottomup from their managers, 2) re-examining CEO incentive packages that aligned the CEO with shareholders (albeit with other problems of conflicts of interest), 3) curbing the managerial discretion (latitude
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
of action and objectives) of the CEO and the TMT, 4) working around CEO duality with additional
committees, and 5) using ratings agencies and their metrics for benchmarks of best practice.
Strategic audits were introduced in the early 1990s as a way for boards to evaluate the strategic plan
and set performance goals for managers. Promoted as a “new tool” for board members to take a more
active role in the strategic process, they served as a vehicle for boards to gather more and better information from the TMT while also allowing them to assess their subordinates for compensation.185
While CEO pay had surged dramatically in the late 1980s as a result of golden parachutes and severance packages following the takeover phase, the 1990s saw the growth of stock options to supplement
CEO pay. These options became popular partially as a result of tax law changes that encouraged boards
to keep executive salaries under $1 million while ratcheting up performance-based pay.186 While stock
options were not necessarily points of issue with shareholder activists if they served to align the interests
of the CEO and owners with good financial performance, media coverage of excessive CEO compensation without such performance was pervasive (companies like Disney, Bristol Myers, ITT and Green
Tree Financial (Conseco) were highlighted in the media). Perhaps in reaction to this, the SEC reversed
its policy and allowed advisory (non-binding) shareholder resolutions on compensation. However, compensation continued to ratchet up as executive compensation consultants fueled the growth by negotiating pay with restricted stock options that were paid regardless of performance and further weakened the
pay-performance link.187
Increased managerial discretion (latitude of action) during this time period allowed management
to take on a greater role in finding and addressing stakeholder concerns. However, this did not always
work in practice, as noted in the case of Caremark International, Inc. 188 In 1994, this supplier of intravenous drugs and health care services was indicted on 51 felony counts of health care fraud, including
paying kickbacks to physicians. The indictment named the company, its board, two vice presidents, and
several employees. After a four-year investigation by the United States Department of Health and
Human Services and the Department of Justice, Caremark entered a plea agreement and subsequently
made approximately $250 million in reimbursements to various private and public parties. Prior to the
investigation, Caremark had a highly decentralized management structure, and despite the presence of a
“guide to contractual relationships” for its employees stating that no payments would be made to induce
patient referrals, there was some latitude of interpretation for physician fees for monitoring Medicare
and Medicaid recipients. Following the indictments, the Caremark made several changes to its reporting
structures to “centralize its management structure in order to increase supervision over its branch.”189
Table 4 provides a summary of changes, which can be seen as a precursor to many of the changes mandated in the next decade by the SEC to stymie potential conflicts of interest.
The Caremark case also had implications for directors’ duties in a subsequent lawsuit initiated by
Caremark shareholders to recover damages following the scandals. In the shareholder settlement suit
Chancellor Allen of the Delaware Chancery Court ruled that directors have a fiduciary duty to adopt
and oversee a compliance program even in the absence of any notice of actual wrongdoing, thereby
expanding directors’ oversight duties beyond those that arise from concern over litigation.190
Despite calls for the separation of CEO/Chairman roles over the previous decades, for the most part,
CEO duality was not being addressed by boards. Likewise, directors were not nearly as progressive in
putting in place formal CEO succession plans during this time period, and shareholders began questioning the methods by which CEOs “handpicked” their successors. CEO Bob Allen of AT&T, for example,
nearing his planned retirement date of January 1998, saw his chosen successor rejected by the board in
mid-1997.191 Activist shareholders began demanding that companies formalize CEO succession plans,
resulting in SEC rulings regarding this in the next decade. However, many firms tried to address these
issues of entrenchment by implementing a “lead director.” This provided the CEO/Chairman a director to
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
avoid conflicts of interest in selecting committee members and chairpersons, as well as to monitor board
meetings. Finally, the lead director also became the person to manage the CEO assessment process.192
Toward the end of the 1990s, proxy advisory firms like the Institutional Shareholder Services promoted the use of governance ratings and metrics to rank and analyze the corporate governance practices
of public companies. ISS produced the Corporate Governance Quotient (CGQ), designed specifically
for institutional investors so that they could use the data to “mitigate risk and drive shareholder value.”193
In 2001, Governance Metrics International (GMI), an independent research and ratings agency developed a GMI rating system to provide institutional investors a way to assess governance risk. Additionally, in 2002, The Corporate Library (TCL) devised a proprietary system to assess board effectiveness.
These three groups, in particular, provided measures for the first time, that attempted to capture management/board interactions through metrics regarding “ownership structure and influence” “board structure
and process” “executive and director compensation” and “charter and bylaw provisions”. 194
Over the next decade, these ratings agencies would refine their metrics with the help of corporate
governance and legal advisors to try to capture more information about board processes and relationships between directors and senior management. Other ratings agencies joined the fray though
with slightly different measures and different target audiences195, however, despite the popularity of
these ratings systems, the causal link between certain governance practices and financial performance
remained nebulous.196
The economic pressures of the 1990s also led to a resurgence of boycotts, some of these employee-led
over wage issues. In 1991, workers at Diamond Walnut launched a boycott of the company because they
claimed that in the mid-1980s they had accepted a 30-40 percent cut in wages in an attempt to remedy
the company’s financial record. When Diamond returned to profitability in 1991, the union asked for
additional concessions from union representatives whereupon the employees initiated a public boycott
against Diamond that lasted for several years.197
2000s
Personal greed, appetite for risk and excessive debt of individual decision makers exacerbated many elements of the economic crises and also highlighted the failures of corporate boards to effectively monitor
management. “Willful ignorance” was the term used to describe the feeder fund managers, for example,
who were incentivized to ignore the lack of documentation in the Madoff scandal.198 As an exclusive
broker, Madoff demanded secrecy from his clients and covered up his investment advisory sideline.
Despite attempts by whistleblower Harry Markopolos to alert the SEC to the Ponzi scheme in early
2000, the SEC failed to act and Madoff ’s firm operated until the day he was arrested in 2008. The lack
of transparency and accountability that plagued the Enron scandal reinvented itself in the investment
industry, despite oversight from regulatory groups like the SEC.
Board oversight became a huge issue as the focus of scandals transferred from CEOs (in the 1990s) to
boards. The US Senate Subcommittee on Investigations, in discussing the role of the board of directors
in Enron’s collapse, noted that, “….during the Subcommitee interviews, the Enron Directors seemed to
indicate that they were as surprised as anyone by the company’s collapse. But …more than a dozen incidents over three years…should have raised Board concerns about the activities of the company.”199 As
noted above, executives can often apply pressure to their subordinates that leads to unethical behaviors.
During the WorldCom trial, CFO Scott Sullivan blamed his fraudulent behavior on the pressures from
CEO Bernard Ebbers to “make the numbers.”200
As fallout to these criticisms, boards of directors began re-examining their relationships with their
CEOs. As a first step, directors began using formal CEO evaluations to justify CEO pay packages as
well as to become more vigilant.201 Conflict between the board the TMT also began to grow during this
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
time period as boards and CEOs experienced a “period of distrust” in the wake of corporate scandals and
pressures to perform better for their shareholders. Boards began having executive sessions for outside
directors without any management present, perhaps contributing to the feelings of mistrust. In Revolt
in the Boardroom, reporter Alan Murray chronicled many of the CEO firings that took place in response
to market collapse, corporate scandals, and plummeting public perceptions of CEOs. In one revealing
survey in 2006, 31.9% of CEOs who resigned did so due to conflicts with the board and transparency
issues, up from 12.4% in 1995.202
CEO hubris became a descriptive for problem CEOs whose companies were underperforming while
their salaries grew. Hewlett Packard CEO Carly Fiorina was an example of this. Fiorina served as chief
executive officer of Hewlett-Packard from 1999 to 2005 (and Chairman 2000-2005) when she was fired in
a boardroom coup. She fell hard from her status in 2001, where she had been named one of the thirty most
powerful women in America by Forbes magazine.203 Despite an initial success at cleaning up the company,
the company stock in 2005 dropped to 55 percent below where it had been when she took over in 1999.
Additionally, the board had problems with her management style. In a memo from three directors to Fiorina before her firing in 2005, three board members brought a message to her citing concerns over her failure to communicate, her inability to let them set the agenda for board meetings and her need to be more
flexible in listening to the other board members when dealing with the company’s underperformance.204
Shareholder activists, who in the preceding decade began to take on more social issues, became fully
engaged in the governance arenas. These activists weighed in on CEO/board relationships, requesting
more “shareholder voice” in support of most of the Sarbanes-Oxley initiatives, as well as issues outside
of SOX mandates, like the ability of shareholders to have input on TMT pay packages and requests for
more frequent and open meetings. 205
The issue of CEO duality ultimately joined the list of poor governance practice from governance
watchdog groups,206 even as companies scrambled to complement their dual CEO/Chairs with lead
directors. 207 In 2008, a Wall Street Journal survey showed that companies were finally buying into the
concept of separate leadership as they reported that approximately 36% of Standard & Poors-500 companies had separate chairs and CEOs, up from 22% in 2002.208
Despite the addition of greater metrics to evaluate CEO/board relationships as well as board effectiveness, the 2000s saw some debate about ratings agencies First, some argued that the ratings agencies
promoted the practice of excessive checklisting in companies, resulting in the homogenization of board
evaluation measures and a “checking the box” mentality without any assessment of their effectiveness.209
Anecdotal evidence suggested that this might be true, as some of the “best governed” companies, like
Campbell Soup and Compaq Computer, experienced earnings decline and executive turnover following
their good ratings. Second, the ratings themselves were often noted to be flawed in their compilations,
using indices and averages that were proxies for board behaviors, with some indication that institutional
investors are complicit in pushing checklisting.210 Perhaps in answer to this critique, the SEC approved
NYSE governance rules in 2003 requiring directors to conduct annual self-evaluations to assess their
performance as well as the performance of their committees.
Formal CEO succession plans continued to be missing in more than half US companies, despite
being lauded by governance activists as instrumental to “corporate health.”211 The process seemed to be
gaining popularity in the beginning of the decade, growing from 10% of the US companies tracked by
ISS in 2003 to 40% by 2006.212 However, by 2010, only 50% of US companies had a written, disclosed
CEO succession plan and 65% had not even asked internal candidates whether they wanted the job.213
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
Specific Ways that Boards have Dealt
with Corporate Governance and CSR
The changes to board composition and structure noted earlier are some of the ways that boards have
dealt with CSR issues, most notably regarding agency problems in corporate governance. The next section highlights some ways that boards have managed their CSR responsibilities and ethics over the
decades, beginning with uses of philanthropy and better employee communications in the 1940s/50s,
responding to activists and developing ESOPs in the 1960s and 1970s, managing reputations in the
1980s, and setting up progressively more infrastructure to support CSR strategies from the 1990s-on.
These sections are somewhat brief, given that this is also captured in previous sections on board composition, changing reporting relationships and the growth of CSR positions in organizations.
1940s and 1950s
Corporate board during this time period did relatively little to change their composition, structures, and
relationships with TMTs to control for the agency behaviors in corporate governance. Similarly, boards
were insular regarding the broader issues of social responsibility, tending to rely on government intervention to address issues of employee and consumer rights.214 While most corporate board members
were local to a community, interactions between the board and external stakeholders was minimal at
best. As a general philosophy, corporate philanthropy was seen as an opportunity for boards to increase
the legitimacy of their businesses, and perhaps limit the sway of government. Boards sought legitimacy
not in response to the stock market crash of the 1930s, however, which was largely blamed on financial
market intermediaries. Rather, corporate boards sought to claim power in local communities and hold
back the legal sway of regulators on other issues like conflicts of interest.215
While corporate philanthropy was booming (noted earlier), corporate boards were less successful during this time period with some of their internal stakeholders. With the passage of the National Labor
Relations Act in 1935, union density was at an all time high in 1940, and that presented challenges
for many corporate boards. Ethics issues during this time period revolved around employee rights and
justice in the face of union disagreements with management. Unions pushed to be more participative in
corporate governance structures through ownership and boards bargained and negotiated with unions
to satisfy employee grievances.
“Open Door” policies were formalized in a few companies during this time period as an alternative
way for employees to express grievances to management, but it was not unusual for this to go all the way
up to the director level. IBM was a forerunner of this practice in the 1950s, considered a seminal part of
IBM’s culture at the time.216
Despite the rocky environment with union employees during this time period, however, corporate
boards in the 1940s saw very few shareholder lawsuits, even given the passage of federal proxy rules in
1943 that provided for the inclusion of shareholder proposals in the annual proxy statements of public
corporations. 217 When shareholders did have issues with management, they were limited to lawsuits for
breach of fiduciary duties, however this was very expensive and limited the lawsuits brought by individual investors at the time. Nevertheless, by the end of the decade companies had to respond to corporate
crusaders like Lewis Gilbert--one of the growing numbers of corporate gadflies pushing companies to
respond to employee issues like gender discrimination and human rights.218
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
1960s
The 1960s was a decade of little progress in reforming corporate governance issues associated with
agency costs and unethical behaviors (noted above); however, it was a decade where boards began to
respond to unions for better employee conditions. These improvements primarily focused on industrial
relations and personnel policies for workplace safety and fair wages, as many companies began drafting
anti-discrimination policies and procedures. 219 Additionally, companies responded to boycotts on issues
ranging from consumer quality to divestment of securities and resources in controversial countries, like
South Africa.
In Revolt in the Boardroom, Alan Murray cites an early example of individual activism when in 1966,
an independent activist, Saul Alinsky, convinced the owners of 39,000 Kodak shares in Rochester, New
York sign over their proxies so they could be used to vote against current management for failing to hire
minorities.220 As a result, Kodak agreed to implement a minority hiring program. While there are some
protests and boycotts during this period that are attributed with “spectacular successes,”221 researchers of
ethical consumerism are quick to note that even today, the evidence of extensive ethical consumerism is
nebulous at best.222
1970s
While little progress was being made on the corporate governance side in the 1970s, this time period
saw corporate boards responding Nader’s consumerism as well as environmental and consumer protection laws of the 1960s to take on broader, external stakeholder perspectives. Boards responded by 1) confronting powerful activists 2) developing formal and assessments of corporate social and environmental
performance, often in response to consumer lobbyists, 223 and 3) aligning management and shareholder
interests through Employee Stock Ownership Plans (ESOPs).
Activists like the Interfaith Center on Corporate Social Responsibility (ICCR) put pressure on boards
to respond to corporate governance and broader CSR issues. Founded in the 1970s to help Roman Catholic groups leverage their stock holdings, the ICCR began taking on a wide variety of social initiatives
including TV violence, nuclear power, the sale of baby formula in other countries and anti-apartheid in
South Africa.224 The power of their voting shares wielded influence, and many boards acquiesced to their
demands. The anti-apartheid movement against South Africa continued well into the 1970s as activist
groups like the ICCR put boards directly on the hot seat to divest their companies’ investments. In fact,
divestment became a visible tool in CSR campaigns. However, some companies pushed back on these
pressures. First National Boston Corporation, Mobil Oil Corporation and Motorola held out for over a
decade until they finally divested from South Africa in the late 1980s.225 Companies were less inclined
to fight gender and race discrimination litigation during this time period as the US Equal Employment
Opportunity Commission ramped up its investigations. In 1974, the EEOC filed suit against nine of
the largest steel producers and the major steel workers union for discriminatory practices against women
and minorities, resulting in the award of almost $31 million in back pay distributed to over 40,000
employees.226 United Airlines, Illinois Central Gulf Railroad, Bechtel Corporation and AT&T also
found themselves signing consent decrees and making restitution, with agreements to increase the hiring, promotion and salaries of women and minorities.
Boards responded by setting up internal committee structures to respond to activists and standardize
its corporate governance practices. While corporate audit committees became a legal requirement during this time period, voluntary corporate public policy/public responsibility committees became more
common following Nader’s campaign against GM during this time period.227 However, it was the formation of the compensation committee, and the independent voice on executive compensation, that
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
afforded boards the opportunity to change public perceptions of their oversight and accountability.228
In 1974, the Employee Retirement Income Security Act allowed corporations to establish employee
stock ownership plans (ESOPs), to allow employees to become owners under a defined contribution
benefit plan. This became a popular for boards to actively transfer ownership to employees, align management/owner interests, and mitigate workplace tensions, as employees felt that they had a “say” in
strategic issues. However, these were not without controversy since many of these ESOPs were also used
to avoid hostile takeovers.229
1980s
As boards struggled with managerial capitalism, their focus during this decade was on improving corporate governance while managing their reputations with broader stakeholders. Pension fund activists like
the Council for Institutional Investors (CII), and proxy advisory firms like the Institutional Shareholder
Services (ISS), began to take up broader social initiatives, and for the first time, corporations found
themselves answering to a savvy group of powerful investors who weighed in on everything from South
Africa investments to animal rights.230
The CII was formed in the early 80s to issue policy papers, file briefs, testify on important legislation
and operate as a “clearing-house for its private and public pension fund members.” While it was obligated by law to protect the beneficiaries of its plans, it also had the ability to be somewhat independent
in that it was not beholden to any one distinct group; over the years the CII found that they had the
ability to evoke change in corporate governance and broader CSR initiatives. In fact, in the 1980s the
CII modified its mission statement to include both governance and social issues directives.
Meanwhile, social activists and non-governmental organizations (NGOs) used “naming and shaming” as a strategy to impinge companies’ reputations and coerce them into paying more attention to governance and social issues. In the late 1980s and early 1990s this practice became particularly egregious
when United Way was found to be funding Planned Parenthood, and anti-abortion activists began lobbying against these companies.231 In 1990, the Christian Action Council announced a boycott of more
than forty corporations alleged to be funding Planned Parenthood and, as a result, many boards made
the decision to stop funding Planned Parenthood under fear of loss of revenues and resources. Often,
corporations would respond to such incidences by using philanthropy and cause-related marketing campaigns to burnish their reputations.232 As an example of this, many point to the 1982 Johnson & Johnson
Tylenol scare, where the firm’s positive social reputation from years of corporate philanthropy helped it
through subsequent hard financial times.233
1990s
By the beginning of the 1990s, corporate reputations were suffering. As policy planners for the corporation, individual directors were being held liable for unethical/illegal behaviors of their subordinates.
Boards began employing external auditors to provide stakeholder scanning services in order to facilitate
information gathering and provide additional layers of oversight. Directors had to step up to allay the
fears of their shareholders, address ongoing CSR issues, and resurrect their reputations. To do this,
they 1) changed management, 2) established infrastructure to receive better/more information from the
TMT and their constituents, and 3) re-established goodwill with stakeholders through sustainability
and philanthropy initiatives.
The CEO shuffle that began in this decade continued through the new millennium. The CEO became
the scapegoat for many of the governance problems of the previous decade; even those CEOs who were
not holdovers from hostile takeovers, but were resistant to board directives, found themselves out of a
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
job. As an example of this, General Motor’s board of directors forced the resignation of CEO Robert
Stempel in 1992 when outside directors cited the need for heightened board oversight and met privately
to discuss Stempel’s perceived indifference.234 Within days of this meeting, Stempel was forced to resign
and the independent directors agreed to accept it.235
Boards also began to look internally to allocate resources to CSR and ethics initiatives. One new “tool”
for the 1990s became the ethics hotline, designed to provide an anonymous reporting system whereby
employees and other agents could report criminal crime without retribution. One early user of the
hotlines was General Dynamics, when, after a series of controversies and indictments in the 1980s over
conflicts of interest on government contracts, was ordered to establish an ethics program that included
hotlines.236 By 1990 their ethics hotline was receiving 5000 ethics “communications” a year on topics
ranging from complaints over supervisors to reports of kickbacks.237 These hotlines were instituted after
Federal Sentencing Guidelines for Organizations (FSGO) were established in 1991 to motivate organizations to police themselves to ensure compliance with Federal laws. Later, these were amended in
2004 to reinforce the whistleblower requirements of Sarbanes-Oxley, whereupon they began to be used
widely by companies as part of their compliance standards.238
Boards found new ways to address social concerns from stakeholders under a new business paradigm:
the concept of sustainability, that businesses should be good corporate citizens along a spectrum of
issues that “meets the needs of the present without compromising the ability of future generations to
meet these needs”. 239 While sustainable development had been part of the language of international
business for many decades, it was in the late 1990s that the concept started to include corporate social
responsibility, and US companies began to make this part of their corporate governance.240 The focus of
sustainability was on climate change and energy to preserve the physical environment; however, by the
end of the 1990s the concept had evolved to include behaviors, social structures and stakeholder relationships for long term survival.241 In 1999 the Dow Jones Sustainability Index was launched to create
global indices tracking the performance of “sustainability-driven” companies under a “triple bottom line”
concept that included economic, environment and social issues.242 Boards began to establish sustainability committees to confront social activists on topics ranging from rain forest to ethics in the supply
chain. By the end of the 1990s, the focus of responsibility for sustainability was placed directly on senior
leadership, including boards and the CEO (addressed further in the 2000s).
By the mid-1990s, institutional investors began to exert more influence over boards for social reforms.
Boards responded to pressures from these investors, as well as international organizations and nongovernmental organizations in the 1990s by participating in the practice of corporate social reporting,
an expanded form of the social audit, which had been introduced in the 1970s.243 In 1997, the Coalition
for Environmentally Responsible Economies (Ceres) --initially formed as a partnership between environmental groups and institutional investors-- launched the Global Reporting Initiative (GRI), which
served as a standard for economic, social and environmental reporting.244 While boards were slow to
respond to this initiative, by 1999 more than 500 companies had issued reports under the GRI’s third
generation of standards.245
Philanthropy became a tool for boards to reach out to external stakeholders and manage their reputations. This was a significant change from earlier decades when top management teams, and specifically,
CEOs managed donations for personal power (noted above). For example, following labor problems and
sweatshop allegations, both WalMart and Nike boards responded to criticism of their business practices
by environmental groups by increasing donations to conservation programs.246 Some boards also found
that corporate philanthropy could be used as a weapon, for example in 1994, when Philip Morris, a
major funder of the arts, asked many of its grant recipients to lobby against the New York City Council
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
proposed bill banning smoking in most public places. Philip Morris made it clear that if the bill passed,
the corporation would move its headquarters and grants out of New York City.247
The transfer of authority for decision making in philanthropy at this time is noted in Himmelstein’s
book, Looking Good and Doing Good:
“The place of philanthropy in the corporation is tenuous partly because of the fiscal squeeze, but not because of this alone….Corporate philanthropy began as little
more than a “check writing operation” for the favorite charities of top management;
it has risen from these humble beginnings (i.e. professionalized) only slowly and
unevenly; and top managements may have strong incentives to reassert personal
control over their giving programs. As a result, corporate giving programs inevitably
face the problem of too much CEO involvement as well as too little.”248
By the beginning of the new millennium, philanthropic giving had become a strategic tool for companies to manage their reputations.
2000s
The Sarbanes-Oxley Act of 2002 (SOX) changed the landscape for how boards deal with corporate governance. Internal controls become the direct responsibility of board members post- SOX, leading to the
development of infrastructure to bring additional transparency to shareholders. As such, boards initiated
a host of new internal controls, including, but not limited to, new compliance standards, multiple compliance reports to the audit committee and the board, and formal policy compliance assessment committees to
monitor for conflicts of interest, ethics training and ethics hotlines — often with standards that went beyond
those mandated by SOX. Internal auditors now reported directly to the board under SOX, and the growth
of sub-committees for ethics, corporate social responsibility and governance continued through the decade.
While SOX standards became the benchmark for governance for many US companies, the UK Companies Act of 2006 arguably set the bar higher for directors, surpassing the Cadbury Act with new
standards of fiduciary duties for UK/Northern Ireland. Generally, these required that directors take into
account their responsibilities to a broad group of stakeholders including suppliers, customers, the community and the environment.249 These mandates placed new emphasis on directors’ abilities to influence
corporate social responsibility, with speculation that the Act would attract institutional investors to London’s financial markets from Wall Street. 250 The implications for US directors were clear: they needed to
meet these higher standards with director-led CSR initiatives or risk losing business to the UK.
Governance ratings’ agencies also increased their watchful eye over board behaviors. Board processes
became a larger part of their measures for good governance under several new metrics. In 2010 ISS
announced that it would discontinue its CGQ rating to form a new measure, GRId, which grouped
governance practices into four headings of board structure, shareholder rights, compensation and audit,
with color-coded risk assessments for each category based on an absolute, rather than a relative basis.251
Also in response to current issues, in 2007 GMI added board accountability to its research categories
and developed a system to analyze the relationship between CEO pay and performance.252
Social reporting increased during the 2000s. By 2006, over 2000 companies had published nonfinancial reports on CSR activities, with more than half of these formally audited.253 General Electric, for
example, published a “citizenship report” beginning in 2001, available online and containing a broad set
of sustainability data gathered from GE functional leaders, annually reviewed by the board.254 While not
formally audited, GE has historically convened a “stakeholder advisory panel” of sustainability experts
to vet the report before it is posted.
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
Sustainability committees continued to be highlighted by senior management during this period;
however, a 2008 report on sustainability in The Economist, noted that despite the growing popularity of
sustainability initiatives (with over 53% of firms worldwide surveyed claiming to have a sustainability
policy), responsibilities had been “dispersed throughout the organization, and 11% of companies admit
to having nobody in charge.”255 Despite the fact that most firms that 59% of the respondents gave oversight of sustainability to the CEO or the board, the report concludes that “a lack of clear responsibility
for sustainability at the board level is a major impediment to progress.”256 Figures 2 and 3 provide a
snapshot of the time that boards are spending on CSR sustainability issues.257
Other compliance tools, while popular with ratings agencies, were less successful. Despite the endorsement for ethics hotlines following Sarbanes-Oxley, a 2007 National Business Ethics Survey showed that
employees were reluctant to use them.258 Anecdotal evidence also suggested that while companies often
tout ethics hotlines to boost their reputations, they might not work in practice. Such was the case for
CitiGroup in 2004. In response to several ethics scandals (noted above), CEO Chuck Prince established
a series of new ethics initiatives. Although the bank’s toll-free ethics hotline had been in place for several
years before CitiGroup’s bout with trading desk scandals in 2004, Prince commented that the hotline would
now be “aggressively marketed” to employees for better use, along with other new compliance standards.259
Boards often reacted to shareholder resolutions and boycotts by “cleaning the house” following scandals. In late 1999, United Airline (UAL) lost its goodwill with homosexuals when several UAL executives protested a San Francisco ordinance mandating domestic partner health insurance benefits; the
result was a two-year boycott of UAL by social activists. After top management team members responsible for the campaign were ousted, the airline began actively packaging vacations for gay travelers once
again.260 In 2002, the board of Cracker Barrel’s parent company voted unanimously to add sexual orientation to the company’s non-discrimination policy after shareholder resolutions sponsored principally
by the New York City Employees Retirement System and a 10-year boycott of the restaurant forced the
hand of executives to give in. The new policy was instituted after Michael Woodhouse replaced Ronald
Magruder as CEO (in 2000) and Chairman (in 2001).261
Philanthropic giving challenged boards in the new millennium. While the beginning of the decade
saw contributions rising, facilitated by an internet boom, by 2002 corporate giving as a percentage of
profits dropped by 50%, according to a Harvard Business Review report by Porter and Kramer at the
time.262 They go on to cite the “unfocused and piecemeal” nature of contributions, with a directive that
businesses could use “context-focused philanthropy to achieve both social and economic gains.”263 While
not specifically addressing boards, they make the case for strategic use of contributions, as opposed to
using these monies purely to generate goodwill, boost employee morale and generate positive publicity.
They expanded this theme in 2006 with another article on how CSR, in general can add value and be
part of a company’s competitive advantage.264 However, any momentum from this thought –process was
lost to corporate boards in the economic crises of 2008. In the words of Jack and Suzy Welch, “The bar
for strategic CSR is now higher than ever. Consumers are increasing unable (or unwilling) to pay more
for something simply because it makes them feel good inside.”265 CEOs became the face of philanthropy
once again, as despite the economic hard times, some CEOs made the pitch for continuing their charitable donations. In 2006, financier Warren Buffet announced that he would give all of his Berkshire
Hathaway stock to philanthropic foundations, with the note that more than 99% of his wealth would go
to philanthropy during his lifetime.266 In 2010 he asked “rich Americans” to pledge 50% of their wealth
to charity under a $600 billion challenge, highlighting the William and Melinda Gates Foundation as
major donors.267
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
By the end of 2010, there was some indication that boards were (finally) beginning to address shareholder grievances regarding executive compensation. In 2010, for the 3rd consecutive year the chief
executives of the 500 biggest companies in the US took a reduction in total compensation. In fact,
the reductions were progressive, with 11%, 15% and 30% declines over that time period. 268 However,
there were still concerns over executives whose pay was not tied to performance, as Fortune magazine
published a list of “overpaid bosses” in 2010 including Omnicare’s Joel Gemunder, GE’s Jeffrey Immelt,
International Paper’s John Faraci and Verizon’s Ivan Sedenberg, to name a few. 269
Top Management Team
Changes Over the Decades
Changes in Reporting Responsibilities of Senior Management
with Respect to Corporate Governance and CSR
While the board of directors has the ultimate responsibility for the ethical culture of its organization and
its CSR orientation the reality is that the reporting responsibilities of the CEO and top management
team reflect the strategic weight that is placed on CSR by the board. Organizations and their strategies
reflect the goals and objectives of their top managers; however, the strategies of firms can also be an antecedent to top management team characteristics under a “structure follows strategy” paradigm.270 This
convoluted relationship can be seen in the changing responsibilities of senior managers with respect to
ethics and social responsibility over the decades. As corporate strategy evolves to include corporate social
responsibility, the TMT reflect these strategies with increasing managerial discretion, and as the TMT’s
managerial discretion increases, the TMT (CEO in particular) becomes more important to the effective
use of CSR. The acknowledgement of CSR as a corporate strategy arguably does not begin until the
late 1990s, spurred by media coverage and academic articles about the strategic use of CSR.271 Hence,
changes in reporting responsibilities in early decades are embedded in the board composition and structure variables of inside/outside directors above; however, a few examples of change are highlighted below
through the 1980s. Beginning in the 1990s, changes in reporting relationships of senior management
center around the governance responsibilities of the CEO with regard to his/her succession plans and
his/her position as dual CEO/Chairman. The CEO succession plan has been noted to be “one of the
most important—and risky-events in the life of any company”272 while CEO duality continues to be
hotly debated in the media as well as by watchdog groups. Both of these issues are noted to be seminal
to the good management of the CEO and the TMT in carrying out their CSR responsibilities.273
1940s –1960s
These two decades are combined together for several reasons. First, there is noted to be little manifestation of formal CSR in practice prior to this time period.274 Second, changes in senior management
reporting responsibilities at this time were primarily linked to financial issues and/or transfers of power
in family-owned companies.275 Third, the hierarchical organizational structures that characterized US
businesses at the time delegated top managers to implementers of corporate strategy, with little managerial discretion that is noted above to be a precursor to successful CSR and implementation. However, it
is interesting to note that early definitions of CSR do not distinguish the obligations of CSR to executives or board members or managers, specifically, but denote these participants under the umbrella of the
obligations of “businessmen.”276
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
Early insight into the responsibilities of senior management for CSR is evidenced in Bakers’ 1945
study on directors, which delineates board responsibilities into four types of procedures that board use
for various decisions: decide (board), confirm (management’s decisions), counsel (management) and
review(management’s) reports.277 CSR issues of “union negotiations and settlements” are denoted to be
something that most boards had to “review”, while many companies’ boards simply “counseled” management, providing some evidence that board delegated some employee issues to management. However,
other broad CSR issues like nomination of directors, selection of the president, and selection and remuneration of executives were decided at the board level.
1960s
By the 1960s, as the concept of CSR developed, the responsibilities of management became more
defined, with a deterministic orientation that the organization is made of up individuals who then
become part of an organizational culture. As noted by Frederick, “We find that the businessman, by
virtue of historical traditions and contemporary institutional forces, is in a sense “locked into” a going
system of values and ethics that largely determines the actions that he will take.”278 He goes on to note
that the actions of the businessman are a function of the current mores of society, regardless of the “ideals
of social responsibility the he may hold in the abstract.”279 As such, Frederick acknowledges the limited
discretion of the manager to this point, with small reference to the “institutional functionaries” that are
given the task of socially responsible business behavior.280
In practice, senior management had quite a bit of interaction with the board, since the board was
often comprised of insiders. Hence, even when the Conference Board published its Corporate Directorship Practices in 1967 it did not delineate boundaries between management and board members when
describing some of the functions of executives in the organization, and it emphasized that neither group
should consider themselves as representatives of any other constituency.281 However, as noted by Davis
the role of the managers was one of “imbibing professional norms,”282 suggesting that the CEO/TMT
could be held directly responsible for the CSR/ethics of the organization.
1970s
While the 1970s was an era of weak governance, top management team members were becoming
involved in company policies of social auditing and social scanning, suggesting that the responsibility for
CSR could be placed in the hands of the top management team. Researchers pointed out that as early
as 1971, the Committee for Economic Development, comprised of top-level corporate executives, had
been very vocal in encouraging businesses to engage in CSR.283 This pointed to the power that management could have in promoting CSR in their organizations.
In 1977, the concept of servant leadership in business potentially put the responsibility for CSR in
the hands of senior management. This approach to ethical leadership and decision making, primarily
denoted in works by Robert Greenleaf, promoted the idea that serving other stakeholders was not only
ethical, but also a sign of true leadership.284 In practice, however, the weak governance of the 1970s created an atmosphere where the top management team and the CEO, while having increased managerial
discretion, most often directed their actions toward financial performance gains. This was also suggested
in the model outlined by Eisenberg in 1976 in his book, The Structure of the Corporation, which suggested
that all that boards could do was hire and fire the chief executive.285
While logically, these issues point to changes in leadership that would put management in charge of
CSR initiatives, the reality of this decade is that the scandals of corporate malfeasance during this time
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
period had many boards scrambling to reign in their CEOs. CEOs were still largely responsible for
philanthropic decisions, as well as the audit, nominating, compensation and public policy committees
that had been implemented at the time. Board meetings increased in frequency, requiring additional
participation of senior management and the CEO. However, as noted above, powerful CEOs were often
associated with entrenchment practices in the beginning of the hostile takeover decade.
1980s
As noted above, power and authority within many companies shifted from the CEO to the board with
an increase in board independence during this decade. Yet, as the governance infrastructure increased,
CEOs and his/her senior management team found themselves with increasing responsibilities for gathering information from the many new committees, using ombudsmen more frequently, as well as playing
much more of a role in the formulation and implementation of corporate strategy.286 CEO appraisals
began to be formalized in organizations, reflecting the increasing role of the CEO as well as his/her
greater accountability that came with higher levels of CEO pay. Additionally, these appraisals were seen
as an “early warning system” with metrics that could afford boards the opportunity to address problems
with the CEO in a developmental way. 287
CEO succession planning became a central focus of boards as they began to realize the importance of
the CEO to the strategic planning process in the growing infrastructure of corporate governance. However,
Jeffrey Sonnenfeld’s 1988 book, The Hero’s Farewell documented cases of CEOs who often undermined the
CEO succession process when they wanted to hand-pick their own successors or refused to acknowledge
a successor because they did not want to leave.288 Nevertheless, by the late 1980s boards were engaging
CEOs to assist them in the process by identifying, developing and mentoring internal candidates.
Additionally researchers during this time period identified CEO succession in practice as either a
“relay race” or a “horse race.”289 The “relay race” was a succession approach where the CEO and the board
identify an heir apparent before the current CEO’s departure, while the “horse race” involved competition for the position by several internal or external candidates.
1990s
By the 1990s senior management took on more responsibility for CSR and ethics issues under mandates as well as case law that expanded the liabilities of the corporation to “officers” as well as “directors”
noted above. The CEO succession plan shifted in responsibility from the outgoing CEO to the board, as
boards continued to strive for more independence. CEO succession became controversial when retired
CEOs were seen to take positions as “nonexecutive chairs” or “nonexecutive directors” with the potential
to make incoming CEOs very uncomfortable. Nevertheless, this practice was seen in several companies
including Ford Motor Company and Proctor and Gamble, which viewed this practice as part of its tradition and culture.290
A host of new research explored the involvement of the CEO in strategic decision making, including their growing power in the selection of new directors,291 their social exchange as part of the “inner
circle” of corporate elites, 292 and their social ties to board members,293. The use of informal networks
and processes for CEOs created a new dynamic for board management of conflicts of interest; however,
the benefits for inter-organizational utility were seen in the ability for new ideas from one company to
diffuse to another. In this respect, however, CEO reporting responsibilities for CSR expanded outside
the organization’s board to other boards as well.
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
2000s
This decade marked considerable changes to the reporting responsibilities for senior management as the
committee infrastructure grew, and as CEO/duality and CEO succession plans became more controversial. While boards were scrutinized under the director primacy model, the responsibilities of senior
management also increase substantially under new mandates. Say on pay initiatives, committee structures,
more stringent financial reporting measures, strategic and risk oversights all required additional inputs
from the CEO and management, who were also responsible for implementation of new measures as well.
The issue of CEO duality, as noted above, had been attributed to CEO and board entrenchment
under the idea that the dual leadership structure limited the ability of the board to dispassionately evaluate the CEO.294 However, during this decade proponents of dual leadership suggested that it could also
beneficial under a “unity of command”, while also arguing that even if the leadership were to be separated it would not necessarily indicate independence.295 While Sarbanes-Oxley and listing requirements
did not address the matter, the proposed Wall Street Reform package mandates the separation of the
two positions, once again causing boards to re-evaluate this structure.
The need for formal CEO succession plans was also highlighted as a few CEOs with “bad reputations” tried to pick their own successor. In 2005, Roy Disney and Stanley Gold, two shareholders of Walt
Disney Co., tried to curtail Chief Executive Michael Eisner’s role in picking his own successor. As the
Disney board began to interview chairman replacements, Disney and Gold complained that Mr. Eisner’s presence would subvert the process.296 Also in 2005, Morgan Stanley Chairman and CEO Philip
Purcell was criticized for holding up the succession process and ruling out a host of departed executives
as potential successors, including Morgan’s former President John Mack.297
Despite all of the attention on formal succession plans, CEO succession planning fell off by the end
of the decade. A 2010 survey by Heidrick Struggles and the Rock Center for Corporate Governance
indicated that more than half of North American private and public companies could not immediately
name a successor.298 The cause was denoted to be boards “lack of focus”, despite the fact that these are
important functions of the nominating and governance committees.299 This was also surprising, given
the decision by the SEC in 2009 to allow shareholders to present resolutions asking companies to adopt
and disclose their CEO succession plans.
With continued agency issues of management self-opportunism, as well as the growing responsibilities of management under new governance provisions, boards were faced with an interesting dilemma
regarding the level of managerial discretion that could be afforded to senior management. As generalized by Monks and Minow, “The single major challenge addressed by corporate governance is how to
grant managers enormous discretionary power over the conduct of the business while holding them
accountable for the use of that power.”300 The focus on the strategic use of corporate social responsibility promoted by Porter and Kramer put the CEO and top managers directly in the “hot seat” for the
formulation and implementation of strategies for CSR, and yet CEO excessive compensation packages
suggested that CEOs be reigned in — even for the good cause of CSR. As such, many companies began
issuing statements in their governance policies related to relationships between management and the
board. The following is an example of one such statement from Walmart Stores:
“Directors have full and free access to officers and other associates of the Company and the
Company’s outside advisors. Any meetings or contacts that a director wishes to initiate
may be arranged through the CEO or the Secretary or directly by the director. The directors
will use their judgment to ensure that any such contact is not disruptive to the business
operations of the Company. It is the expectation of the Board that directors will keep the
CEO informed of communications between a director and an officer or other associate of
the Company, as appropriate.” 301
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
Development of New Management Positions
Related to Corporate Governance and CSR
Over the decades a number of new management positions have been incorporated into the workplace
to facilitate CSR and ethics initiatives and most importantly, to provide additional accountability in the
modern corporation. While the developments of some of these positions are reflective of the growth
of the corporation in general, some of them are also in direct response to mandates from governance
watchdogs and stakeholders. These are highlighted below.
1960s
The 1960s and the collective bargaining process brought the concept of ombudsmen to settle employment disputes—a precursor to the ethics officer in the modern-day corporation. Large corporations
first used the ombudsman as an alternative to a human resource officer to provide neutrality in settling
employment disputes. Xerox Corporation and General Electric were noted to be among the first users of
the ombudsman. 302 While today they are still used in practice, they have been re-named “Ombuds Managers” often report to the Chief Compliance Officer and have formal training that includes a law degree.
1970s
The 1970s saw the formation of corporate public policy/public responsibility committees, partially as result
of Ralph Nader’s Campaign GM following the publication of his book, Unsafe at Any Speed. 303 By 1980
a survey by the Conference Board found that over 100 companies had formed these board committees.304
1980s
The 1980s saw the development of the ethics hotline, as well as the formalization of the Ethics Officer
in many businesses. The Ethics Officer often came from a wide variety of backgrounds, although many
of them had legal experience. While many companies had ethics policies or an ethics council during this
time period, the Ethics Officer offered an opportunity to formalize the process, with direct report to the
Vice President of Compliance or even the CEO.
1990s
By the 1990s, ethics officers’ backgrounds often expanded to include auditing; this was a natural progression given the ever-expanding directives from the SEC and listing requirements from the New York
Stock Exchange. As an example of this, Howmet Corporation, a large manufacturer of metal casings,
hired an auditor from Arthur Anderson to take the position at their company in 1999, with the foresight
that new governance reforms might necessitate someone who could also understand financial statements
and risk assessments.305
2000s
The decade of the 2000s brought an explosion of new positions under Sarbanes-Oxley mandates for
additional accountability. The need for additional committees also became clear when financial reporting agencies like the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) proposed new reporting standards for more transparency and disclosure
regarding executive compensation, fair value accounting and other areas. New global financial reporting
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
standards like International Financial Reporting Standards (IFRS) also caused boards to upgrade their
internal auditing departments with final reports to be distributed to audit and compensation committees. Additionally, SOX mandates were meant to ensure that the CEO would not be involved with the
selection of nominating or compensation committee chairpersons.
This period of time also saw the growth of “advisory boards” and “lead directors” to address shareholder concerns. Advisory boards were set up to address potential shareholder proxy items before they
reached resolution stage and before proxy contests could take place. These board members were somewhat easier to secure than elected board members post Sarbanes-Oxley since they were not subject to
the same fiduciary responsibilities as elected board members, and not held liable for breach of duties.
306
Additionally, many of the ratings agencies considered these boards beneficial in helping the CEO.
“Lead directors” as noted above, were instituted in companies where there was a CEO/Chairman to
offer a solution to potential conflicts of interest.
Compliance officers also became the norm for most businesses during the 2000s, usually as part of a
formal compliance department that also included an ethics officer, with direct report to the board audit
committee. Following the bankruptcy of WorldCom, the new organization, MCI, elevated the ethics
officer to the title of Executive Vice President of Ethics and Business Conduct, with responsibility to
report to the Board and the Board’s audit and compensation committees. Often compliance officers were
attorneys; however by the end of the decade there is anecdotal evidence that auditors have been hired in
this position as well.307
Compliance officers faced new challenges during this time period, including global compliance for
multinational corporations, as well as updates to codes of conduct with changing Federal Sentencing
Guidelines in 2004. Compliance officers struggled with issues of sexual harassment, for example, in
countries in the Middle East, where it can be difficult to discuss these issues. Updates to codes of conduct involved risk assessments and the incorporation of standards to address global corruption. Additionally, compliance officers became responsible for updates to ethics training as well. In the case of Tyco
Corporation, for example, Vice President and Chief Compliance Officer Matt Tanzer revamped their
ethics conduct guide and training to include a “Vital Values Ethics Reflections Website” where managers were required to view scenarios of conflicts of interest, fraud, sexual harassment.308
Alternative Ways that Management has Organized
to Deal with Corporate Governance and CSR
1940s –1950s
As noted above, management has had to respond to board composition changes and changing relationships with the board as a result of pressures related to CSR issues. Decade by decade, management has
often been creative in ways that they have organized to deal with this. In the 1940s and 1950s we have
noted that management and the board were essentially one, with a large number of insiders serving
together in consensus; in general, management used formal processes to insulate and entrench themselves in the organization. This was primarily done through control of the selection process. In a chronicle of one company, Baker tells the story of how managers in a large tobacco company personally selected
directors from the executive staff “in recognition of their contribution to the successful operation of the
company.”309 In general, management organized to facilitate their administrative responsibilities to the
board through the formal organization.
40 |
Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
1960s
By the 1960s management began to lose control of the selection process with the growth of board independence. With the challenges of the “policy-implementation gap” noted earlier, managers often failed
to embrace the social policies of their employers.
1970s
In the 1970s, as boards responded by pressing for structural solutions to governance and CSR challenges, management began to use informal processes to organize. Interlocking directorates grew as
CEOs began serving on multiple boards, fostering a support network for CEOs to deal with the public
policy challenges. Additionally, while boards implemented director stock options to better align their
interests with shareholders, the CEO and top management team also began receiving stock options. This
was supported by the 1973 origination of the Chicago Board Options Exchange and the development
of the Black-Scholes option pricing model that facilitated the ability of shareholders to award stock
options to both executives and directors. 310 However, as CEOs faced reputational challenges in the boycott era, CEOs were often at the forefront of any bad publicity regarding compensation and corporate
responsibility. As such, CEOs had to find a way to rationalize their decisions, as well as the decisions of
the board in this boycott era.
1980s
By the 1980s, in the midst of the takeover era, management was perceived to have the real power in most
organizations under the concept of managerial hegemony, and their challenge during this decade was
maintaining that power.311 This was difficult to do in an era where mergers and acquisitions absorbed
one-third of the 1980 Fortune 500 by the end of the decade.312 CEOs began hand-picking their successors and promoting the use of executive committees to remain close to the board in the event of forced
retirement. With growing concerns over business ethics, management began to engage CSR consultants
to help meet the demands of corporate citizenship. Finally, with the rapid development of new auditing
standards and growing consolidation in the accounting industry, CEOs and top management began
using their accountants in the dual capacity of auditor and advisor; a potential conflict of interest that
was later addressed following the Enron scandal in 2000.
1990s
The 1990s found management scrambling to avoid litigation while trying to hold on to their managerial discretion. The new “watchdog groups” noted above as well as auditors, investment bankers and
the National Association of Corporate Directors (NACD- a commission of the SEC). CEOs began
courting large institutional investors, and this shift in positioning is documented in Murray’s Revolt in
the Boardroom:
“Dale Hanson, the chief executive of the California Public Employees’ Retirement
System, felt the shift as it was taking place. In the fall of 1989, Hanson wrote General Motors chief executive Roger Smith and asked for a meeting. Smith, without
consulting the board, told the fund to mind its own business. Later that year, when
Hanson wrote Smith’s successor, Robert C. Stempel to request a meeting, the company’s general counsel Harry Pearce called back asking when. By November 1992,
when John F. Smith replaced Stempel, Hanson didn’t need to write. Pearce invited
Hanson to visit Smith.”313
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
2000s
The beginning of the millennium found management as a focus of corporate scandals. As such, changes
in executive compensation became one of the first areas where management worked with the board to
reorganize for better corporate governance. Of course, this was also in the best interests of management,
given that many CEOs were fired for failure to comply with new directives. Some CEOs, like Jack
Welch, even gave back part of their compensation when excessive retirement perquisites were discovered
by the media.314 How did management work with boards to change this? First, some executives agreed
to longer-term stock options, many of which were restricted stock not tied to performance at all. Second, management and boards began to draft “philosophies on executive compensation” as part of their
governance principles.315 These philosophies often disavowed backdating, bullet-dodging and repricing,
some noted compensation practices that, while not necessarily illegal, allowed the CEO and the board
to manipulate stock option dates for lower stock purchase prices. 316
Management also began working with their boards to incorporate formal assessments of the executive group, in addition to agreeing to his/her own assessment; this was a considerable segue from earlier
decades where CEOs were often not formally evaluated.317 However, Conger, Lawlor and Finegold note
that, “Board members attitudes toward the CEO appraisal process and the role that the CEO’s own
behavior plays in the evaluation are shaped in large part by the CEO. Time and time again, board members told us that the CEO’s attitude and behavior are the critical lynchpins in any evaluation procedure.”318
Although not a management-led initiative, directors joined the assessment bandwagon over this
decade, albeit slowly. In 2005, an MIT Sloan Management Review article noted that in a Korn/Ferry
study 72% of board directors indicated that their performance ought to be evaluated, but only 21% of
the boards of public companies actually conducted such assessments.319 Executive compensation consultants began to provide consulting services for the development of evaluation devices in conjunction
with a review of a company’s overall governance principles.
Identification of Primary Causal Drivers
for these Developments
C
hanges in board composition, structure and management relationships over the decades are attributable to a variety of political, social and economic phenomena that challenged the ability of
boards to manage the corporation. In reaction, boards have scrambled to first change composition, then
structure, and finally relationships over the decades to return higher profits to shareholders and satisfy
their stakeholders.
1940s –1950s
Prior to the 1960s changes in board composition and management relations for CSR were reactions to
the failures of corporations in the 1940s and 1950s when, as noted by MacAvoy and Millstein, “it had
become apparent that the market within the corporation for control functioned imperfectly. In many
cases, the process of replacing deviant leadership swept away good management and led to mismanagement.”320 While certainly not the sole reason for change, this time period seemed to provide evidence of
many of Berle and Means’ misgivings regarding the modern corporation and agent behaviors, generating
the attention of even the most dispersed shareholders that boards needed to do a better job monitoring
management. Insider-led boards still dominated, and the industrial era was described as a governance
42 |
Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
“that privileged the interests of workers and customers.”321 Board composition and relationship changes
during this time period were generally designed to appease the most vocal shareholders.
1960s
In the 1960s, consolidation in the manufacturing industry and the simultaneous growth of pension
funds put pressure on boards to provide for a better bottom line, especially in light of economic woes of
this time period. However, social protests and fear of litigation caused boards and the top management
team to focus on board independence, with some promise for better governance of agency issues going
forward. The SEC and special interests groups forced the hand of boards to become more proactive in
the management of agency issues, but the board still continued to serve in an advisory role as boards
reacted with more changes in board composition.
1970s
In the 1970s, a combination of political, legal and social developments contributed to an atmosphere
that Lawrence Mitchell noted “threatened the security of managers and directors.”322 An atmosphere of
social activism and increasing shareholder litigation, in combination with criticisms of the passivity of
corporate boards, forced boards to reach more externally for the first time in consideration of stakeholders outside of the shareholder primacy model. Additionally, the deregulation of capital markets and the
privatization wave brought corporate diversification to new heights, with resultant increasing separation
of ownership and control, and a significant earnings decline. The focus of boards began to shift from
advising the CEO/TMT to monitoring their actions while at the same time to recapture their reputation with goodwill.
1980s
In the 1980s the rise of government policies in the deregulation of capital markets freed up market forces
that led to the takeover wave of the 1980s. Investors began to push executives for bottom-line profits
in a sinking economy with low-level returns. This fostered an atmosphere of short-term valuism and
managerial capitalism that led to an explosion of scandals and proxy contests. Foreign competition in
the 1980s also placed additional pressures on boards to perform. Pressures from LBOs, corporate raiders, and institutional shareholders prompted board members to become better monitors of management.
While the Delaware Chancery Court afforded boards some latitude in managing the corporation, board
members became more cognizant of their potential liabilities in decision-making, as well as their role
under a shareholder primacy model.
1990s
The 1990s brought a surging bull market as well as more corporate raiders with the removal of anti-takeover provisions. New governance rules from a variety of groups provided the opportunity for higher and
better standards of behavior. However, the internet bubble and growth of IPOs once again fueled the
expectation for higher returns under a shorter cycle, prompting the manipulation of earnings by some
managers. Board members became accountable to a broader set of stakeholders. While more structure
was put in place to facilitate this additional accountability, it also prompted managers to look for creative
and often unethical ways to provide higher returns to shareholders.
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
2000s
With corporate scandals that marked both the beginning and end of the first decade of the 2000s, corporate governance became a greater part of the public policy arena. A slowdown in the internet bubble
and the financial stresses of over-valued share prices once more seemed to lead to fraudulent behavior.
Monks and Minow speculated that these times perhaps supported the premise behind the book/movie,
The Corporation that characterized the corporation as an immoral entity. 323 While a post-hoc analysis of
Enron, WorldCom and AIG, disclosed some good governance practices along with the bad, it became
obvious that pressures for higher profits motivated employees to take higher risks, suggesting that there
was much room for improvement in gathering information to understand exactly what managers are
doing. The end of this decade brings new challenges to corporate governance as a result of US government bailouts after the economic collapse of 2008 that places government and business directly in partnership with each other, the growth of private equity groups and the continuing globalization of business. These issues will most likely drive new changes in board composition, structure, and management
relationships as boards are evaluated under a director primacy model and face even more accountability
for their actions, as well as the actions of the CEO and top management team.
Conclusion
T
he practice of corporate governance is about aligning individuals, corporations and society. 324
While boards and managers might share similar values regarding the nature of business’s responsibility to society, in reality, boards and management react differently to the pressures that they receive
from a variety of stakeholders. Yet, the common goal is higher shareholder returns, and more loftily, the
satisfaction of the majority of the corporation’s stakeholders. However boards and management have
found it increasingly more difficult to beat the market and satisfy a growing, and more vocal group of
stakeholders. The least painful way for boards to affect change is to comply with current mandates for
more composition and structure changes; the more difficult way would be to go beyond reforms to work
on more effective board/TMT relationships that would allow both groups to do their jobs without worrying about entrenchment.
This paper has attempted to analyze the changes in board composition, structure, and relationships
with the CEO/TMT in reaction to CSR and ethics issues, which are liberally placed under the umbrella
of “corporate governance.” See Table 5 for a summary of findings. As the decades progress, boards are
seen to first change composition, then structure before making changes in the relational areas of managerial discretion and succession planning.
Interestingly, a few governance critics in the early 2000s noted that Sarbanes Oxley reforms focused
“more on board structure and disclosure than on conduct.”325 Unfortunately, such is the case for the
latest wave of reforms that focus on compositional/structural areas like classified boards, CEO duality
and majority vote. However, it is possible that the pattern of composition/structure/relationship changes
over the past fifty years could perpetuate into a cycle, under new reforms that might at least have boards
pausing for a few years at a point where they might define a better relationship with their TMTs.
44 |
Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
Appendix
figure 1
Chart of Corporate Ownership Over the Decades
Wall Street Journal October 3, 2005
Source for WSJ Article: Federal Reserve Board Bogle Financial Markets Research Center
Figure 2
Within board-level meetings, how much time is spent
discussing the following areas of corporate performance today?
Time spent on
financial performance
20%
80%
Time spent on
company’s social/
environmental impact
Source: The Economist Intelligence Report February 2008
45 |
Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
Figure 3
Within board-level meetings, approximately what percentage
of your time might be spent discussing the following two
areas of corporate performance in 5 years’ time?
29%
71%
Time spent on
financial performance
Time spent on
company’s social/
environmental impact
Source: The Economist Intelligence Report February 2008
Table 1
A Summary of Suggested Governance Reforms
William O.Douglas, “Directors Who Do Not Direct”
Harvard Law Review Vol. XLVII June 1934
1.
Regression to simpler and smaller forms of organization
2.
Reduction in the size of the board to a more cohesive and active group
with a feeling of responsibility to the company
Elimination from the board of those in high places whose names are bought
and paid for with a directorship
Elimination from the board of those who were specialists…but whose interest
or time did not permit them to assume a larger and more active role
3.
4.
5.
Elimination of purely political appointees
6.
Considerable refashioning of codes of conduct
7.
Mobilize scattered and disorganized stockholders and other investors
into an active and powerful group
8.
A federal agency in the field of finance like England’s Shareholders Protection
Association to work with the National Securities Exchange Commission to
protect investors
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
Table 2
Summary of Desirable Director Qualities in the
1940sCopeland and Towle (1947) and Mace (1948)
1.
Honesty and Integrity
2.
Compatibility
3.
Interest in the Welfare of Corporation as a Whole
4.
Long-range Point of View
5.
Ability to Evaluate Changing Conditions
6.
Ability to Apprise Men
7.
Courage and Ability to Ask Discerning Questions
8.
Spirit of Entreprise
9.
An Awareness of the Business Entreprise
10. Ability to Teach and Coach Management
11. Stability and Quality of Firmness
12. Existence of a Continuing Interest by Board Members in the Operations
and Fortunes of the Entreprise.
Table 3
Sample of Corporate Term Limit Policies
(From Company Websites)
Delta
“No outside director will stand for reelection after age 72. The Board does not believe it should
establish term limits for directors. While term limits could help ensure that there are fresh ideas
and viewpoints available to the Board, term limits have the disadvantage of losing the contribution of directors who have been able to develop, over a period of time, increasing insight into
Delta and its operations, and who therefore provide an increasing contribution to the Board. As
an alternative to strict term limits, the Corporate Governance Committee will formally review
each director’s continuation on the Board each year. This will also allow each director the opportunity to conveniently confirm his or her desire to continue as a member of the Board.”
47 |
Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
General Electric
“The board does not believe that arbitrary term limits on directors’ service are appropriate, nor does it
believe that directors should expect to be renominated annually until they reach the mandatory retirement age. The board self-evaluation process described below will be an important determinant for board
tenure. Directors will not be nominated for election to the board after their 73rd birthday, although the
full board may nominate candidates over 73 in special circumstances.”
Apple
“Directors serve for a one-year term and until their successors are elected. There are no limits on the
number of terms that a director may serve. The Board believes the Corporation benefits from the contributions of directors who have developed, over time, increasing insight into the Corporation. The
Nominating and Corporate Governance Committee reviews periodically the appropriateness of each
director’s continued service.”
WalMart
“An outside director shall not stand for re-election after he or she has served as a director for ten years.
Notwithstanding anything herein to the contrary, an outside director who attains the age of seventy
and has served as a director for five years shall not stand for reelection. Exceptions to this policy may
be made by the Board.”
Bank of America
“The Board does not believe it appropriate to established term limits for its members because such limits
may deprive the Company and the Board of the contribution of directors who have been able to develop,
over time, valuable experience and insights into the Company.”
Table 4
Summary of Caremark Changes to “Centralize”
1. The Caremark Board published a revised version of its Guide and instituted a policy
requiring its regional officers to approve contractual relationships.
2. It put in place an internal audit plan to assure compliance with business and ethics policies.
3. The Board hired PWC to perform an outside audit on their control procedures and set
up an Audit and Ethics Committee to adopt a new internal audit.
4. Management compiled a new employee ethics handbook.
5. Management was required to report to the board on sales force education regarding ARPL.
6. Caremark’s president sent a letter to all senior, district and branch managers restating
Caremark’s policies that no physician be paid for referrals and that any deviation from
this would result in immediate termination.
7. Local branch managers were required to secure home office approval for all disbursements under agreements with health care providers and to certify compliance in an
ethics program.
8. The Chief Financial Officer was appointed to serve as Caremark’s Compliance Officer.
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
49 |
Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
Scandals
Social Drivers Watchdogs
Scandals
Boycotts
Functional
Board
Scandals
Litigation (CEO) Class Action Suits
Functional
CEO and Board Political CEO
Political
Board
Scandals
Scandals
Scandals
Litigation (CEO) Boycotts
Proxy Contests Litigation(CEO) Litigation (Bd)
Political CEO and Board Placate Instit.Shldrs Goodwill Strategic CSR
Ethics Hotlines Social Reporting Checklisting
Director Term Limits Evals-Bd, CEO
Stakeholder scanning
Lead Director
Sustainability Initiative
CEO Suc Planning Ratings Changes
Formalization of Committees-Compliance, Audit, Nominating, Compensation
Agency/Stakeholder
Agency/Stakeholder Agency/Stakeholder
Behavioral
Stewardship
Stewardship
SEC, Delaware Chancery Ct, Unions, Auditors--------------------------------------------------------------------------------------------------------------------
Institutional Investors-------------------------------------------------------------------------------------------------------------------------
Conference Board------------------------------------------------------------------------------------------------------------------------------
ABA, Business Roundtable, ALI, NYSE--------------------------------------------------------------------------------------------------
LBOs, Hostile Raiders, CII ISS, KLD, Ratings Agencies, Fed Prtnrshps
Functional
Committees
Entrenchment Board
Avoid Litigation Strategic Audits ESOPs Public Policy Committees
Agency/ TCE
GoodwillPlacate CEO
Agency Agency
2000s
Actions
Theory 1990s
Board as Advisor to CEO--------------------------------------------------Board as Monitors of CEO-------------------------------------------------------------------Managerial Discretion↑---------------------------------------------------------------------------------------------------Managerial Discretion↓---------------------------
1980s
Authority Changes
1970s
Homogeneity of experience----------------------------------------------------------------------------------------------Heterogeneity of experience---------------------
1960s
COMPOSITION------------------------------------------------------------------------------------------------------------------------------------------------------------------ STRUCTURE-----------------------------------------------------------------------------------------------------------
RELATIONSHIPS-------------------------------------------------------CEO Duality----------------------------------------------------------------------------------------------------------------------------------------------------------------------Insiders Outsiders↑
Outsiders↑
Outsiders↑
Independence↑ True Independ↑
Overboarding
Board Size ↑ Board Size ↓
Board Size ↑
Board Size↓
Board Size ↑
Little Diversity Women↑
Women/Minor↑ Women/Minor↑ Women/Minor Shareholder Apathy
Interlockings↑
CEO T/over↑
CEO T/over↑
CEO T/over↑
1940s/50s
Change Focus Composition
Changes
Highlights of Board Changes over the Decades
Table 5
Endnotes
1
(Berle and Means 1932).
2
(Monks and Minow 2008).
3
(Finkelstein and Hambrick 1996).
4
(Buchholtz, Brown and Shabana 2008); (Weirsema and Bantel 1992); (Westphal and Zajac 1995).
5
(Dalton Daily, Ellstrand and Johnson 1998).
6
(Berle and Means 1932); (Shumpeter, 1942); (Galbraith, 1967).
7
(Hay and Gray, 1974)
8
(Douglas 1934, 1305).
9
Ibid., 1322.
10
(Alchian and Demsetz 1972); ( Jensen and Meckling 1976; Shleifer and Vishny, 1997).
11
Ibid.
12
(MacAvoy and Millstein and Millstein 2003, 13).
13
(Court of Chancery, 1949)
14
(Berle and Means 1934).
15
(Bogle 2005, A16)
16
Ibid.
17
(Bowen 1953); (Davis 1960).
18
(Mace 1948, 36).
19
(Baker 1945, 24).
20
(Copeland and Towle, 1947, 172).
21
Ibid., 88
22
(MacAvoy and Millstein and Millstein 2003, 13).
23
(Mace 1948, 27).
24
(Copeland and Towle 1947, 176).
25
(Douglas 1934, 1305,1306,1322). Note: Douglas refers to “specialists” like bankers whose interests do not permit them to assume a larger and more active role. He later goes on to refer to directors looking for political dominance in more positions of power.
26
(Andrews 1952).
27
(Himmelstein, 1997).
28
(Frederick 1960, 56). Note: Here trusteeship is “the idea that corporate managers should voluntarily act as trustees of the public interest.”
29
Drucker, 1954, 161)
30
Note: Examples of these behaviors were predicted by Berle and Means (1932); however, a summary of this evolution may be found in MacAvoy and Millstein and Millstein, 2003, 7-9.
31
Ibid.
50 |
Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
32
Note: Under the shareholder primacy model, boards govern by monitoring management and/or providing incentives, and the shareholders are the primary beneficiary of director fiduciary
duties. (Bainbridge, 2002); (Eaterbrook & Fischel, 1991); (Eisenberg, 1976); (Eisenhardt, 1989).
33
(Diamond v. Oreamuno 1969).
34
(Escott v Barchris Construction Company 1968)
35
(Drucker 1968).
36
(Frederick 1960, 54).
37
(Daughen and Binzen, 1971).
38
Note: These criticisms are summarized in (MacAvoy and Millstein and Millstein 2003, 21).
39
(Smith and Walter 2006, 91).
40
(Mitchell 2007).
41
(Mitchell 2007, 286, 294).
42
(Bogle 2005)
43
(Useem 1996); (Monks and Minow 2008, 211).
44
(Conger, 2009)
45
(Frederick 1960, 59). Note: Frederick then goes on to note that “there seems to be little question that at any given time the individuals who are active within the system of social roles and institution
are subject in large measure to its prevailing characteristics. This means that businessmen must be
concerned primarily with private gain and profits, for they are a prime value within the presently
existing system of business enterprise.”
46
(Ocasio and Joseph 2005).
47
(Monks and Minow 2008, 81-83).
48
(Farrell and Murphy 1972).
49
(Eisenberg 1976).
50
(Mace 1971).
51
(Drucker 1946).
52
(Williamson 1979).
53
( Jensen and Meckling 1976); (Fama and Jensen 1983).
54
(Santa Fe Industries Inc. v Green 1977)
55
(MacAvoy and Millstein and Millstein 2003, 17).
56
(Dallas 2002, 5).
57
(History of AT&T, 2010).
58
(Schotland 1980)
59
(Culp and Niskanen 2003 57).
60
Ibid.
61
(American Law Institute 1974).
51 |
Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
62
(Culp and Niskanen, 2003 57).
63
(Mitchell 2007, 286).
64
(Salmon 1999, 3).
65
(Korn/Ferry International 1993).
66
(Granovetter 1973).
67
(Smith and Walter 2006, 91).
68
(Salmon 1999, 3).
69
(Smith and Walter 94).
70
(MacAvoy and Millstein and Millstein 2003, 17)
71
( Jensen and Ruback, 1983: 5).
72
(Pound, 1994).
73
(Shleifer and Vishny 1990, 745-749).
74
(Mitchell 2007).
75
(Hayes 1990).
76
(History Stop and Shop Company 2010).
77
(Ibid).
78
(Warren 2001).
79
(Staff Report on Corporate Accountability 1980).
80
Note: For a review of these cases, refer to (MacAvoy and Millstein and Millstein 2003, 19 n23).
81
(Supreme Court of Delaware 1985).
82
Ibid.
83
(History of Conrail 2010).
84
(Freeman 1984, 247).
85
(Bainbridge 2002).
86
Note Eisenhardt released her seminal work, “Agency theory: An assessment and review” in The Academy of Management Review in 1989; In 1987actor Michael Douglas played a Wall Street
financial predator in the movie, “Wall Street”, where he uttered his now-famous line, “greed is good”
in reference to the benefits of corporate raiding.
87
(Zahra and Stanton 1988). Note: They concluded that board size has no influence on
firm financial performance.
88
(Kaplan 2008).
89
(Salancik and Pfeffer, 1980).
90
(Gompers and Metrick 2001)
91
(Smith and Walter 2006, 149).
92
(Granovetter 1973),
93
(Davis 1993).
52 |
Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
94
(Davis 2006).
95
(MacAvoy and Millstein and Millstein 2003).
96
Note: For a complete discussion of the literature, see (Denis, Denis and Sarin 1997).
97
(Monks and Minow 2008,186).
98
(Delaware Court of Chancery 1991).
99
(Smith and Walter 2006, 89).
100 (Wiseman and Gomez-Meija 1998).
101 (Shleifer and Vishny 1990).
102 (Donaldson and Preston 1995); (Mitchell, Agle and Wood 1997)
103 (Davis, Schoorman and Donaldson, 1997:43)
104 (Silverstein. 1991, April 18 D2).
105 (Hwang 1995, April 14 B4).
106 (Lorsch, 2000)
107 (Anderson, Mansi and Reeb 2004); (Bhagat and Black 1999, 2002); (Beasley 1996); (Brickley,
Coles and Terry 1994); (Hermalin and Weisbach 1991).
108 (Wang and Coffey 1992)
109 (Dalton, Daily et al 1998).
110 (KLD Research & Analytics, Inc., 2010)..
111 (Daily and Dalton 1993).
112 (Lipton and Lorsch, 1992); ( Jensen, 1993); (Yermack, 1996).
113 (Director and Boards 2008).
114 (Wellington 1994, 201)
115 (PBS Independent Lens 2001).
116 (Patsuris 2002).
117 (United States Senate 2002).
118 (Sharfman and Toll 2008)
119 (SEC File 1-115577 2003)
120 (MacAvoy and Millstein and Millstein 2003, 23)
121 Ibid.
122 (MacAvoy and Millstein and Millstein 2003, 103) Note: Authors document five cases where the
Supreme Court held for the shareholders against the directors, reversing the Court of Chancery
decisions that had rejected shareholder claims from 2002-2003.
123 (Clark 2005).
124 (PriceWaterhousCoopers2010).
125 (Smith and Walter, 2006)
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
126 ( Monks and Minow 2008, 154,.205).
127 Ibid.
128 (USA Today 2009 June 3)
129 Ibid.
130 (Lan and Heracleous); (Bainbridge 2002); (Blair & Stout 2001).
131 (Clark, 2005)
132 (Buchholtz, Brown and Shabana 2008)
133 (Sonnenfeld, Agle, Nagarajan and Srinivasan 2005).
134 (Kirdahy 2008).
135 (Trouble at the Top 2010).
136 (Murray 2007).
137 (BusinessWeek 2004)
138 Ibid.
139 (Williams, 2001)
140 Ibid.
141 (Korn/Ferry 2006)
142 (Catalyst 2008)
143 Note: This is well documented in upper echelons literature, but also noted in (Goodstein,
Gautam and Boeker 1994).
144 (Fitzgerald and Lublin 2009).
145 (Gardner 2008)
146 (The Corporate Board 2008).
147 (Select Comfort Corporation 2010).
148 (Taub 2004)
149 (Finkestein Hambrick Cannella 2009, 127).
150 (Thompson, 1967)
151 (Fama and Jensen 1983).
152 (Finkelstein 2009, 129)
153 (Swanson, 2008)
154 (Wood 1991). Note: The construct of managerial discretion has been recently divided into 2 dimensions
(Finkelstein et al 2009, 32). Unless otherwise, this paper refers to the concept as of “latitude of action.”
155 (Drucker, 1968); (Selznick, 1957); (Swanson, 1999).
156 (Carroll and Buchholtz 2008).
157 (Pfeffer, 1981)
158 (Finkelstein and D’Aveni, 1994); (Cannella and Holcomb, 2005)
54 |
Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
159
(Finkestein Hambrick and Cannella 2008, 243-250).
160
(Copeland and Towl 1954, .57-58).
161
Ibid., p48
162 (History of AT&T 2005).
163 (Selznick 1957).
164 (Davis 1964),
165 (MacAvoy and Millstein and Millstein 2003)
166 (Swanson, 2008)
167 (Miles 1987)
168 (Vogel 2005 18-19).
169 (MacAvoy and Millstein and Millstein 2003, 13, 72).
170 (Ocasio and Kim 1994).
171 (United Airlines Historical Foundation, 2010)
172 (BusinessWeek 1991).
173 (Coors History, 2005).
174 (Coors History, 2005).
175 (Florida Citrus Commission History, 2010).
176 (Himmelstein 1997,65)
177 (Ocasio and Kim)
178 (Stewart 2005)
179 Monks and Minow 2008, 186.
180 (Smith and Walter, 91).
181 Ibid,
182 (Pettigrew,1992); (Useem, 1984)
183 (Ocasio, 1994).
184 (MacAvoy and Millstein and Millstein 2003, 16)
185 (Donaldson, 1995)
186 (Monks and Minow 2008)
187 Ibid.
188 Note: This section draws from several references including (Arlen 2008); (Caremark Briefing
1995); (Delaware Chancery Court 1996)
189 Ibid.
190 (Arlen 2008).
191 (History of AT&T, 2005)
192 (Lipton and Lorsch 1992)
55 |
Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
193 ( Huvé-Allard 2010)
194 (Governance Metrics International 2010)
195 Note: Standard & Poor’s Corporate Governance Services rating (CGS) was originally available to
the public but became proprietary in 2005. Debt ratings agencies like Moody’s and TIAA also have
governance ratings. See Monks and Minow (2008) for additional descriptions.
196 (LeBlanc 2009).
197 Ibid.
198 (PBS Frontline 2009).
199 (Enron Report 2003).
200 (Foxnews 2009).
201 (Lorsch 2002)
202 (Whitehouse 2008).
203 (Murray 2007).
204 (Murray 2007, 42-43).
205 (Conference Board 2010).
206 Note: A noted exception to this is the regulators and the NYSE, who were notably quiet about
CEO duality.
207 (Monks and Minow 2008 ,228).
208 (Lublin 2008).
209 (Sonnenfeld 2004).
210 (Chatterji and Levine 2006); (Ryan 2009)
211 (Stanford GSB News 2010).
212 Ibid.
213 (Taub, 2006).
214 (Chatterji and Listokin 2006).
215 (Smith and Walter 2006 61).
216 Note: In the 1980s the open door policy was criticized in a race discrimination suit that alleged that
the Chairman at the time, Chairman Akers, did not review his grievance, suggesting that open door
policies did not extend to the chairman.
217 (Murray 2007, 92)
218 (Carroll and Buchholtz 2008)
219 (Ibid., 28)
220 (Revolt 96).
221 (Smith and Walters 2008, 284)
222 Ibid., 286.
223 (Vogel, 1978)
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
224 Murray 2007, 96.
225 Ibid.
226 (EEOC 2010)
227 (Holcomb 2004)
228 Ibid.
229 (Monks and Minow 2008 336)
230 Note: For an explanation of public fund activism, see (Monks and Minow 2008, 57).
231 (Vogle 2005,52)
232 (Vogle 2005,53)
233 (Vogle 2005,55)
234 (Murray 2007, 113-115)
235 Ibid.
236 (General Dynamics 1990)
237 Ibid.
238 (Ethics Resource Center 2004)
239 (The Economist 2008).
240 Ibid.
241 Ibid.
242 (Dow Jones Sustainability Index 2010).
243 (Antal, Dierkes, MacMillan, and Marz 2002)
244 (Antal and Sobczak, 2004)
245 Ibid.
246 (Vogle 2005, 55)
247 (Himmelstein 2003 129).
248 (Himmelstein 2003 73).
249 (UK Companies Act 2010).
250 (Clark and Knight 2008).
251 (RiskMetrics 2010) http://www.riskmetrics.com/grid-info.
252 (GRI 2010) www.gmiratings.com
253 (Vogel 2005 68)
254 (General Electric 2010). Available at www.ge.com/citizenship
255 (The Economist Intelligence Report 2008)
256 Ibid21.
257 Ibid.
57 |
Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
258 (National Business Ethics Survey 2007).
259 (BusinessWeek 2004 Oct).
260 (BusinessWeek 2000).
261 (Cracker Barrel Profile 2010).
262 (Porter and Kramer 2002)
263 Ibid,31
264 (Porter and Kramer 2006).
265 (Welch and Welch 2009).
266 (Buffett, Warren. 2006).
267 Ibid.
268 (DeCarlo 2010).
269 Ibid.
270 (Finkestein, Hambrick and Cannella, 2008)
271 Note: This references articles from The Economist magazine at two points in time: “The good company”, The Economist, January 20th 2005 and “Just good business” from The Economist in January
17, 2008.
272 (Lorsch and Khurana 2002, 135)
273 (Monks and Minow 2008)
274 ( Caroll 2008, 27)
275 (Mace, 1948).
276 (Bowen 1953 6); (Davis 1960, 60)
277 (Baker 1945, 18)
278 (Frederick 1960).
279 (Ibid., 61)
280 Ibid., 61
281 (Mitchell 2007, 292).
282 (Davis 1964)
283 (Swanson 2008)
284 (Carroll and Buchholtz 2008)
285 (Eisenberg 1976, 156).
286 (Conger Lawler and Finegold 2001, 88-89).
287 Ibid.
288 (Monks and Minow 2008, 246).
289 (Vancil 1987
290 (Lorshc and Khurana 2000 154).
58 |
Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
291 (Shivdasani and Yermack 1999)
292 (Westphal and Zajac 1997)
293 (Westphal 1999).
294 (Dalton and Dalton 2009).
295 Ibid.
296 (Marr 2005)
297 (Thornton 2005)
298 (Serious Gaps 2010)
299 Ibid.
300 (Monks and Minow 2008 288).
301 (Walmart 2010).
302 (Carroll and Buchholtz 2008, 672).
303 (Carroll and Buchholtz 2008, 513)
304 (Holcomb 2004)
305 (Singer, 1999).
306 (Monks and Minow 2008)
307 Note: www.ethikospublication.com provides several case study examples.
308 Ibid.
309 (Baker 1945, 37)
310 (Monks and Minow 2008, 64).
311 (Lorsch and MacIver 1989).
312 (Useem, 1996).
313 (Murray 2007,109).
314 (Monks and Minow 2008, 326).
315 (Conger 2009, 248)
316 (Monks and Minow 2008 322)
317 (Conger Lawler and Finegold 2001, 88).
318 Ibid p.98.
319 (Stybel and Peabody 2005).
320 (MacAvoy and Millstein and Millstein 2003, 13).
321 (Mitchell 2007, 281).
322 (Mitchell 2007, 284).
323 (Monks and Minow 2008, 9).
324 Note: Sir Cadbury’s foreword to the Global Corporate Governance Forum, World Bank 2003. This
is cited in Buchholtz, Brown, Shabana 2008 in the Oxford Handbook for Social Responsibility
325 (MacAvoy and Millstein and Millstein 2003, 98).
59 |
Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
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Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues
For Further Information
Please contact either executive editor Kenneth E. Goodpaster,
Koch Endowed Chair in the Opus College of Business at the
University of St. Thomas or contact project director David
Rodbourne, Vice President of Center for Ethical Business Cultures.
Center for Ethical Business Cultures
1000 LaSalle Avenue, TMH331, Minneapolis, MN 55403
www.cebcglobal.org
Goodpaster: 651.962.4212 | kegoodpaster@stthomas.edu
Rodbourne: 651.962.4122 | dhrodbourne@stthomas.edu
Business Partnering with the University of St. Thomas
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