The corporate governance principles/guidelines of many companies refer to internal “on-boarding” programs designed to familiarize new directors not only with the company’s operations but with their boardroom responsibilities.
Some companies also encourage or require all directors, during the course of their tenure, to attend presentations, whether in-house or external, on developments in corporate governance.
The first category of information (often featuring presentations by officers, and possibly visits to company facilities) is probably largely unnecessary for “inside directors” who are also serving the company as officers (for example, as CEO).
The second category might be redundant for many directors who have board experience at other companies.
And all directors, and potential directors, should read not only the company’s proxy statement but its securities filings, such as Form 10-K, 10-Q, and 8-K.
However, directors might consider adding to their summer (and subsequent) reading lists the corporate documents—and (mostly) non-law books—identified below.
First, every director could benefit from regularly reviewing the core corporate documents (probably) publicly provided on the company’s Web site: the articles/certificate of incorporation, bylaws, committee charters, and conduct/ethics code, as well as any separate specialized policies concerning such issues as the company’s political or other contributions, the “clawback” of excessive compensation, and supplier compliance.
Second, directors might examine, perhaps with the guidance of the company’s counsel, the company’s risk management plan; its compliance policies; its major contracts with outside law and accounting firms; and its insurance, indemnification, and exculpation arrangements (including exceptions to each, and areas of potential overlap) for directors.
Third, new directors could read, from the past three years or so, minutes of board meetings and committee meetings; board resolutions; and documents relating to litigation brought by or against the company.
Fourth, the board should review and (if necessary) update, at least annually, plans for the succession of senior executives.
Fifth, whether or not a formal policy requires directors to submit their resignations if they might have, even in their “off-hours” and law-abiding activities, embarrassed the company, counsel might regularly provide to all directors a summary of situations in which executives of other companies have attracted unfavorable attention.
Sixth, directors might also wish to examine, or be briefed (possibly by board’s Nomination and Governance Committee) on, or at least on changes to, the annual summaries prepared by (and available for downloading, on the Web sites of) proxy advisors such as Glass Lewis and ISS; asset management firms like BlackRock, State Street, and Vanguard; major institutional investors such as CalPERS, CalSTRS, and TIAA; and the Council of Institutional Investors.
Seventh, below are a few (idiosyncratic) reading suggestions, almost all of which are available in inexpensive paperback editions, for directors’ (and their counsel’s) consideration:
Daniel Kahneman, Thinking, Fast and Slow (2011)- a sobering, and humbling, survey of cognitive traps, by a Nobel Prize-winning economist who has spent decades studying how individuals and groups can optimize their decision-making.
Sharon Bertsch McGrayne, The Theory That Would Not Die (2011)- discusses, in much more detail than Kahneman does, the role and applications of Bayes’ Theorem in effectively incorporating new information into decision-making processes.
Philip Zimbardo, The Lucifer Effect: Understanding How Good People Turn Evil (2007)- by a psychologist involved—two years after he pioneered tests of the “broken window theory”—in the (in)famous “Stanford Prison Experiment” of 1971. Disturbing and detailed discussions of that experiment, and of its relationship to subsequent activities at the Abu Ghraib prison in Iraq. Directors might focus on Zimbardo’s “Ten-Step Program to Resist Unwanted Influences” (pages 451-456), offered as a “starter kit toward building individual resistance and communal resilience against undesirable influences and illegitimate attempts at persuasion.”
Andrew Grove, Only the Paranoid Survive (1996)- the former chairman and CEO of Intel discusses how to recognize and react to “strategic inflection points” that affect one’s industry, one’s company, and (in the last chapter, easily by itself worth the price of the book) one’s career.
Useful (though now-dated), and possibly inspirational, examples of attempts to identify trends, if not inflection points, include: Mark Penn’s Microtrends (2007) and Microtrends Squared (2018); various “Non Obvious” books by Rohit Bhargava; and Mauro F. Guillen’s 2030 (2020). Also of interest: Robin McGrath’s Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen (2019).
John Carreyrou, Bad Blood: Secrets and Lies in a Silicon Valley Startup (2018)- an extraordinary profile of dysfunctional governance at a company that promised accurate and efficient analyses of medical patients’ blood samples.
Mitchell Waldrop, Complexity: The Emerging Science at the Edge of Order and Chaos (1992)- explores, using very little mathematics, the study of the marketplace, the human brain, evolution, and other “complex, self-organizing, adaptive systems [that] have somehow acquired the ability to bring order and chaos into a special kind of balance. . . . The edge of chaos is the constantly shifting battle zone between stagnation and anarchy, the one place where a complex system can be spontaneous, adaptive, and alive.” Poetic and scientific at the same time.
For another early mass-market treatment of similar systemic concerns, see Kevin Kelly (the founding executive editor of Wired magazine), Out of Control: The New Biology of Machines, Social Systems, and the Economic World (1992).
David Priess, The President’s Book of Secrets: The Untold Story of Intelligence Briefings to America’s Presidents (2016)- a fascinating discussion of the evolution of the substance, style, and methods of presentation of the President’s Daily Brief (PDB), beginning in the Kennedy Administration. It contains many lessons for executives, their counsel, and others who advise decision-makers.
Michael Lewis, Flash Boys: A Wall Street Revolt (2014)- An extended illustration, in the context of high-frequency trading (HFT), of many people’s lack of understanding of the technical foundation/chassis/plumbing/architecture of their profession’s (or investment managers’) systems; and of the continuing tensions among technologists, regulators, and businesspeople.
The American Law Institute’s two-volume Restatement 3d of Agency (abbreviated versions of which are also available), although not a statute, is an influential codification of the fiduciary duties of agents (including officers; and, though they are not technically agents of the corporation, directors); the duties owed to them by their principals (the corporation); and the ways in which they can commit (even an unknowing or unwilling) principal to contractual and tort liability,
In a more specialized context, because lawyers are agents of their clients (and, simultaneously, are “officers of the court”), directors might derive from the plain-English, annotated Model Rules of Professional Conduct a better sense of the responsibilities of and restrictions on their in-house and outside counsel.
A third perspective on agent-principal relationships is the memoir of a prominent “Hollywood agent” who received more than $130 million in severance compensation after serving for about fourteen months (October 1995-January 1997) as the president of The Walt Disney Company: Who Is Michael Ovitz? (2018). (A sample: “Sometimes, representing a client’s best interests means not getting him what he thinks he wants. The judgment part of the job requires knowing when to redirect a client’s desires.”)
Of the court opinions generated to resolve shareholder-initiated litigation against the Disney board for initially offering Ovitz that compensation arrangement, and for then declining to terminate him for cause (which would have deprived him of the severance payment), a most illuminating and instructive review of directors’ fiduciary duties was issued by Delaware’s Chancery Court in 2005 (Google “907 A.2d 693”).
Near the beginning of what amounts to a factual and legal primer, the court observed that “I have tried to outline carefully the relevant facts and law, in a detailed manner and with abundant citations to the voluminous record. I do this, in part, because of the possibility that the Opinion may serve as guidance for future officers and directors—not only of The Walt Disney Company, but of other Delaware corporations.”
David Kaiser, How the Hippies Saved Physics (2011)- a mind-expanding exploration of how, beginning in the pre-Internet era of the 1970s, a group of “fringe” physicists focused on the mind-expanding implications of quantum mechanics formed, maintained, and expanded their professional and philosophical network, which included, at various points, prominent “mainstream” physicists; elements of the intelligence and defense communities and their contractors; “New Age” figures like Werner Erhard of est, and the leaders and habitues of the Esalen Institute; and best-selling authors like Fritjof Capra and Gary Zukav. Among its themes are the relationships of theoretical to practical research, and the sponsorship/patronage of each; the popularization, and cultural relevance, of scientific concepts; and the harmoniziation of science with (particularly Eastern) philosophy (to a much greater technical degree than in Robert Pirsig’s Zen and the Art of Motorcycle Maintenance (1975)).
As the Grateful Dead famously sang, “Once in a while, you get shown the light / In the strangest of places, if you look at it right.”
Best wishes for happy summer reading.
[Readers’ recommendations are invited and welcome: e-mail, effross at wcl.american.edu]
