Two recent articles in the Wall Street Journal raised some new thoughts about Boards of Directors. This, often little understood group, technically manage the biggest public companies. I have written before on the lack of attention and professionalism of some corporate directors and I keep hoping this governance area will improve! Here are a couple ideas that might help.

One article dealt with the growing trend of large investors, like hedge or private equity funds, who buy a block of a firm’s stock and then trying to force the company to elect a number of their nominees as directors. On the surface the concept sounds good and a way to shake up underperforming  firms. But here is the catch. The people nominated by the outside investor are not subject to any review or disclosure of their positions on critical matters that might impact the target firm. They are just listed as part of the slate of directors that the investor wants. So the shareholders who are asked to vote for the new directors do so with very little useful information. The Journal article suggests that these nominated directors appear at public forums with independent moderators or even some of the current directors to debate views. To make this work the very large institutional equity owners like Fidelity or the California Pension funds would have to insist on this additional step before voting. I really like this idea!

The second article rethought the current trend of having only one corporate officer like the CEO on the Board with all outside independent directors. The concerns here are twofold.  First, in large and diverse businesses the entire board might benefit from more internal knowledge especially during a crisis or new initiative. For example if the firm is about to launch a huge capital or technology project, another corporate officer on the Board might add a lot.  Second, if the Board has only one insider and something happens to that person-health or an unexpected dismissal- the other outside directors may be at a loss as to name their replacement. So the thought is on a board of 10-12 directors having 2 or 3 inside officers might be best. Again this seems like a worthwhile idea.

So as I have said before, the buck stops with the Board of Directors. All the officers report to them and the Board represents the mass of shareholders. The more knowledge shareholders have about directors the better and the more directors know and are comfortable with the senior officer group the better as well.