Who leads the corporation, the Board Chair or the CEO

“Taking Back the Boardroom”
Philip H. Phan Ph.D.
McGraw-Hill Book Co., 2000


The common notion is that the chairmanship in a corporation’s board is, at best, an honorific title for one who should be rewarded with perks like playing good golf the whole day, and whose only duty is to lend his name to a corporation he served so well.

Thus the board chairman is effectively semi-retired, in contrast to the chief executive officer who is actually running the enterprise.

In family corporations, the gray haired patriarch (or matriarch) is usually the chairman while the greenhorn or earnest son (or daughter) is the CEO.

Where does that place the board of directors – again, in contrast with the CEO’s top management team? Yes, the board members (called “bored” somewhat justifiably and somehow erroneously) simply give their imprimatur, ratifying the “acts of management” – and then conclude the meeting… but only after collecting their modest or hefty directors’ per diem depending on the financial state of the firm.

Is that all there is in the post of chairman and in a body of decision makers called board of directors? Author Philip H. Phan, Ph.D. doesn’t think so. In a research-based book, “Taking Back the Boardroom,” he takes a position uncommon to many: “The Chair wields a great deal of influence and power,” adding that the Chair is very much involved in strategic direction and organizational structure.

Drawing the lines between Chair and CEO’s primary role is to promote growth of the firm, while the Chair’s is to ensure that the firm operates at the highest level of efficiency.”

The Chair advocates the shareholder’s position, while the CEO advocates that of management – and, “in this nexus of healthy tension lies the best solution for maximizing shareholder wealth and maintaining the security of the firm’s future.”

Subtitled Better Directing for New Millennium, this book lives up to its promise, taking a fresh look at the power and resource latent in the Board, led by its visionary Chair. Instead of sounding like a manual (the best formula for boredom, by the way!), the author provides philosophical foundations to enterprise direction, marshalls his points with finely categorized distinctions, and illuminates his premises with stories on business successes or failures attributed to board action or inaction.

It is very rare that an entire book is dedicated to “corporate governance,” a phrase used to distinguish it from “corporate management.” Whether you are a profit or non-profit organization, a public or closed corporation, a family owned company or a global firm’s fully owned subsidiary – you will find something eye opening and insightful in this very meaty book.

Its language is shorn of embellishments, simply because the author wants precision – as he deals with very fine distinctions, complex structures and elaborate processes. Somehow, you feel you are benefiting from the scholarship of the author, giving you a mass of information but making sure you don’t get lost “in the woods,” and pursuing corporate logic but steering clear of such pitfalls as being pedantic or dry.

The book remains interesting because it picks up some controversial points along the way – and nudges us on to join the fray. For example, the book touches on the steady take-over of corporate governance by managers over the owners. It is in the truism that has found circulation among management scientists and students: “The means of control in an organization is not ownership but management.” Surprised? You should not be. Hereabouts, many a management firm, though it owns less than 10 percent of the corporation, completely controls it.

Singapore-based Dr. Phan addresses the issue, too. “The dispersion of ownership led to a condition in which owners of the shares were less able to coordinate themselves in order to monitor the actions of the management. As the ability of owners to check on managerial decisions decreased, the relative power of the managers to control the wealth of the corporation increased, making them the de facto owners.”

After giving you a walk-trough to emergent concepts in governance and management, liberally quoting from his mentors in America, the author fixes his eyes on the Chairman, the great bright (not “white”) hope in restoring “shareholder sovereignty” through an effectively functioning board.

The Chairman has three key responsibilities – one, as a liaison between management and the board; two as one setting the agenda; and three, as “prime instigator” and “mentor” (if not “tormentor”) of the chief executive.

The author initiates a discussion on one interesting point: “Corporate governance experts are not keen on the idea of one individual holding both Chair and CEO positions.” He adds: “As mentor to the CEO, the Chair has to set the performance standards by which the CEO will be judged.” Read the book – and find out if you agree.

From the theory, the author gives you the world’s best practices. The book gives you a chance to peer into the boardrooms of Heinz, Campbell Soup, General Electric, and Coca-Cola – as led by their boards or their chairmen.

For a change, theoretical discussions shift to presenting the chairmen in flesh and blood – Jack Welch initiation earthshaking changes in General Electric and Roberto Goizueta taking over t he helm in Coca-Cola making “the southern soda maker a global marketing powerhouse.” You will also find useful the comprehensive table that presents the two contrasting board policies and processes of Intel and General Motors.

This book comes at a time when we have deluge of management books dealing with theories, strategies, and motivational tools. This one brings you to the boardroom, gives you a window into the mind of an effective Chairman, and lets you feel the tensions and challenges that confronts the boards as they retake the leadership they have relinquished – wittingly or unwittingly – to management.

The partnership between board and management was usually one-sided before. This book, with astonishing insights brought about by outstanding scholarship, will at last equalize the partnership. Get this book – and let us all look forward to dazzling discussions and more fireworks in boardrooms.