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Look Inward, Board!

Recent media coverage of lapses by the GM Board regarding defective ignition systems highlights the need for creative thinking and ongoing due diligence by Directors.

Jack Olcott   |   15th October 2014
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Jack Olcott Jack Olcott

Possibly the world’s most recognized advocate, if not expert on the value of Business Aviation,...
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Should there be any doubt that oversight neglect can be costly, look no further than the failure of General Motors’ Board of Directors during the decade or so during which ignition switches on various GM models were malfunctioning.

To date, nearly 30 million vehicles have been recalled, at least 13 deaths were linked to the defect and nearly $4 billion in GM assets have been set aside to cover costs related to the problem, according to an article published in the New York Times last month. Numerous law suits have surfaced recently against Directors for failing to exercise their fiduciary duties to oversee management, and the corporation is being investigated by the Justice Department, the Securities and Exchange Commission and the attorney generals of 45 states.

The same news item (NYT, Page 1, September 8, 2014) stated that the GM Board took a “hands-off” approach to safety issues. Directors were satisfied with periodic reviews of product quality and left safety matter in the hand of company executives. GM’s recently appointed Board Chairman, Theodore M. Solso, said he had only a vague recollection of the ignition switch issue even though he was a Board Member since 2012.
For reasons not stated, the Board either did not know or did not demand to know the problems affecting GM ignition switches, even though it appears that company officials had been aware of the issue for more than a decade. Only now is the GM Board and the corporation it is responsible for governing confronting the reality that for years Directors were either disinterested or deceived at a time when they should have been more diligent.

Thinking Broadly

Being a Board Member is much more than collecting a nice fee for periodically chatting with chums. To do the job responsibility, Directors need to focus on those governing principles that maximize shareholder value in a sustainable and ethical fashion. There is no room for preconceived positions, such as the apparent attitude of the GM Board that product safety was the responsibility of management and that senior executives were handling the issue in a satisfactory fashion. (No Board concern expressed during more than 10 years of problems? Such narrow thinking is simply not good governance.)
Directors must be open minded in their oversight and avoid ‘group think’—that excuse for not engaging the gears of thought. Buying into the party line or dismissing a concept simply because it seems politically sensitive is unsatisfactory for a Board that is meant to serve shareholders. For example, rejecting any form of travel via business aircraft simply because of concern that the media might raise questions exemplifies Board myopia and impedes productivity. Furthermore, Board nearsightedness does not serve society.

Globalization—a Big Idea

In his latest book, The Road to Global Prosperity, Professor Michael Mandelbaum argues that economic success rather than military power will be the dominant driver of a country’s greatness in the 21st century. He postulates that technology and free markets will lead to greater cooperation between nations, thereby reducing the possibility of repeating the carnage that dominated the first half of the 20th century or entering into a cold war that characterized the decades following WWII.
Globalization, he believes, will expand the economy and well-being of people throughout the world. While some nations will be bigger winners than others, there will be overall growth for all nations that participate in global commerce. Unlike war where there are winners and losers, globalization produces benefit for all parties.
Professor Mandelbaum emphasizes that increasing productivity is a prime factor in economic development, particularly in the era of globalization. He also implies that cooperation between nations, facilitated by understanding between politicians and business leaders, is necessary. While there is no mention of Business Aviation, the professor sites the role that transportation and communication technology play in enhancing the global economy.

Board’s Role in Business Aviation

Markets today are far larger and potentially served by more suppliers than in the 20th century. Opportunities surface in remote areas that have yet to be explored fully. Trading relationships, whether at the level of national policy or locally between two companies, need to be facilitated.
It is a Board fiduciary responsibility to promote policies that work at all levels, domestically as well as globally. A clear and unbiased examination of Business Aviation as a tool for increased productivity and effective application of human resources must be part of such Board deliberations.

Read more about: Safety | Due Diligence

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