Why the members of a board matter


One of the most important parts of any business is its board of directors. 

This is the group of people who shareholders elect every year at the annual general meeting to run the business. 

It would be impractical for all shareholders to be involved in the running of the business, so the board does it on our behalf. 

Sure, the CEO and to a lesser degree the chief operating officer and chief financial officer actually run the company on a day-to-day basis.

But long-term strategy, appointments and the like are a function of the board of directors. 

So, while the directors are not necessarily hands-on, they do matter.

Yet, very little attention is given to the board, beyond the personalities and continuity of the board. 

And, of course, the departure of a big name always gets people talking.

A board will be made up of a chairperson and members – some of whom will also sit on the remuneration, auditor and other sub-committees. 

It will also have executive and non-executive members. 

Executive members actually work at the company on a day-to-day basis (such as the CEO) and draw salaries. 

Non-executive members only attend the board meetings – for which they are paid per meeting.

There are also independent and non-independent members of the board. 

Independent members should have no shares or other economic interests in the company beyond their board fees. 

The idea here is that they’ll then make decisions that will only be in the broad strategic interests of the company and not just about profits that will boost their shares. 

Yet, often, we see independent board members who served ten or more years. 

They may be economically independent, but they’ve surely become friends of (captured by ?) by the other non-independent members?

Diversity is the other very important issue. 

Sure, our boards are fairly diverse in terms of race, but not so much in terms of gender or age. 

I also suspect we have an overly large concentration of high-net-worth individuals sitting on boards. 

For any group of people to really manage the future of a company and to be strategic they need a wide diverse set of lived experiences, otherwise we may as well just have a single rich (and probably white male) person making all the decisions. 

Staff representation is also important as employees are significant stakeholders in a business. 

Locally, staff or unions have no representation on a board, with maybe a few exceptions.

In Germany (and other parts of Europe) they have a dual board system with a management board and a supervisory board. 

The management board is more operational and stacked with staff members. 

They typically meet every few weeks. 

The supervisory board is more of the style we have locally, with half the members elected by shareholders and meeting less frequently. 

The other half of the supervisory board members are elected by staff and are usually staff members. 

This means staff are deeply involved in the top-level running of the company.

What also matters is how often a person attends meetings. 

A board member is of no use if they hardly ever attend the meetings and, frankly, the board is better served with them being voted out and replaced with somebody attending regularly. 

Another bug bear of mine is the professional board member who sits on so many boards so as to not be able to really put the required time into the meetings.

A board meeting of a large listed company requires the reading and comprehending of thousands of pages of documents in order to be able to add value to the meetings. 

If one individual has to attend more than 20 board meetings every quarter, the company is not going to be getting good value for money. 

This article originally appeared in the 23 May edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

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