With the U.S. Government controlling various companies now, it is in the process of revamping the boards of directors of such companies. The obvious question relates to the role that the Government would take in the management of the companies, and particularly in the selection of their directors. In an op-ed column in the New York Times (NYT), Professors Gilson and Kraakman suggest the idea of a clearing-house for appointment of independent directors on such companies so that they are outside the purview of direct Government influence:
“What the Treasury needs is an independent, nonprofit clearinghouse to recruit and screen independent directors. Such an institution could easily be created by the government in cooperation with large institutional investors like public pension funds or large mutual fund groups like Vanguard or Fidelity. (Disclosure: one of us, Professor Gilson, is a director at American Century, a large mutual fund group.) At
Independent professional directors could help steer privately run corporations through this period of partial government ownership, helping to rebuild investor confidence in those companies. After all, private investors have no more experience investing in government-controlled businesses than the government has in running them.
Strong and independent boards of directors are needed to insulate corporations from political meddling. A chief executive cannot face down the government, but independent directors, who understand that their job is to protect the company from politics, can. In the end, Americans should be able to put their faith in these directors to assure that corporations that receive taxpayer assistance do not end up being run by the government.”
While this is certainly an interesting idea, a lot would depend on the integrity, conviction and independence of thought and action (as opposed to formal independence) of the individuals concerned. To take a recent Indian example, it was the Indian Government that nominated certain directors (with the approval of the Company Law Board) on the board of the embattled Satyam, but the outcome of such direct appointment was positive as the board was able to act in an effective manner so as to bring about a timely sale of the company and preserve the interests of all the stakeholders in the company. Although government nomination of directors is usually viewed with some amount of suspicion, this case was in fact an exception.
As for a directors’ guild or clearing house suggested in the column, there is already such an initiative existing in