Pawns or Potentates
The Reality of America's Corporate Boards
by Jay W. Lorsch (with Elizabeth MacIver)
Hardcover, 200 pages
Harvard Business School Press (December 1989)
ISBN: 087584216X
About the Book
The role of the board of directors in the corporation has changed dramatically in recent years. Once viewed as honorary bodies meant primarily to advise the CEO, boards today are being forced to play a much more active part in corporate affairs — often in direct conflict with the CEO — and increasingly feel hampered by their inability to have more impact on the decision-making process. As firms face the competitive challenges of the 1990s and beyond, it is imperative that both directors and corporate managers have a clear understanding of the proper function of boards and of how that function might change in the years ahead.
Pawns or Potentates is the most comprehensive study of American corporate governance ever undertaken. Over a three-year period, Professor Jay Lorsch of the Harvard Business School and research associate Elizabeth MacIver interviewed nearly 100 outside directors of corporations and received questionnaires from over 2,000.
The result is a fascinating look at how boards now operate. In their own words, directors describe how they see their roles, whom they view as their constituencies, and what impediments prevent them from successfully fulfilling their obligations.
The authors focus on four case studies of companies under stress — both sudden and gradual — to reveal the dimensions of corporate governance in general and the tension between outside directors and CEOs in particular:
- fighting an unfriendly takeover bid at Martin Marietta;
- selecting an outside successor as CEO at Burlington Northern;
- dealing with the sudden death of the CEO at a telecommunications company; and
- resolving management dissension at a shoe manufacturer.
Each case provides valuable insight into a board's ability to govern effectively when it must act without, or in opposition to, its own management.
Lorsch and MacIver argue that boards should do more than, as one director put it, act as firemen who "sit around doing very little until there's a fire alarm and then they spring into action." Directors must learn how to prevent fires, rather than just putting them out, and that means taking a more active role in corporate governance during noncrisis periods.
To achieve this, the authors suggest a set of innovative reforms that would give directors more power without restricting management's ability to run the company. Suggestions range from changes within the current system, such as how directors are chosen and compensated, to more drastic systemic changes, such as the controversial idea of separating the positions of chairman and CEO to better diffuse power.
Pawns or Potentates provides an inside look into America's corporate boardrooms that illustrates clearly how boards operate today — and how they should operate in the future to achieve more effective corporate governance.
About the Author
Jay W. Lorsch is the Louis E. Kirstein Professor of Human Relations at the Harvard Business School. Besides Pawns and Potentates, he is the author of over a dozen books, including Back to the Drawing Board: Designing Corporate Boards for a Complex World (October 2003) and Aligning the Stars: How to Succeed When Professionals Drive Results (2002). Organization and Environment (with Paul R. Lawrence) won the Academy of Management's Best Management Book of the Year Award (1967) and the James A. Hamilton Book Award of the College of Hospital Administrators (1969).
Having taught in all of Harvard Business School's educational programs, he was Chairman of Doctoral Programs, Senior Associate Dean, and Chair of the Executive Education Programs from 1991 to 1995; Senior Associate Dean and Director of Research from 1986 to 1991; Chairman of the Advanced Management Program from 1980 to 1985; and prior to that served as Chairman of the Organizational Behavior Area.
Prof. Lorsch is currently Chairman of the Harvard Business School Global Corporate Governance Initiative and Faculty Chairman of the Executive Education Corporate Governance Series.
As a consultant, he has had as clients such diverse companies as Ameritech, Applied Materials, the Bank of Montreal, CitiCorp, Chubb and Sons, Coopers & Lybrand, Corning Glass Works, General Electric, Goldman Sachs, Merck Sharp & Dohme, and Petreleos de Venezuela S.A. He is a Director of Blasland, Bouck & Lee, Inc., and Computer Associates, and a member of the Advisory Board of U.S. Foodservice and BoardVantage, Inc.
He is a graduate of Antioch College (1955) with an M.S. degree in Business from Columbia University (1956) and a Doctor of Business Administration from Harvard Business School (1964). At Columbia, he was a Samuel Bronfman Fellow in Democratic Business Administration. From 1956 to 1959 he served as a Lieutenant in the U.S. Army Finance Corp.
Prof. Lorsch was recently elected as a Fellow of the American Academy of Arts & Sciences.