One of the many things that need an overhaul in the business world is the role of company directors. Greed unchecked by corporate boards of directors is so pervasive today that there simply must be a major change, a reform in the responsibilities of members of the boards of corporations.
An initial step should be to change the methods by which directors are picked. At the present time they usually are chosen by corporate chief executives. Therefore, it is no surprise that directors are beholden to those who appointed them. Those directors return the favour by agreeing to almost anything requested, such as salaries, bonuses, stock options or long-range plans. Then they choose their sponsors to be on the boards of directors of companies where they are chief executives. All those inter-relationships are so significant the boards give virtually free rein to the CEOs of the companies. Fine points or crucial information is ignored.
This quasi-incestuous relationship hardly serves the interest of corporate shareholders or the general public. In large corporations, most of the directors have many other responsibilities and lack the time to fulfill the requirements of being a director. This columnist was told recently Hillary Clinton, a director of Lafarge Cement, was one of the very few directors who were active and read all the paperwork put in front of them.
Directors of large companies are paid handsomely for their time. It is quite common for a director to receive $100,000 a year for attending meetings of the board. Automobile companies, too, generally provide their directors with a new car each year in addition to a large cash stipend. Companies are prone to pick as directors members of the “club” of corporate notables. Often former political officials are picked, such as cabinet officers, provincial premiers or leaders of major political parties.
Knowing that, politicians keep an eye out for ways to accommodate corporations and their agenda. The leading Canadian banks are particularly culpable, and lawyers associated with organizations are well placed to push pliable individuals into directorships. Even less well-known businesses act in that way.
Provincial laws should be amended so that a significant percentage of directorships in large corporations be nominated by the public such as unions or public service groups. In Germany, unions, by law, are represented on corporate boards.
The process of choosing directors should more closely resemble the way public officials are elected. Individuals may be recommended by using the company website or by letter from individual shareholders.
Furthermore, individuals should be limited by the number of boards on which they could serve and their position be restricted to a few years. Directorships should not be a permanent sinecure. This probably would reduce the obscene pay packages of many corporate officials.
The present inbred, closed system of picking directors should be reformed. This would not upset the financial system, but improve its functioning.