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The One-Tier Board (IVOR nr. 85) 2012/3.4.3
3.4.3 Evolution of US boards over the last 30 years
Mr. W.J.L. Calkoen, datum 16-02-2012
- Datum
16-02-2012
- Auteur
Mr. W.J.L. Calkoen
- JCDI
JCDI:ADS598419:1
- Vakgebied(en)
Ondernemingsrecht (V)
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Martin Lipton has orally confirmed to me that these 'advising directors' were in practice quite independent, because of their professional standards. However, see also the quote of Justice Jack Jacobs in his speech of 2006, in which he describes a typical advisory board of 1985 in the pre-Van Gorkom period as CEO entrenched.
For example Smith v. Van Gorkom (board members must decide on an informed basis), Caremark (oversight necessary with detailed systems), Disney (due process in meetings and advisors necessary) and Lyondell (due process in meetings necessary). These cases are described hereunder.
Bainbridge (2008), p. 1.
The typical US board of the 1950s, 1960s and 1970s was composed of all the chief officers and about five non-executive directors. The CEO was the chairman. Non-executive directors were often the company's trusted advisors, such as its lawyer, investment banker, accountant and most important customer. They were chosen by the CEO/chairman and their role was to give advice.1
From the 1990s shareholder activists fought for more balance. They caused change through (1) the requirement that non-executive directors be independent; (2) enhancement of the role of independent directors by way of committee work and executive sessions; (3) more balance by splitting the role of the CEO who is at the same time chairman of the board, into a separate CEO and independent chairman, i.e. the non-CEO chair, in some companies. However, most US corporations still have a combined CEO and chairman, but of late such corporations have tended to appoint a lead independent director as counterbalance against the combined CEO/chairman.
Thirty years ago, "managerism" dominated. In both theory and practice, a team of senior managers — the officers — ran the corporation with little interference from shareholders, who were essentially powerless, or from the directors, who were little more than rubber stamps. Today, American corporate governance looks very different. The imperial CEO is a dying breed. Most importantly, for our purposes, boards are increasingly active in monitoring top management and challenging their strategy rather than serving as mere pawns of the CEO.
Several trends have helped these developments:
director compensation now comes more as stock and less as cash, thus aligning director and shareholder interests;
courts have made clear that effective board processes and oversight ar essential;2
shareholder activism;
the Enron and WorldCom scandals of 2001 and 2002;
the Sarbanes-Oxley Act of 2002.3