“Where was the board of directors?”

“Why didn’t the company’s executives see signs of trouble before it hit them?”

“Why didn’t the board think about risk and manage it?”

“How could this happen with all the information that

was available?”


Shareholders, employees, managers, customers, and taxpayers are asking these questions as they look into the “black box” of how our country got itself into this economic mess.

After all, weren’t post-Enron regulations supposed to prevent the type of business disasters that are in the headlines every day? Remember that, in an effort to restore confidence in Wall Street after the business failures of a decade ago, Congress passed the Sarbanes-Oxley Act in 2002 to address flaws in corporate reporting and governance.

But in their effort to provide a quick fix for problems in American corporate governance, our government leaders glossed over a fundamental truth: The effectiveness of a board of directors is determined by the character of its members.

During the decade of the 1990s, democracy and the free market system spread around the globe, creating unparalleled economic growth and an age of confidence and optimism. Despite a few hiccups as the decade closed and a new one began, the modus operandi was to continue running things as they had been. Why tinker with a well-oiled machine that keeps producing profits and shareholder returns year after year?

Corporate directors who had the nerve to raise their hands at board meetings to point out the risk or downside of a strategy got the same response they might have if they’d told a politically incorrect joke. They were deemed not to be “team players.” Some were admonished. Some chose not to play the game anymore. (I’m speaking from personal experience here!) It was as if everyone were intoxicated, blinded by the rising stock market and living in a sea of greed and excess. Common sense was tossed out the window because running a business without it was just too much fun . . . and, for a while, too rewarding.

Eventually, however, malfeasant behavior on the part of some corporate boards contributed to the failure of major businesses, historically high levels of unemployment, and our envelopment in a recession deeper than any other since the Great Depression. CEOs, directors, lawyers, accountants, and bankers are being hung in the court of public opinion (as some should be). It will take years to restore the damage done to our greatest asset of all: our collective reputation as corporate leaders.

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