Four Things To Do When the Going Gets Tough
from January/February 2002
1. Spend more time on the job. “Avoid the temptation to distance yourself from what’s going on inside the company,” says attorney Gabor Garai. “People are not generally good at digging in during times of trouble because it’s not fun, it’s depressing. But it is often what distinguishes a successful board from a less successful one. Consider spending two or three days a month at the company, just walking around and talking to people of all levels. You’ll get an accurate, granular feel of what’s really going on. It’s a lot better way to spend your time than showing up in court a year and half later, when you’ve been sued.”2. Make sure your board’s skills are diversified. Venture capitalist Steve Lazarus says a board is derelict in its duty if it doesn’t assemble a group of directors who can bring different strengths and experiences to bear on strategic decisions and can, if necessary, steer the company through a crisis. Boards also need to make sure that the directors’ outside interests don’t compromise their fiduciary duty, says attorney Roger Barton: “This is especially true as a company shifts toward insolvency and the fiduciary duty shifts from the shareholders to the creditors.”
3. Improve communications and investor relations. “Shareholder complaints that directors didn’t give them enough information and didn’t give it to them soon enough are always the basis for shareholder lawsuits,” says corporate watchdog Nell Minow. “For that reason, the big burden is on the audit committee to make sure the company discloses material news on a timely basis and with a lot of candor.” Most boards, Minow adds, have yet to ensure that their companies are taking full advantage of the Internet as a communications medium
and investor-relations tool.
4. Reassess management. “In a declining economy, which usually has a declining stock market associated with it, some of management’s shortcomings may show up a little more clearly,” says Ken West, senior consultant for corporate governance at TIAA-CREF, which provides benefit plans to nonprofit and education-related employers. “This is when the board might be able to see that it’s been a little too tolerant, and consider a change in leadership.”
