Personal Reflections on the State of the Board: What's right and what's wrong with the current system of corporate oversight: Interviews with Reginald Jones, Walter Wriston, and Victor Palmieri
Kristies, James
2007
How Do Boards Get into Big Trouble?
Crisis management is Victor H. Palmieri's stock in trade. He is Chairman of The Palmieri Co., a firm organized in 1969 to assist business and government institutions in the management of diversified asset holdings and operating companies. As one of the country's premier corporate turnaround artists, he played a central role in the salvaging and reorganizing of the Penn Central Transportation Co. More recently, he has been enmeshed in saving Baldwin-United Corp., the $9 billion financial services company that filed for bankruptcy in 1983. He serves as Chairman of Baldwin-United, which he calls the largest and most complex reorganization in American business history. | |
Directors & Boards: You have a unique advantage point on boards in that your job as a corporate reorganizer primarily comes about because of boards that didn't do their job properly. Is that fair to say? | |
Victor H. Palmieri: That is correct. | |
D&B: How do major problems sneak upon boards? | |
Palmieri: Well, they sneak up on boards over long periods of time with what, in retrospect, always seems like ample warning signals. They sneak up under conditions in which, as the situation becomes worse, the board becomes less sensitive to the signs of crisis and more than ever sees itself as owing its loyalties to the chief executive rather than to the company and the stockholder. It becomes what is a fairly typical kind of sociology in crisis: the board tries to draw the wagons around, rejects any suggestion that there's something wrong in favor of some conspiracy theory, and joins hands while the boat goes over the falls. That is a fairly consistent pattern and it has been observed by sociologists and students of human behavior. This situation holds not only in corporate boards but in government also - a certain defensive attitude enters in the moment that criticism starts rising. | |
D&B: What do you attribute this to? | |
Palmieri: It's a culture. What you find in the great corporate disasters with remarkable consistency is the same kind of culture - in which dissent is suppressed, in which loyalty is measured by agreement rather than disagreement, and where, as you approach the top of the management structure, you find the people have been selected by virtue of their willingness to go along rather than to speak their mind. Where that situation exists there's often a progressive loss in what I call the collective grasp of reality. In that type of setting, usually with an authoritarian leader and a group of people around him who are either conditioned not to see the realities, or afraid to call attention to the realities, you see time and time again a tendency to reject warning signals, to ignore realities, to create those defensive attitudes, and ultimately the company goes into a crisis. | |