Governance wonks can rest easy. In fact, we can all go home and think about another career. The reason? CalSTRS – California State Teachers’ Retirement System – has issued a “fact sheet” entitled “Best Practices in Board Composition”.
It’s interesting that CalSTRS calls it a fact sheet, since much if not most (if not all) of what it says is opinion, belief or aspiration rather than fact. However, I suppose calling it an “opinion sheet” or an “aspiration sheet” would have resulted in fewer hits.
The document lists five “best practices” (though the fifth has four sub-items; perhaps that means there are nine best practices?). No indication is given as to whether the practices are listed in order of their best-ness. However, it’s notable that the first practice is “independent leadership” – in other words, having “an independent chair that is separate from the Chief Executive Officer”. I’ve done lots and lots of research on this point, and the most that can be said is that there is no conclusive evidence of any connection between an independent board chair and performance. Again – that’s the most that can be said. (If you don’t believe me, take a look at this Yale study.)
I’m not saying that independent board leadership is necessarily a bad thing – I’ve seen it work very well in some cases. However, I’ve also seen it work badly or not at all, particularly when the corporate culture needs one strong leader or the personalities of the CEO and the independent board chair don’t click. And yet, among the institutional community, independent board leadership (as defined by CalSTRS) has taken on a mythic quality.
Some of the other “best practices” cited by CalSTRS have similar problems. For example, having a long-tenured board; if you’ve got great directors, and the company is performing well, why is having long-tenured directors a bad thing? Why can’t judgments about this and other “best practices” be made on a case-by-case basis? Why insist upon a one-size-fits-all approach regardless of the facts and circumstances, including the company’s industry, history, culture and track record?
No, I don’t really hate best practices. It’s just that’s what’s best for you may not be best for me or anybody else.