I have written before on corporate governance. In my opinion, there will be no substantive improvement in corporate governance until the following changes are made: directors for all boards are randomly selected from a pool of qualified individuals; there are term limits (6 or 7 years) for all directors on every company’s board; directors do not have other full-time jobs; no member of senior management of a company, including the CEO, is a member of the company’s board; no individual can serve as a director of more than three companies; directors are paid retainers entirely in cash (i.e. their compensation should not be linked to the financial and competitive performance of the companies where they are directors).
But weak governance is not just a problem confronting public companies. Indeed, weak governance is as big a problem for all organizations that rely on other people’s money (OPM). NGOs stand out prominently in this latter group. So too do crown corporations; government agencies; quasi-government agencies such as hospitals and universities; charities; and the UN and its many agencies, among them the Intergovernmental Panel on Climate Change (IPCC). While there is a long way to go yet to reform corporate governance to make it effective, governance for non-public corporate entities is in even greater need of reform.
For these latter groups, directors are generally selected for their political connections; their fund raising capabilities; their compliance and complacency — they will not rock the boat; their social or personal links to the CEO; and/or their support of and commitment to the direction in which the CEO is taking the organization. Directors rarely challenge the CEOs of these organizations. Indeed, these CEOs tend to be much less tolerant of criticism than are the prima donna CEOs of public companies.
As a result, it is not surprising to see hospitals in Ontario regularly run deficits even through the provincial government has mandated them to balance their budgets each year. It is not surprising that the IPCC is looking more amateurish every day. It is not surprising to see some CEOs move their NGOs down paths that conflict with their original mandates and raison d’etre. It is not surprising to see increasing proportions of the annual budgets of charities go to fund raisers, senior management and travel.
The CEOs of such organizations cannot be impervious to criticism. Since they depend on other people’s money, they need to be subject to the oversight of independent and diligent directors. There is no room for dilettante directors.
If you are using your own money, you can do what you want; although I suspect that even in these cases, family dynamics place constraints on the actions of such people. But if you are using OPM, then you must be held accountable, and your job must be at risk.
Serious governance reforms for such organizations will require a number of the same changes I have suggested for public corporations: random selection of directors; term limits; no other full-time jobs for directors; and an absence of senior management on the board.
The opinions expressed are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.