[ilamont]

And if a board member isn’t performing well, we get rid of them. I’ve been on boards where the SEC is in there. I’ve been on boards where the Department of Justice is involved. You don’t want that. You destroy companies when you do that. You destroy shareholder value. So what you try to do as board is make sure people are above board. You guard against anything that hurts the companies from an outside perspective. It all comes back to governance and taking care of shareholders.

This points to a problem with due diligence and/or how board members of Fortune 500 companies are chosen. Can anyone elaborate on how this happens?

I get the impression from looking at corporate websites that many board members include former officers of the company, investors, and experienced leaders from adjacent (but not competing) industries. It sounds kind of insidery, which can lead to all kinds of problems and conflicts.

[jldugger]

NPR's Planet Money looked at this topic a few years ago: https://www.npr.org/sections/money/2014/12/30/374011462/epis...

Their finding was that the board of directors is a difficult thing to change from the outside -- in typical corporate bylaws, the board typically approves who's on or not on the ballot. It seems likely, given the number of people on multiple boards, that there's a mutual back-scratching system in place.

And even if it's just one board a retired accountant serves on, the salary averages around $250k. It sounds like a cushy gig, and anyone who rocks the boat risks the CEO voting their shares (and the company's) to fire that director.

[kemiller2002]

A lot of times they do. What you have to remember is that board members serve multiple functions. They are partially there to help inroads into other companies. They are their to provide insight into how the organization is to do business and what direction it should take. A lot of times this means that the people on the board need an inside perspective of what's going on in the industry.

Other functions they serve is to protect the organization from unwanted influence. The board ultimately votes on things like, when and who to sell the company to. By weighting the board with people you know will vote a certain way, you protect against things like hostile takeovers. (This along with other rules that many companies have, like only being able to replace 2 board members per term).

In large companies, if you say own 10% of the shares, you really have a massive amount of voting power with a fraction of the shares, because all the with say 5 shares of a stock, aren't going to bother to send in their ballot when voting on board members etc. By weighting the board with insiders etc., you are helping to ensure that a rival or some other organization isn't buying shares through subsidiaries and then making a play before anyone notices.

[fjsolwmv]

Hostile takeovers approximately never have board approval. They are decided by the owners, that's what "hostile" means.

https://www.investopedia.com/terms/h/hostiletakeover.asp

[uiri]

Barbarians at the Gate is a - surprisingly good - movie about the hostile takeover & leveraged buyout of RJR Nabisco. The events depicted became the poster child for the corporate greed of the 80s.

[CPLX]

I think it's sort of intended to be insidery. Everyone scratches each other's back. It's kind of similar to the dynamic of investors in hot tech companies, where people have a network of contacts they can leverage, etc.

[elhudy]

It's really a perfect trifecta of CEOs, board members, and investors all being each others CEOs, board members, and investors. To put it in Bill Burr's words,"It's a big CLUB. And YOU AIN'T IN IT."

[jsm386]

> To put it in Bill Burr's words,"It's a big CLUB. And YOU AIN'T IN IT."

Pretty sure that's actually a George Carlin line, from a relatively famous routine of his. Many, many clips, but here's a random one: https://www.youtube.com/watch?v=cKUaqFzZLxU

[elhudy]

Good catch!

[Johnny555]

It all comes back to governance and taking care of shareholders.

Which explains why companies are like they are -- if the board had a fiduciary responsibility to employees first and shareholders second, maybe workers would be better off.

[JumpCrisscross]

> if the board had a fiduciary responsibility to employees first and shareholders second, maybe workers would be better off

Oh look, it’s New York City’s MTA [1] and NYPD.

Our society puts consumers first, shareholders second and workers like fiftieth. Moving workers up seems reasonable. Skipping them ahead of shareholders or consumers has, historically, been a predictable failure.

[1] https://en.m.wikipedia.org/wiki/Metropolitan_Transportation_...

[Johnny555]

Keeping the company alive would be a key benefit for workers, so it couldn't go the way of a public agency where their funding comes from "unlimited free money" (aka, taxpayers)

[dragonwriter]

> - if the board had a fiduciary responsibility to employees first and shareholders second, maybe workers would be better off.

If the workers were by definition the shareholders, you wouldn't have to worry about which came first.

[candiodari]

And which laws, exactly, are preventing this ?

There are plenty of employee-owned companies. Lots. I mean, they're not all that successful, mostly, but that's hardly relevant.

[dragonwriter]

> And which laws, exactly, are preventing this ?

Which said laws were preventing this?

OTOH, if it's a desirable social norm, then it's perhaps insufficient for law to fail to prevent it; it may be desirable for law to encourage or even require it as a precondition for the protections associated with the corporate form.

[candiodari]

The left's history with such a social norm, voluntary co-ownership is ... sordid. Just read up on how leftist parties treated Israeli Kibbutzim, for example.

People abandoned them, first in small numbers, and then of course the left no longer wanted anything to do with them, and they started getting sabotaged by (leftist) governments ...

And of course, now half of them are referred to as those settlers. It's not the same thing of course, but because of land prices they pretty much have to be, unless they're "historical".

TLDR: most of the existing ones failed and because of that everybody hates the new ones.

Let's not go there. Let's just skip it this time around, ok ?

[cylinder]

50 investors get together and invest $1 million to open a store and stock it with inventory. They hire one store clerk and one manager. They elect a board of directors.

The board in this case should have a fiduciary responsibility to the two employees over the investors? Really?

[hinkley]

That’s a spectacular man of straw you’ve made there.

50 people aren’t going to get together to dream up a two person shop.

[forapurpose]

> if the board had a fiduciary responsibility to employees first and shareholders second

I'm under the impression that in Germany, which has a highly productive economy, workers have seats on the board.

[BrandoElFollito]

They do (one seat), same in France

[Bromskloss]

Aren't board members hired by the owners to do things the owners need done with their business? It seems secondary that they would answer to anyone else.