Three major players on the New England corporate scene agreed today that American business is over-regulated, and that Boards of Directors are being diverted from their primary task of strategic leadership and are being forced to deal with regulatory compliance.   Further, new regulation is not responsive to recent failures of the economy and thus will not solve our problems.

Speaking at a breakfast session of the New England Chapter of the National Association of Corporate Directors, Robert Reynolds (CEO of Putnam Investments), Joe Tucci (chair and CEO of EMC Corporation) and Ted Kelly (chair of Liberty Mutual) were of one predictable mind on a variety of governance issues:

*the role of the board is strategic and should focus on shareholder return

*investors are interested in board governance as a tool for excellence in performance and not as an independent goal

*with a concentration of corporate wealth on corporate balance sheets, it is ever more critical to have directors of sound judgment, at a time when it is harder to find people willing to serve who have requisite skill sets

*regulation by government, evaluations by ISS, and pressure from bloggers and social media contribute to a “gotcha” mentality, where mistakes (inevitable when businesses take risks, as they must) are met with a focus on who to blame

*the ideal board member asks “the wrong questions” and is independent-minded but can work within the system (we need different ideas but no board factions).

Ted Kelly made the most telling attack on the rise in government regulation.  Noting that the “American corporate form” is unique in the world for creating a wealthy middle class, he sees us now engaged in a political struggle over whether regulation will destroy it.  Compensation should reward success deep into an organizational structure, creating wealth at various levels of society; regulation discouraging risk by casting blame for failure and clawing back previous earnings threatens innovation.

Boards should include some people with deep industry knowledge, and all directors should become as expert as possible in the company business.  Contacts by directors should go deep into the management team to understand from people with hands-on functions the issues faced.

The presentations were not unexpected from people at the top of huge enterprises.  But it was interesting to see all the panelists completely miss one key question from the floor. They were asked how they would parse their expressed view to fill the board with people who meet exacting standards of skill and ethics with the reality that some boards are forced to accept representatives of VC or PE investors.  The only answer was that if you are ever forced to accept someone on the board who does not fit your own standards, you must be starting from a point of weakness.  Those of us who work in financing corporate growth in companies that lack the capital base of Putnam, EMC and Liberty can only dream of working with a company that is desperate for money, yet has the power and nerve to tell the investor that the investor’s board designee just doesn’t fit the desired mold.  You need Liberty’s checkbook to have that kind of clout.