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Berkonomics

Fight for balance on your board!

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.

If the CEO does not do so, outside board members must fight for balance on a board.  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.

Some boards find themselves debating whether there should be an expansion from five to seven, from seven to nine or more in order to allow for such a mixture of protective seats created by the investment documents and balance with outside board members.  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 actually get the work done.

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