Recent Botches in the Boardroom Call for Checklist Fix

Agenda-Setting Financial Insight.
May 10 2012 2:16 PM

Recent Botches in the Boardroom Call for Checklist Fix

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The Checklist Manifesto, by Atul Gawande.

Author book site.

If checklists can save lives, surely they can help shareholders. The scandals at Yahoo, Green Mountain Coffee, Chesapeake Energy and other U.S. companies suggest boards of directors could do with some simple reminders to prevent them from making stupid mistakes. Breakingviews has drawn up a starter set. 

The pressure on companies to find competent leadership has grown in tandem with their complexity. And in their quest for chief executives and directors who can deliver on a range of diversified financial and strategic initiatives, the basics are too often being forgotten and leading to avoidable failings. Just as surgeon Atul Gawande showed, in his recent bestseller “The Checklist Manifesto,” how a 90-second checklist reduced deaths in the complicated world of intensive care, boards could preserve shareholder value with a Post-it note of sorts. 

College, degree, work history and military service confirmed? 
At Yahoo, a straightforward bit of due diligence, like the kind conducted by activist investor Dan Loeb, would have uncovered Chief Executive Scott Thompson’s misrepresented scholastic credentials.

Doing any moonlighting we should know about? 
Among his many undisclosed and still-unexplained activities, Chesapeake boss Aubrey McClendon was running a hedge fund on the side.

Do you have a close personal relationship with any of the senior management here? 
The designated stewards of Rupert Murdoch’s media empire are limited in their ability to restrain the mogul and his whims. But having the godfather to one of his grandchildren - whose father is also a director - officially designated as an independent should be a stark reminder to others. 

Are you borrowing against your shares in the company? 
The margin calls that led Green Mountain’s chairman and lead director to offload shares in the coffee maker during a restricted period ought to prompt the widespread asking of that question.

Can we count on you to keep these confidential discussions to yourself? 
The insider trading allegations against Rajat Gupta reinforced a lesson for Goldman Sachs, Procter & Gamble and American Airlines, where the former McKinsey managing partner held board seats.

Fancy a cup of coffee? 
At the hapless Hewlett-Packard, most of the directors neglected even to meet Leo Apotheker before hiring him to run the company - and firing him not long thereafter. There’s no way to stop a company boss or director, whether candidate or incumbent, from lying. But forcing them to look someone in the eye is a good way to detect red flags - especially if that someone is actually willing to ask questions. 

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Read more at Reuters Breakingviews.

Jeffrey Goldfarb is a New York-based assistant editor with a focus on Wall Street, private equity, M&A and the media industry. Before becoming a columnist, Jeffrey wrote about banking, deals, international trade, healthcare and the Internet.