Lucy P. Marcus

Andrew Mason, the chief executive officer of Groupon, has, in his own words, been fired. His resignation letter has been described in the press as charming, but the market seemed to think it was simply about time. Shares in Groupon went up more than 10 percent following the announcement on Thursday.

Firing Mason has taken too long, and the board has a lot of work to do. Groupon, though it might not have always acted like it, is a grown-up business with an entire ecosystem that depends on it, and with that comes responsibility. I’m not just talking about the investors, I’m talking about its more than 11,000 employees in 48 countries, its global network of businesses – from mom-and-pop stores to big organizations like Expedia ‑ that depend on a reliable service that has often in the past let them down, along with the users of Groupon coupons. All of them need to know they are dealing with a company that is reliable and will honor their purchases.

The Groupon board will have to act decisively and transparently to build some goodwill and let everyone know that, although slow to act on getting rid of Mason, it takes its obligations and relationships seriously and will act fast to repair them. In a written statement, the board conceded that “our operational and financial performance has eroded the confidence of many of our supporters, both inside and outside of the company. Now our task at hand is to win back their support,” and now they have to show that they know how to do that.

What does the board and the management team need to do?

Look inward

The board took too long to part ways with Mason, and even with their inaction, Mason should have removed himself long ago, as knowing when to go shows true leadership. The writing has been on the wall, with the financial results being poor for a very long time. Groupon’s share price has lost 75 percent of its value since its initial public offering in 2011, and the stock fell 25 percent when its fourth-quarter results were released this week.

The board made some changes recently to beef up its  audit and finance expertise in the wake of a very public rebuke about its audit committee failings, but the people around the table now need to ask themselves why it took so long and how they are going to do things differently.

On the 50th anniversary of the publication of Betty Friedan’s The Feminine Mystique I’ve started to wonder how far we’ve come in the boardroom. As I finished a conversation with a search firm that specializes in oil, gas and mining this week I questioned the level of progress.

The search firm noted that for the most part the companies it speaks with are simply not interested in having women on their boards. They don’t see the point of diversity. They say there aren’t enough women with direct experience in oil, gas and mining, and they don’t have an interest in looking outside the industry.

Some companies in these sectors are bowing to international pressure to add women, and several, such as energy industry giants Exxon Mobil, BP and Shell, have two women nonexecutives on boards with 12 to 15 people. Mining is the worst sector for gender diversity, with just 5 percent of board seats in the top 500 mining companies held by women, according to a recent report published by Women in Mining and PriceWaterhouse Coopers.

As we move into the year, companies and their leaders are under greater scrutiny than ever. In one of my meetings with institutional investors recently, someone asked whether chief executive officers should sit as independent directors on the boards of other companies. CEOs who sit on too many boards risk getting overloaded and splitting their time, energy and commitment to the extent that they do none of their jobs well. Get the balance right, though, and CEOs on outside boards can bring benefits to all the organizations with which they are involved.

An example of the thorny issues at play: While serving as CEO and chairman of Avon, Andrea Jung sat on the boards of Apple and General Electric. Her outside board commitments became a point of contention as her performance at Avon came under question. Jung stepped down as Avon’s CEO and chairman last year but continues to serve on the Apple and GE boards.

A number of other high-profile CEOs sit on the boards of well-known companies: Netflix CEO Reed Hastings sits on the board of Facebook, as does Donald Graham, CEO and chairman of the Washington Post Co. Xerox CEO and Chairman Ursula M. Burns is a director at American Express and ExxonMobil. Apple’s board has Millard Drexler, the chairman and CEO of J. Crew, and Robert Iger, president and CEO of Walt Disney. 

“The level of ignorance seems staggering to the point of incredulity. Not only were you ignorant of what was going on, but you were out of your depth.”

‑ Andrew Tyrie, MP, chairman of the Parliamentary Commission on Banking Standards (PCBS)

Last week senior executives of UBS testified before a British parliamentary panel about their part in the Libor-rigging scandal. What they said sent a discouraging signal that they, and others in the banking sector, are still operating as if they are out of touch and tone-deaf in a sound-proof room.

Stories of boards and leadership are the Aesop’s fables of the business world. Tales of power, money, ethics, hubris and the consumers and stakeholders in the businesses that surround us serve as cautionary tales and markers for our future.

This year, we saw stories about active annual general meetings, executive compensation, the governance of newly public companies, diversity in the boardroom and much more. From Japan to Silicon Valley with Olympus, Facebook, Yahoo and HP, geography was no boundary and the themes were universal.

The volume and speed at which board-related stories are hitting the headlines are unprecedented, and the pace looks like it will increase in the coming years.

I’m preparing for an upcoming board audit committee meeting, and I am conscious that I am reading the briefing papers more carefully, slowly and deliberately than usual. I am always thorough, but recent events have given me pause. I am sure I am not the only member of an audit committee who, seeing the headlines about accounting that touch the boardroom, is taking extra care of late.

In April, Groupon’s audit committee made headlines because the company found some accounting discrepancies that should have been caught earlier. This followed concerns about the company’s accounting before it went public in November of 2011. The spotlight was on Groupon’s board and its audit committee, with questions about whether it had enough expertise in the room and whether all had been asking the hard questions. The committee had strong business experience ‑ among its members was Starbucks Chief Executive Officer Howard Schultz ‑ but the bigger question was whether the board had enough financial experience. Some mea culpas and a couple of new board members with weighty accounting credentials later, Groupon presses on.

This past month, Starbucks, Amazon and Google were hauled before a committee of MPs in the U.K. for accounting practices that seem to be legal, but have struck people as unsavory. Clever accounting designed to save every penny has given boards pause for thought.  The practice fulfills the brief of saving money and squeezing out every ounce of profit for a company, but just because we can do it, does it mean we should?

Following the proceedings of the News Corp annual general meeting, one can’t help but think of the proverbial definition of insanity: doing the same thing over and over again and expecting a different result.

I’m not talking about Rupert Murdoch. He’s been doing the same thing for years and always getting the result he wanted. He comes away from yet another AGM with the dual roles of CEO and chairman firmly in hand. Also, the dual voting stock structure remains so that, though Rupert Murdoch and his family own approximately 12 percent of the shares, they hold 40 percent of the voting power. In essence, Rupert Murdoch and his family control the decisions and destiny of the company relatively unchallenged. Both Rupert Murdoch and News Corp board member Viet Dinh made abundantly clear during the board meeting that this was not going to change. Though the company has gone through the motions of appointing new independent directors, the choices suggest a not-so-subtle sense of humor: One of the new independent directors is the former president of Colombia, Alvaro Uribe, who was embroiled in a wiretapping scandal of his own.

No, what makes me think of this definition of insanity is the behavior of investors. For the past couple of years, a growing number of institutional investors have expressed concerns over Rupert Murdoch’s holding the role of CEO and chairman and the dual voting stock. Several of the largest and most well-regarded investors in the world have challenged the structure of the company and its corporate governance – and have been completely disregarded. This year California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS), joined by the Florida State Board of Administration, UK pension fund Hermes, and several other large institutions, put forward resolutions, and spoke up at the AGM about dual shares and in support of appointing an independent chairman. These suggestions were unceremoniously swatted away.

Boardrooms around the world are going through an extraordinary transition. There is a greater understanding of the power and responsibility of boards, and they no longer operate in a black box. The message from investors now is: We’re watching you!

The Shareholder Spring, as the recent period of shareholder activism has been dubbed, shows that investors, stakeholders, regulatory bodies, governments, and the general public are taking a greater interest in what goes on behind closed corporate doors. Ignoring this new call for transparency is futile, and will lead to accusations of being out of touch—tone-deaf in a soundproof room.

This year brought a rude awakening for boards. HP, Yahoo, News Corp., Facebook, Goldman Sachs, MF Global, AstraZeneca, Barclays, Olympus, RIMM, Kodak, and many others were in the headlines for all the wrong reasons. Boards were criticized by investors and other stakeholders on a wide range of issues, including their composition, competence, diversity, voting control, and dual stock structures. No sector is immune, no director untouchable.

When news emerged in May that Facebook had hired an executive search firm to look for a woman to add to its board of directors, I had hoped that with the appointment would come a great deal of diversity of thought and experience and an independent voice. Facebook has now announced that it has chosen its COO, Sheryl Sandberg, to join its board. Having Sandberg on the board is a good step, but does it address the larger shortcomings that are concerning Facebook users and investors?

Facebook has the same problems it had a month ago, and the company is still running counter to this year’s “Shareholder Spring” – a global movement toward transparency, engagement, and checks and balances on corporate boards. The newly public company lacks diversity of thought and international experience outside of the Silicon Valley bubble; and because Facebook is a controlled company, if the board takes issue with something, it doesn’t have the teeth to do much about it.

Sandberg may come on to the board with full voting rights, but her vote won’t count for much if a boardroom battle occurs, since Mark Zuckerberg holds more than 50 percent of the company’s voting shares.

The corporate world is emerging from several weeks of boardroom turbulence dubbed the “Shareholder Spring.” In annual meeting after annual meeting around the world, boards have been taken to task by investors and other stakeholders on a wide range of issues: remuneration, board composition, competence, diversity, voting control, dual stock, and more. In the meantime, we have also witnessed the soap opera of Yahoo’s boardroom, the rebuke to newly public Groupon’s board for its lack of oversight of accounting practices, and the public condemnation of News International’s chair – and, by extension, its board – questioning his competence to lead the organization. No sector has been immune; no director has been untouchable.

Now Facebook is about to enter the public markets. Its defiant position regarding its old-style governance is in stark contrast with the temper of the Shareholder Spring. Facebook swims against the tide of a global movement toward transparency, engagement, and checks and balances. It feels as if we’ve all stepped into a time machine and none of the past couple of years of governance lessons – including the failures of boards in the banking-sector crisis – ever happened.

Several troubling issues call into question how this company can consider itself groundbreaking, innovative or new: the concentration of power in the hands of one man, the stranglehold on voting rights, the lack of diversity in the boardroom (which in a way is inconsequential, as the Facebook board does not have much bite anyway), and above all else the flagrant disregard of the lessons of the past several years about engaged, active and independent boards contributing to strong companies. Were Facebook striving to be an innovative company built to last, it would encourage healthy dialogue and diversity in the boardroom, and equal shareholder voting rights. It would not need to lock in power, but rather earn authority through excellent performance and results. The leadership would trust that a democratic boardroom would foster greater strength and stability than dictatorship, which brings a false sense of security. That’s a lesson we can take from the Arab Spring, where dictators thought that they held real control.