Good or Bad Board of Directors-How to tell

  • Posted by admin
  • 29 August 2013
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A company’s board of directors is the main driver that provides direction for growth which also means that they are the ones who ultimately decide how the firm is run. Needless to say, even a multinational business can go belly up if it has incompetent members in its board of directors.

So what is it that makes a board of directors good or bad? Is it based on incompetence alone? Not so. The fact that they were made head honchos leaves no question about whether they were suited for the position. Here is what can make them, and the companies that they run, crash and burn –

Irregular Meetings

Let’s face it; if a company’s directors do not hold regular meetings they will never be on the same page. In fact, attendance itself may not always impact on the growth at all. A board of directors might show up at every meeting but the meeting itself won’t be productive if each of them isn’t prepared. Shareholder activist Nell Minow comments on the impact of such an oversight –

“Some big names on the boards…barely show up due to other commitments, and when they show, they’re not prepared.”

Aged Board Members

An 80 year old board member might have been a model employee and business owner in his hey-day but that hardly means that he will be in full control of his decision making capabilities now. When to leave the seat of the board and hand over the reins to a younger and more dynamic person becomes increasing difficult as one ages.

However, that is exactly what a lot of directors fail to do. A governance expert explains the failure of Enron –

“Enron melted down because it lacks independent directors and several are quite long in the tooth.”

While they do bring a wealth of experience to the board room, aged members often have problems keeping up with other companies whose members are up to date on the latest technological trends and who leverage them to make faster decisions.

Case Studies

This results in bad decisions which ultimately cost the company. Take Yahoo! as an example. The immensely acclaimed search engine company made a not so admirable decision to fire its chief executive Carol Bartz back in 2011. The obvious horrific decision was made apparent when the company’s chairman, Roy Bostock dismissed her through a hasty phone call. According to Bartz the directors of Yahoo! were “so spooked” by being labeled as the “worst board in the country” that they fired its chief executive “to show that they're not the doofuses that they are.”

This is an apt description to say the least, especially since most people agree with Bartz’s verdict. Firing an important member like a chief executive by phone is the epitome of panicky decisions by a board that already had a less than savory reputation.

It takes one bad decision to make a business go down in flames and a board of directors who does not believe in thinking things through before acting on them is doomed to failure as well.

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