» Posts tagged ‘Corporate Governance’

I’m a relentless advocate for outside board members in family businesses, in large part to divorce the value of objective business discussions from subjective family dynamics. I’ve seen a family member derail an important conversation because his baby brother … some 30 years ago … wrecked his bicycle.

Jeff Bussgang, an entrepreneur and now VC partner, provides in a recent Business Week article, a good reminder of the value of having a “Truth Teller” on your Board of Directors.

If you’re running a family business, do you have any outside board members? If so, are you glad you do? If not, why not?

I wish had the time to write about all that’s on my mind about the SEC charges vs. Goldman. The crux of my most recent post was that institutional investors – not individual investors – have few excuses for making unsuccessful investment decisions except their own lack of due diligence or the fact that what they thought was a good decision … wasn’t.

I’m happy to see that Warren Buffett agrees as he told his rapt audience in his comments at Berkshire Hathaway’s recent annual shareholder’s meeting. Of one firm, ABN Amro, Mr. Buffett said: “It’s hard for me to get terribly sympathetic when a bank makes a dumb credit bet.”

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Many years ago when we lived in the Midwest, we became very good friends with a young couple down the street. He was a fellow fraternity brother, from another college, but I remember him as a very capable physician with a unique ability to describe complex medical subjects in layman’s language.

After Action Reviews are for Learning NOT Blame

One day, he asked me if I’d like to go to work with him on Saturday. He’d show me around, we’d have lunch, hang out. He couldn’t leave for lunch, but he would bring along some homemade sandwiches, bologna with lots of ketchup, he said, and I could sit in his pathology lab as he performed an autopsy … and while he was cutting and sawing, we would enjoy our lunch together. It was when he started laughing that I realized why my vision of an overloaded bologna sandwich, dripping with ketchup alongside an autopsy table, was kicking up a firestorm in my gut.

I think that’s how many business executives view an After Action Review (AAR) — a gruesome business designed to relive the pain of failed projects. 

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If you remember, the General Motors board gave CEO Rick Wagoner a 64 percent pay raise — to $15.7 million — in 2007, when the company lost $38.7 billion. The company went bankrupt two years later at a cost of $52 billion to shareholders and another $13.4 billion to all taxpayers.

In Sword Tips, we’ve often remarked on the dismal job done by so many Boards of Directors, falling short of their fiduciary and ethical responsibilities and failing to hold the company’s leaders accountable for their performance as well as their conduct.

So, it’s no surprise that John Gillespie and David Zweig, have written “Money for Nothing“: How the Failure of Corporate Boards is Ruining American Business and Costing us Trillions”. You can find a review of the book here.

My advice? If you have no meaningful expectations from your Board, don’t have one. Keep grandma and your sister on your board. Have a nice dinner, some wine and keep telling each other how wonderful you are. When you wake up one morning and discover that your business is in the tank, you won’t need to call them on it. Just stay in front of the mirror a little longer.

The Wall Street Journal blogs frequently report on the VC industry and their recent entry, Start-Up CEOs Gripe About VCs’ Lack Of Operating Experience, caught my eye.

I have sat on close to a dozen small business boards and agree that directors without real experience bring little to the table. I’m not sure, however, that I would automatically exclude directors without operating experience because there are valuable perspectives that can be gleaned from successful executives across a broad variety of disciplines.

What’s painful is watching inexperienced directors from investment firms that want their associates to “get experience” at the expense of their portfolio companies. For my money, let them tag along as “shadow directors”, attending board meetings, reading the board packages and listening. Drill down with them after the meetings to get their perspective and suggested solutions to the problems presented. Only when you’re convinced that they’re ready, and I mean after years not months, should they assume an official board role. Don’t rush it … and don’t conclude that just because you’ve got a smart associate, they’ll make a smart board member. Maybe not.

Save for the unique investment relationship, no prudent company or shareholder would ever select an inexperienced director of any kind. Why would you … and why would any investment firm violate this obvious “prudent man” rule?