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Board members should be elected annually.

No board member should be grandfathered, guaranteed a board seat forever.

Practically speaking, this is an impossible goal.  We have investigated the restrictions imposed by investment documents and the obvious need to keep continuity on the board with the retention of the CEO position at the very least.  But it would be the best of form to require in the bylaws of a corporation that all seats are re-elected annually.

For non-profits, this allows for the creation of a board development committee to find and recruit outstanding new board members and find ways to unseat those who are no longer contributing or even attending board meetings.  Such a policy further reinforces the duty of care for the corporation by its board.  Unseated board members with longevity and a history of participation can be invited to become “emeriti” members of the board with observation rights but no vote.

Although not required by all corporate bylaws, all companies should hold and document an annual shareholder meeting in which the shareholders are notified at least 20 days in advance and given the right to submit a proxy vote for their choice of officers and for any other issues that will come to a vote, including expansion of the stock option plan to include more available shares.

The bottom line is that good corporate governance calls for a skill set within the board that is not often present, but for protection of the members and the corporation itself, necessary.

  • Dave, great astute observatons as always. Annual shareholders’ meetings are always a wise thing, but I think you meant that the proxies are to vote for directors not officers. It is the responsibility of the board to elect the officers, not the shareholders unless it is a close corporation. Re stock option plan, companies should not be limited to stock options especially when the value is such that restricted stock can be purchased by employees, consultants and directors. Assuming Obama and his minions do not destroy capital gains treatment, restricted stock is a great way to build wealth.

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