News of the Day: Article on the Responsibilities of Independent Directors in Light of News Corp.

By Cydney Posner

The following article, Independent Directors: Step Up or Step Off, is from the Harvard Business Review, posted on Bloomberg.  The article, triggered by the ongoing News Corp. fiasco, raises issues regarding the role of the independent directors and reflects the author's perception of the conduct of the News Corp. board. According to the author (apparently himself or herself an independent director), "News Corporation and the actions—or as some would note, the inactions —of its board highlight several important directions in the way that boardrooms need to be, and indeed are, moving. No longer will boards be able to conduct themselves behind closed doors without consequences…. Change is coming, and it is up to us as non-executive independent board directors sitting in board rooms all over the world to lead, follow, or get out of the way."

The article focuses on the need for independent directors "to be willing to do what is necessary to be truly independent in name and deed. Directors will be held accountable. Directors should only take on a post if we are planning to be fully engaged and active." The author contends that transparency is imminent, and that boardrooms "will no longer be black boxes shrouded in mystery and untouchable by press, investor, and stakeholder enquiry. It will not only be ‘mavericks', activists and occasionally politicians asking these questions. Tough questions will be asked more often by mainstream media, investors, employees, and the community at large. If the answers are not satisfactory, more questions, and even legislation, will follow."

The author encourages directors to hold themselves accountable for asking all of the right questions and "not shying away from asking hard, uncomfortable questions [including] also digging deeper if the answers are not satisfactory or don't ring true." Directors cannot allow themselves to be "willfully ignorant of the actions of the institution."The notion that News Corp directors blamed the crisis on very low level employees suggests to the author "one of several things. The organization is too big to manage, and then the board needs to look at the entire structure of the company. Or the board has wilfully ignored signals bubbling up about lack of management. It is a bit hard to believe that the culture was created at a low level…. Whatever the case may be, not seeing it makes the independent directors and the board no less culpable, and more importantly, once the board is aware of it, not acting on the information in a decisive and transparent manner is almost worse."

News Corp "strikingly" illustrates to the author the "need for separating the role of running the company and running the board….Rather than having a truly independent chairman, all the executive decisions, the entire agenda of the board room, and the entire course that conversations had within the boardroom, were (and are) determined by one person and one person only."

The author argues that these crises damage public trust "in the private sector as a whole. This trust can only be rebuilt if boards commit in word and deed to being proactively transparent, to acting with independence, and to serving as responsible stewards of business. [These cases present] a clarion call to all non-executive board directors: it is time to step up, or step down."