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Why Corporate Boards Suck

I have served on a number of Boards of publicly traded companies, both in the USA and Internationally.  I have also served on many private company Boards as well as the Boards of several non-profit organizations.  I like to joke that the difference between serving on the Board of a public company and serving on the Board of a non-profit is that the public company pays you a lot of money to ignore your advice and you pay the nonprofit a lot of money to ignore your advice. But, frankly, there is a lot of truth to this.  Over the years, I have resigned all my Board positions. Recently though, I became the Vice Chair of the Board of a private medical device company in which I am also a larger investor.

The main function of the Board is to represent the Stockholders.  They have a fiduciary responsibility to make sure the company follows all regulations and in particular is honest in their reporting.  The Board represents the Shareholders in dealing with management and, in particular, on  compensation issues.  But the most important role of the Board is to fire the CEO and hire the new one.  And this is exactly where Boards perform very badly.

I have thought about why this is and have come to some conclusions I will share with you. Companies do best when they have a strong CEO with a vision and the drive to implement it.  Some examples in the world of tech are Steve Jobs and Jeff Bezos. But strong CEO’s don’t want to have strong Boards.  The Boards they put together are more of a cheering squad than a review body.  Because the strong CEO is doing well for the Shareholders,  and most Board members are getting significant stock compensation, no one wants to rock the boat and no one wants to be thrown overboard. So things go well during this phase just ask Al Gore.

Then the strong CEO gets too old or gets sick or even dies.  Now the Board has to find a replacement.  In the case of a Bill Gates or an Andy Grove, the former CEO lobbies for one of his managers to take his position and also stays on the Board.  This is a recipe for failure in my opinion.  Strong CEOs do not surround themselves with people that can take their positions because they do not want challengers.  The person they recommend may be at best, a compliment to their skill set and in the worst case, just a yes person.  So you get Steve Balmer (Microsoft) and Craig Barrett followed by a Paul Otellini (Intel).   The former CEO of these companies stays on the Board and  has a undue amount of influence on the Board and on the new CEO.

If in the case of Apple, or now in the case of Microsoft, the Board has to find a new CEO. They do not want to pick someone that will be really strong because that person will want to come in and create a new Board with people that will owe their positions to him or her.  Of course this is not always true, but I have seen it too often.

The most important thing that a Board can do is to fire a CEO that is not performing.  But, as an example, look at how long it took for that to happen at Microsoft and Intel.

Now look at how difficult a time Microsoft is having in finding a new CEO, because both Balmer and Gates want to stay on the board.  They should both get off. Only a fool would want to be the CEO of Microsoft if either one or both of them stay on.  I wonder which fool will be accepting the job.

3 thoughts on “Why Corporate Boards Suck

  1. Could you briefly explain the reference to Al Gore? Googling ‘Al Gore’ ‘Board of Directors’ brought up a lot of hits but wasn’t illuminating.


  2. My comment on Al Gore was not a slam to Gore who I generally respect. However, I was pointing out that once a board member stands to get millions (in Al’s case, I think he made $30 million so far), it is unlikely that he is going to do anything that might put his position at risk. Most board members get stock options that vest over time. So if you are sitting on millions of dollars in unvested options, you don’t want to do anything that would put that at jeopardy.
    I should have used Microsoft or even Intel as examples since their boards were sitting on significant gains (not so high as the Apple situation) when bad decisions about the next CEO were taken.


  3. Pingback: The Microsoft CEO Transition and the NBA | Two Thirds Done

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