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The CEO's Boss
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The CEO's Boss

Tough Love in the Boardroom

William M. Klepper
Columbia UP, 2010
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Editorial Rating

7

Qualities

  • Eye Opening
  • Well Structured
  • Concrete Examples

Recommendation

Enron. Global Crossing. WorldCom. Adelphia. Tyco International. These corporate cautionary tales point to the crucial importance of responsible corporate governance. Columbia Business School Professor William M. Klepper discusses why boards must treat CEOs with “tough love” to focus them on corporate goals. He suggests a “Social Contract” to set up the working partnership between directors and CEOs. Klepper, an expert on Boards, has worked on executive education with some of the world’s best-known firms. He tends to name-drop, but maybe his self-promotion is justified, because he sure knows his subject. Board members and CEOs will learn a lot from his insightful, instructive and fascinating case histories.

Summary

“Social Contracts” keep boards and CEOs allied by spelling out their partnership.

In 2005, then-Chairman and CEO Dennis Kozlowski and then-CFO Mark H. Swartz of Tyco International were convicted of embezzling $600 million from the company, and each received a stiff prison sentence of 8 to 25 years. In the aftermath, Tyco’s new lead director, Jack Krol, and CEO and Chairman Edward D. Breen were determined to clean things up to save the firm. Breen decided to take on an entirely new slate of board members. He and Krol committed themselves, and the new Tyco board, to Tyco’s “Ethical Conduct and Board Governance Principles.”

This Social Contract sets “integrity, compliance and accountability” as primary ethical goals for Tyco’s board and management, and it helped Krol and Breen return the company to respectability. All companies need a Social Contract to define the “beliefs and behaviors” of the CEO and the board. Prepare one for your firm and keep it “in the boardroom and on each member’s board agenda.” The path to outlining a typical Social Contract begins with outlining five corporate “behavioral standards”:

  1. “Commitment to values”

About the Author

William M. Klepper is a professor of management at the Columbia Business School, and he directs Columbia University’s partnership with the Outstanding Directors Exchange.

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