Boards in the United States are undergoing reforms in leadership, membership and performance evaluation. But are all the changes for the better?
Corporate boards in the United States have recently been on the hot seat. Stimulated by high-profile scandals, investor dissatisfaction with board performance and questions about the level of executive compensation, regulators have introduced significant reforms in the rules that govern boards. But will such reforms actually contribute to the effectiveness of boards? A real danger exists that the mandated changes not only will fail to enhance how companies are governed but also could possibly lead to a number of negative unintended consequences. To investigate such issues, the authors conducted a study that compared the board practices and effectiveness of Fortune 1000 companies in 1998 versus 2003. They looked specifically at three areas: board leadership, the conditions governing board membership, and the performance evaluations of boards, individual board members and CEOs. The results have helped to determine which practices in those three areas are actually related to overall board performance.