Should Boards Spy on Their CEOs?

The Wall Street Journal reports that the board of Sprint-Nextel (NYSE: S) oversees many of the moves of CEO Dan Hesse. Is it any wonder? Sprint has not had much financial success under Hesse. The firm’s stock is near multiyear lows. Sprint has had a hard time adding subscribers as it competes against larger rivals AT&T (NYSE: T) and Verizon Wireless. And Sprint has failed to set an M&A deal to increase its customer base. So, under the circumstances, is it all right for the Sprint board to watch over Hesse and his daily activities? No. If problems are as severe as that, Hesse should be fired after a brief period of unusually stern oversight.

Active boards would have served some companies well, uncovering troubles that festered for years. That is certainly true of Avon Products (NYSE: AVP), which CEO Andrea Jung has nearly ruined. The board should have followed her actions more carefully, if only briefly. Now the company’s operations are in disarray and it faces SEC charges over bribery and fair disclosure. A few months of close involvement quickly would have shown the board than Jung was not competent. The board should have known that from results. Once the board began to delve into her actions, it was already too late. Again, a board that becomes that active is a board that needs to find a new leader. Jung can be put in the same category as Hesse.

The list of boards that meddle in CEO activity range from Yahoo! (NASDAQ: YHOO) to Hewlett-Packard (NYSE: HPQ). In each case, the intervention is a sign that something is deeply wrong. Of course, the board itself may be dysfunctional. A company is nearly doomed when that is true. It is hard to find a path to the reasonable relationship between senior management and its board of directors when governance dissolves so badly. Such a company risks management chaos.

Hesse nearly is being stalked by his board. It must no longer trust his judgment. Sprint is already in deep trouble. The board should not manage that trouble; it should be handled by a new CEO.

Douglas A. McIntyre