A New Agenda for Boards of Directors

Directors need to restore trust and reset their goals, says Ira M. Millstein, associate dean for corporate governance at the Yale School of Management

By Ira M. Millstein

The following is excerpted from the Ira M. Millstein's keynote address at the KPMG Audit Committee Issues Conference, presented in association with the National Association of Corporate Directors and Weil Gotshal. Millstein is senior associate dean for corporate governance at the Yale School of Management, and senior partner, Weil, Gotshal & Manges.

I've had the good luck to have lived through the Great Depression and every recession since, and I'm still here, which is the good news. However, the depression of the 1930s had a lasting impact on my attitude toward life and times. I don't suppose any of us who lived through it ever fully recovered enough not to worry about money, jobs, and all the rest, no matter how we otherwise made out in life.

This particular crisis bears a resemblance—but only a resemblance—to the 1930s. Really, in my opinion it's nothing like it and won't be. Furthermore, I am confident that the lasting effect this time will be positive, not negative. Watching my grandchildren and their attitudes, I see them fully capable of resetting their goals in a very positive way. I think they will see the world as one in which real values are more important than the values we created in the 1980s and 1990s. So, I'm confident about the future, despite what follows in this speech.

The first thing we must do is restore trust in the system. This requires a new approach to proposed government regulation once the need for emergency responses subsides. Future regulation should be based on an analysis of its costs and benefits in terms of economic impact. In addition to regulatory reform, we need to take a hard look at how the private sector governs itself. To earn trust, both analysis and reform demand total transparency to convince the public at large that regulation and governance are designed to benefit the "real economy," not Washington or the executive suite.

The second theme is "resetting" the goal of these public and private efforts. The goal cannot be to get back to where we were in 2007! The public at large won't accept that—the financial "anything goes" attitude of 2007 led us to where we are now. Rather, as President Obama has stated, the goal has to be to provide jobs and put people to work. This is our immediate goal; it can evolve and shift later, but this is our guiding principle now. We should focus pragmatically, not ideologically, on what actions will best allocate capital for the creation of real jobs. This is a far better objective than ideologically, and perhaps almost mindlessly, bolstering financial institutions by relying on economic models that are no longer applicable.

Most importantly, I heard in Obama's acceptance speech what [columnist] David Brooks labeled the "politics of cohesion": a new personal and mutual responsibility and unity, supporting pragmatism. This will indeed accomplish our goal over time if, and only if, across the entire private sector institutions and individuals alike reset goals and values. For the private sector, specifically the corporates, it means fulfilling their responsibilities to society at large, as well as to their shareholders and stakeholders.

Resetting the Goal

When we begin the process of careful regulation and governance reform, we have a reset goal: facilitate the flow of capital in a way that creates jobs in those industries which together will productively and efficiently employ the most Americans. The goal can be met by a variety of initiatives, but each initiative will need to be examined with that goal in mind.

Furthermore, in assessing the economic impact of proposed regulations and private initiatives, we must make strategic choices for the economy as a whole, between innovative and lightly regulated financial markets and the stable and heavily regulated market of the post-depression period. The right balance is one that creates the most jobs and stimulates economic growth in the long term. Directors and management are in a position to play an important role in reining in over-zealous attempts to constrain the financial industry and in assessing how much is too much.

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