Inside the Boardroom: Governance by Directors and Trustees

"Bill Bowen’s powerful insights into the principles and practices of institutional governance make his new book ‘must reading’ for all board members." —H. B. Atwater, Jr. Chairman of the Board and CEO General Mills, Inc. "The ‘old boys’ club’ of the boardroom no longer works as companies and organizations re-engineer for the global challenge. Dr. Bowen’s thoughtful and incisive analysis of issues and his prescriptions for good governance are must reading for all responsible board members." —W. Michael Blumenthal Former Secretary of the Treasury and Limited Partner, Lazard Freres & Co. "This thoughtful, lively, and well-written comparison of the many similarities and striking differences in the governance of not-for-profit and for-profit corporations is a unique resource from which both sectors will benefit.… This valuable book, and in particular its twenty ‘presumptive norms’ to govern how boards function, will certainly establish a new and important agenda for management and directors." —Helene L. Kaplan Skadden Arps Slate Meagher & Flom "Dr. Bowen brings to Inside the Boardroom unusual qualifications: a distinguished economist who has served as university president, foundation executive, and [as a member of] several for-profit and nonprofit boards of directors. From this varied experience he combines scholarship with corporate reality in ways which provide wisdom, insight, and guidance as to how boards should work and how in fact they do work, and what they can and cannot contribute to management. Best of all, he does so in a thoroughly readable way." —Nicholas Katzenbach, Partner Riker, Danzig, Scherer, Hyland and Perretti Former United States Attorney General Former Senior Vice President and General Counsel, IBM Corporation "This superb study rests on Bowen’s extensive experience of both corporate and nonprofit boards and his personal qualities of lucidity, perceptiveness, intellectual acuity, and fair-mindedness. Readable, fresh, jargon-free, and thoughtful, the book is a gem." —Richard W. Lyman President Emeritus, The Rockefeller Foundation President Emeritus, Stanford University "William Bowen is the finest example of America’s meritocracy. He rose, by ability and wisdom, from Main Street to the highest counsel of business and philanthropy while gaining along the way admiration for scholarly innovations as an economist and leadership as President of Princeton University. In this short book he addresses—from experience and with analytical precision—the vital problem of how outside directors might help improve governance of business corporations and non-profit institutions. Read. Ponder." —Paul A. Samuelson Nobel Laureate in Economics Department of Economics, M.I.T.

Inside the Boardroom From tales of scandal and gross indifference at nonprofits such as United Way and Empire Blue Cross, to accounts of executive purges within Fortune 500 companies, boards of directors have figured prominently in many sensational news stories over the past few years. In the popular imagination, outside directors are, at last, asserting themselves—or being goaded into action by ever more aggressive institutional shareholders—and seizing the reins of control from once all-powerful CEOs. While this perception may be overly dramatic and inaccurate, the subject of governance—who exercises power, on behalf of whom, and how the exercise of power is controlled—is receiving unprecedented attention. Many believe that we are entering a period of profound change during which boards will assume more authority and be held more accountable than they have been in the past. In this timely book, William Bowen explores the role of the board of directors in today’s for-profit and nonprofit corporations and offers his, at times, controversial recommendations on how boards can better serve the interests of organizations and their stakeholders. And few writers are as qualified to do so. Over the past three decades, William Bowen has served on the boards of six prestigious nonprofit institutions, including Princeton University and the Smithsonian Institution, and an equal number of high-profile business organizations, including American Express, Merck, and NCR. As a consequence, he possesses an intimate working knowledge of both for-profit and nonprofit boards and speaks with authority on what important lessons each can learn from the other. Combining eloquent prose with hard-hitting analysis supported by evidence from particular cases and new observations by well-known, knowledgeable CEOs and board members, Bowen provides detailed answers to a number of crucial questions such as: Do boards really matter? To what extent do external checks and constraints preordain outcomes? Is it wise to allow CEOs to serve as board chairmen? In what ways is a board’s ability to act effectively influenced by the type of information reported to it and by the reporting mechanisms themselves? Is there an optimal board size and an optimum balance between inside and outside members? How can genuine independence of outside directors be achieved? Offering a unique insider’s perspective on how boards of directors work and how they can be made to work better, Inside the Boardroom is an indispensable resource for board members of both for-profit and nonprofit organizations, as well as presidents, CEOs, general counsel, and senior managers in charge of strategic planning. It also offers new insights for policy-makers and general readers interested in the governance of organizations vital to our well-being.

Includes bibliographical references (p. 167-177) and index.

About the author WILLIAM G. BOWEN is President of the Andrew W. Mellon Foundation and former President of Princeton University. In addition, he has served as an outside director for American Express, Merck, NCR, Reader’s Digest, the Rockefeller Group, Inc., Denison University, the Public Broadcast Laboratory of National Educational Television, the Sloan Foundation, the Smithsonian Institution, the Wallace-Reader’s Digest Fund, and the Center for Advanced Study in the Behavioral Sciences. He is also the author or coauthor of twelve other books, including In Pursuit of the PhD, The Economics of Labor Force Participation, The Wage-Price Issue: A Theoretical Analysis, and Performing Arts: The Economic Dilemma.

The Importance of Boards.

The Functions and Activities of Boards.

How Boards Are Constituted.

How Boards Are Organized.

How Boards Are Informed.

Business Leaders Serving on Nonprofit Boards.

Conclusion.

Appendices.

Notes.

Index.