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Berkonomics

Fight for balance on your board!

Picking up where we left off…

In my last insight, I described the CEO who stacked the board with two friends, making a majority for control purposes and relegating the investor representatives to insignificance.  There were no outside board members with industry experience, no members the CEO trusted with governance backgrounds, no scientists to evaluate the technology that is the core asset of the corporation.

A recipe for failure.

If the CEO does not fight for balance of the board, outside board members must fight for this to protect the corporation.  If for no other reason, this protects the members of the board from making decisions without rising to the standard of careful deliberation under the “reasonable care” test.

How about the size of the board?

[Email readers, continue here…]   Some board members find themselves debating whether there should be an expansion from five to seven, from seven to nine or more to allow for such a mixture of protective seats created by the investment documents and balance with outside board members.

What about multiple investor rounds?

Sometimes, as in one board where I sit today, there are so many classes of investors, each with one or more seats, that a seven-person board is not enough.

I am not for large boards.

There are social studies that reinforce the notion that a group of six or seven is far more likely to arrive at reasoned decisions effectively than larger groups.  Look at the example of most non-profit boards, where the number of members often exceeds thirty, requiring the creation of an executive committee to get the work done.

  • Ed Savage

    Thanks for sharing Dave. All true in my experience as a BOD member.

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