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Directors Abandon Ship to Keep Steady Hand on Own Tiller

Clockwise from bottom left: Raytheon's William H. Swanson, DuPont's Ellen J. Kullman, Vodafone's Sir John R.H. Bond and Jorma Ollila, chairman of Nokia and Royal Dutch Shell. All have quit or are expected to quit corporate boards. Photo credits: Associated Press (Kullman); Getty Images (Bond); Bloomberg News/Landov (2)

The pressures on corporate leaders are being felt all over and the impacts on organizations are significant. On November 21, 2008, Wall Street Journal writer Joann S. Lublin wrote an interesting article titled As Firms Flounder, Directors Quit: Departing Board Members Cite Too Frequent Meetings and Conference Calls at AIG Ford and Others. (subscription required however the WSJ posted a downloadable PDF)

So far this year, 42 outside directors who are CEOs or chief financial officers left the boards of 39 companies in three struggling industries, according to the Corporate Library in Portland, Maine. During the same period three years ago, 29 directors with those titles left.

This sudden trend is particularly troublesome to US companies who operate globally.

Among the most vulnerable directors: those from outside the U.S. who are leery of additional travel and time-zone-spanning conference calls. Mr. Davis said he is handling 15% more U.S. board assignments this fall than a year ago seeking non-American directors.

A number of them are needed to replace non-U.S. executives who “no longer want to be involved with U.S. companies facing economic uncertainty,” he said.

These departures can rob companies of valuable outside perspectives. Two European directors of Ford resigned last month because they “could not devote the additional time and international travel that would be required” as it navigates the downturn, the auto maker said in a regulatory filing.

The resignations of Sir John R.H. Bond, chairman of Vodafone Group PLC, and Jorma Ollila, chairman of Nokia Corp. and Royal Dutch Shell PLC, left Ford with no non-U.S. directors at a time when it is counting on sales abroad to help it through the industry’s troubles. In 2007, Ford generated slightly more than half its revenue outside the U.S.

While most of the recent director departures are a result of executives having to spend more time on their own businesses during this challenging period. But surely more than a few might not want to go down with a corporate sinking ship and this brings us to the question of leadership.

It’s difficult for a CEO director to balance his or her primary obligation to their own company against that which they undertook when they signed on to help govern another. One job is challenging enough, but putting out fires in two organizations might just end up fanning the flames more than anything else.

I can appreciate the benefit of having a “star” CEO sit on your board; the knowledge and experience he or she brings can be extraordinary. But when that individual departs other than through a normal succession planning process, a tremendous void is created at a considerable cost to the organization. Not only is there a loss of expertise but there is potential to have a significant impact on the dynamics of the board at the worst possible time.

Corporate governance is tricky business with no easy answers but board need to make sure that they recruit the best possible candidates who will stick with them during the good times and bad.

About the author

Peter A. Mello, Founder/Editor Founder of Weekly Leader and Sea-Fever Consulting, LLC, a leadership development and strategic communications consultancy. Previously, CEO of an international nonprofit organization and COO of a national insurance/risk management services firm. Peter has been leading people and managing organizations for over 30 years, writes a leadership column for MarineNews magazine and blogs about maritime culture at Sea-Fever. Follow him on Twitter.

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