Integrity Matters
August 17, 2005

Too many lazy board members

Question: (E-202)

Dear Jim:

How can a column on integrity sustain itself for four years?


Individuals and organizations create the need to emphasize the obvious. "I feel like a doctor in the middle of a measles epidemic." No, it is more serious than that. "I feel more like a one-armed paper hanger with hives." Open up any newspaper or simply listen to the news. Rascals are rampant and integrity is missing.

Not so tongue in cheek, writing for the New York Times, Floyd Norris on Friday says that "inept boards need have no fear" - at least, not yet. He cites Krispy Kreme. This corporation's poorly performing board of directors approved an investigative committee to assess its ineptitude. But the investigators, despite citing lax and tardy board oversight, concluded weakly: "There is no basis to believe that any outside director did anything that he or she 'knew or believed' was clearly in conflict with the best interests of the corporation or approved a transaction from which he or she received an improper personal benefit."

Such a low standard is all the law requires, the committee concluded.

Another of my sources of information reports that fewer talented individuals are eager, or even willing, to serve on boards of directors. Financial liability is the issue. Strong, well-educated and experienced professionals do not need to be subjected to the risks related to shareholder lawsuits. Pressures have become incredible for individual members of boards to make certain their organizations are meeting ever-growing and more complicated compliance standards. Trust and integrity are at the heart of the matter. And, what has been reported at Krispy Kreme and other firms lowers confidence in boards of directors who purpose is to protect shareholders and stakeholders.

The dilemma is clear. Lazy folks, who want to be on boards, are not protecting corporate assets, thereby ignoring their fiduciary responsibilities. Competent individuals are reluctant to accept board appointment and face an ever more hostile public that has reasons to believe that all too many in high places are behaving irresponsibly.

Most board members are doing their jobs effectively or they set themselves up to receive media coverage. But Irresponsible board members erode trust in capitalist markets that underpin our society, forcing regulators to add more rules. Integrity restores trust.

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