Did You Hear the One About the Board?


"A non executive director was a bit like a bidet - no one knows what it does, but it adds a bit of class"

Michael Grade, former chair, BBC

"Directors are like parsley on fish — decorative but useless.” 

Irving Olds, former chair, Bethlehem Steel

"(Boards) they're are like pigeons: they fly in, shit all over us and fly out"

Anonymous CEO

There is a grain of truth in every joke.  

But is the one about the board being taken too far?

It seems like a day can't pass without a board being held up to ridicule.  For some shareholder boosters and activists the boardroom has become a joke and their contempt for the office (and anyone who doesn't agree with them) is barely hidden.

It has become fashionable to portray directors as little more than clowns in suits and to dismiss those who challenge shareholder supremacy as being on a Quixotic misadventure or worse still a communist (now that's funny).

If I was a shareholder, I'm not sure I'd get the joke or agree with those laughing loudest:

  • It takes two to incorporate, survive and prosper.  Directors are as important to shareholders when it comes to incorporation and, more important, when it comes to staying that way.
  • Directors stand in between shareholders and the corporation's creditors.  Activists risk nothing but their reputation, shareholders risk their wager, but directors put their houses on the line.
    • Competitiveness is based on innovation and differentiation.  Why then, in the so called interests of shareholders, should directors accept the demands for convergence and standardization of practices and principles at board level implicit in the activists log of claims?
    • Institutional shareholders (or their managers) are corporations too.  When activists deride boards and directors they're poking fun at their own.  Who lost more in the global financial crisis - issuing corporations that make stuff or speculating corporation that buy shares?
    • As John Kay argues, goals are best pursued obliquely.  I, like Kay, have never met an employee enthused by the prospect of enhancing shareholder value.  But, every day I work with people committed to making their corporation stronger, more resilient and to last well after they have retired.  Value is maximized when trade is optimized with each trading partner (including the shareholder).  Elevating the shareholder's immediate interests beyond their benefit to the Corporation is a recipe for destroying sustainable profitability.

    Shareholders might do well to question whether those who speak for them are doing more harm than good.  Are activists destroying the value they so desperately desire by ignoring these more fundamental commercial "truths" and portraying a great many directors as chumps, fools, stooges, incompetent or asleep?

    In whose interest is it to undermine the confidence and esteem of a profession with whom the shareholders good fate is tied?  But then again, the idea that people respond well to positive re-enforcement has never been a big part of best practice.  It's no secret that monitoring for agency costs is real mood killer in the C suite.

    That's not to say that there are not rogues.  All professions have their share.  But, unlike other professions, directors have not seen fit to organize themselves into one and weed them out.  As a consequence, directors have all of the responsibilities of a professional but none of the privileges (a discussion for another day).

    To be clear, I am not motivated to defend directors from criticism or protect shareholders.  I am foremost a friend of the corporation.  My point is to speak out against those who would undermine the strength, resilience and endurance of corporations by:

    • trash talking their officers; and
    • inciting and misguiding their shareholders.    

    With that said, I agree there are grains of truth in every one about the board and laugh every time I hear the bidet joke.

    But I encourage you to be wary of shareholder empowerment types who would bake a cake from a few grains to falsely celebrate their triumph in the governance wars.  They haven't won and the joke may still be on them.

    By the way, three investors walk into a bar...



    What Must Directors Do

    Earning the Right to Trust