Dangerous Myths Distort the Work of Boards of Directors and Compromise the Future of the Public Corporation

These Myths Must Be Dispelled for Public Companies to Realize A Sustainable Future, Says Deborah Hicks Midanek, Author of The Governance Revolution: What Every Board Member Needs to Know, NOW!

NEW YORK, Sept. 04, 2018 (GLOBE NEWSWIRE) -- Since the first limited liability corporation – the Dutch East India Company – was formed in 1602, supervision by a board of directors has been required. And for four centuries, the role of the board has been poorly understood and repeatedly castigated as ineffective.

Why is it important now to recognize and rectify governance myths? The stakes are huge, as 500 companies are responsible for 70% of global production, and fewer than 100 investors control the majority of corporate shares. Dwarfing many countries in size, these players control global wealth and, arguably, the world.

“The board of directors is charged with protecting the health, wealth and future possibilities of the corporation, not the shareholder,” says Deborah Hicks Midanek, veteran director and author of the new book, The Governance Revolution: What Every Board Member Needs to Know, NOW! (De|G PRESS, September 2018). “We are in the midst of a profound revolution – the governance revolution – important to every person on the planet. The battle for control of corporate wealth has been joined.”

Though the corporate form has been hugely successful, repeated failures and continuing scandals indicate that many board members are poorly armed for the fight, says Midanek, a corporate turnaround expert who has served on the boards of 23 public and private companies and advised many others. By understanding and taking ownership of the job before them, however, directors have the potential to lead businesses, and perhaps the world, toward a sustainable future.

But before the board, the CEO and the shareholders can move forward together effectively, Midanek says the following myths must be debunked.

Myth #1: Public corporations are owned by their shareholders.

Shareholders of public companies do not own them, but instead own interests in residual income with specific and narrow rights attached, including the right, collectively, to elect the directors.

Myth #2: The board owes its loyalty to the shareholders.

Each director singly – and the board collectively – owes its loyalty to the corporation, not to its shareholders’ short-term wishes.

Myth #3: The goal of the board is to maximize shareholder value.

Dominant focus on maximizing short-term shareholder value can be seen as a dereliction of fiduciary duty, by sacrificing the creation of long-term value. The board’s purpose is to protect the corporation, as guardian of its perpetual life.

Myth #4: Independent directors are not necessary.

Management cannot supervise itself. Disinterested directors with a detached perspective are now required to be a majority of the board in many parts of the world.

Myth #5: The CEO reports to the shareholders.

The CEO is accountable to the board, which evaluates performance and determines compensation, on a basis which has typically been publicly disclosed.

Myth #6: Shareholders give direction to the board.

Board powers are established in the company’s formation documents. Shareholders have little control beyond their ability to vote periodically on the corporation’s proposed slate of directors.

Myth #7: Directors should not communicate with investors.

It is important that directors know what is on the minds of shareholders, while simultaneously maintaining focus on the prospects for the whole, not just the parts. Listening to them, while preserving proprietary information, is important.

“Directors who build an understanding of the legal basis for their role arm themselves to prevail in the governance revolution,” says Midanek. “By taking complete ownership of their job, board members can boldly drive the companies in their care toward long-term sustainable value creation over short-term sophistry.”

The Governance Revolution: What Every Board Member Needs to Know, NOW! is a definitive guide for executives and boards of directors dealing with increased responsibility in this demanding environment. It includes history and insight into the evolution of the often ambiguous role; a discussion of capital markets and the forces behind the rise of independent directors, institutional investors and impossibly complex investments; and a review of hot buttons and hazards – and how to handle them.

Deborah Hicks Midanek, widely acknowledged for her corporate turnaround expertise, has a track record positioning businesses for accelerated growth. She has diagnosed and remedied problems for over 60 corporations and furthered growth of nearly 30 ventures, including her own. She cut her teeth leading the shareholder driven board restructuring during Drexel Burnham’s bankruptcy, and has served as chairman, lead director, director as well as committee chair for 23 public and private companies. She runs Solon Group, an advisory firm she founded in 2005, and Prevail Investments, founded in 2008, through which she is executing a downtown turnaround in her own small town of Grenada, Mississippi.

For more information, please contact Michael-Jon Romano of Sommerfield Communications at +1 (212) 255-8386 or Michael-Jon@Sommerfield.com.

Michael-Jon Romano
Sommerfield Communications
(212) 255-8386