Posted by: kenwbudd | June 17, 2010

Directors of Passive Intervention

Director of Compliance and Passive Intervention

“When the music stops, in terms of liquidity, things will be complicated,” Citigroup’s Chairman and CEO Charles Prince told the Financial Times. “But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

This quote has become the emblematic aphorism of the economic crisis of 2008–09: a symbol of how some banking and financial-services executives justified their poor judgment and negligent (and/or even fraudulent) behaviour. But it also reflects a more pernicious pathology — relevant to all the corporate crises we’ve seen recently in the oil, automobile, and financial-services industries, in which companies’ own lack of strategy, control and judgement have been partially responsible for their substantial public woes.

As one respected non-executive director of a top-tier U.S. bank noted, “I still can’t believe Prince said that. If I had been one of his shareholders, I’d have been furious. Where was his board?” Still sheltering in his pocket, I guess.

Prince knew that his boardroom overseers were comfortable with their bank waltzing around on its shareholders’ time and possibly it’s behalf, because none of his directors ever came forward and challenged the assumption.

The passive board — which obeys the law but does not provide meaningful oversight — is a hindrance and handicap for any corporation. In accounting terms, its oversight is mere overhead.

Perhaps they were selected for their level of deference and compliance to the ‘team.’ These directors did their ‘duty.’ They simply had to follow the law and the corporate customs that protected them, whilst living in the luxury of the moment.

How often have we heard this excuse of following directives without question as an excuse for positive action. Do we not expect substantially more initiative and significantly less sheepish behaviour from our corporate ‘leaders?’

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