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Comment by goopthink | Hacker News Reader

The company board’s sole job is to hire and fire the CEO when appropriate: https://reactionwheel.net/2021/11/your-boards-of-directors-i...

However, having been on a team that prepares board materials and also having presented to a company board, I can tell you that the information they receive is extremely carefully managed in a way that allows responsibility to seem to flow downwards rather than upwards. What you see as an IC or as a manager or ever director is extremely different from the cause and effects a board sees in a monthly or quarterly update. Hence they often come to different conclusions than the people in the trenches would. That said, I’m sure this is true for any large organizational unit (government, military, corporations, nonprofits, etc).

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Many corporate boards have an "executive chairman" which means the CEO is also the Chairman of the Board. Perhaps even more importantly a substantial number of board members are executives from other companies, meaning CEOs sit on each others boards and wash each others' backs.

I have to wonder if it should be considered a legal conflict of interest for a CEO to sit on the board at all, forget being chairman.

The powerful really love rigging stuff in their favor huh

That whole setup could use some free market love.

This is going to start happening to an extent now that there actually is a free market, after...whatever that last decade was.

> now that there actually is a free market

???

Please, excuse me. But, what?! I honestly cannot make out what you're trying to reference.

I'm referring to the money printer that hid most problems plaguing corporate America. Why would shareholders care about mismanagement when their shares were going up 10x regardless?

I think the ??? was about your use of the word “now”

I think the ideas that the money in printer is broken. now when the tide goes out we will see who is not wearing any bathing suits

You shouldn't be allowed to sit on multiple boards or as a CEO/VP in any company

> The powerful really love rigging stuff in their favor huh

You say that like there's anybody that doesn't. The powerful just have more scope to actually do so.

It is know since companies have existed that this is indeed bad corporate governance. The CEO should be firable at the leisure of the board, and the board at the leisure of the shareholders.

What seems to happen often is blurried lines: the ceo founder is majority shareholder, the board is his family, friends and paid lawyers, the shareholders are asleep at the wheel as long as some profits rain in, the regulator finds no law broken.

Tesla is a model of bad governance, to the point the harshest sanction a regulator could levy against their chairman/ceo for manipulating the stock price, a capital sin, is to make him only CEO, while not removing his family members from the board... a systemic european bank is the model of good governance: you can see epic ceo vs board fights, shareholder revolutions etc etc.

Actually this isn't the whole truth. There is a substantial body of literature around the effect of merging both positions or not and it is not really conclusive in any direction.

You mention Europe but for instance in France it has been a corporate tradition too have both merged and separation has statistically lead to a significant underperformance.

FYI it is called the agency vs stewardship theories and currently it seems like a academically the stewardship is slightly favored.

Unfortunately, no organizational structure exists which guarantees optimal outcomes. Everything depends on the actual individuals who occupy the roles.

Such structures should ultimately be up to the shareholders.

> no organizational structure exists which guarantees optimal outcomes

I like the structure of bee colonies.

The queen controls the temperament, the workers control the queen and adjust the rate of growth or contraction. Periodically workers replace her with one her of daughters (via regicide).

I'm not sure what the takeaway here is though, as I don't like the idea of a monarchy or of communism.

Hmm, how insightful.

Let’s dig into this.

- Queen stops producing workers and is replaced by workers (regicide) or replaced by beekeepers (ie. shareholders)

- Bees due to disease or other calamity don’t provide enough honey for their shareholders and they lose their hive and possibly life more than likely

I’d prefer not to lose my life if I don’t produce at work if workers or shareholders aren’t happy

Kinda strange which parts you decided to view as metaphorical and transplant, such as shareholders, and which you decided we're integral to the idea and needed to stay, such as the death of hive members.

I think there might actually be some interesting things to consider if a hive-like approach was used for a business, but I'm not sure your assessment really gets to the heart of it.

In some ways, it's kind of like a co-op.

The really interesting part would be when winter hits and the Queen stops producing workers to downscale the hive (i.e. mass layoffs), then the insane period in spring where mass hiring starts...

Certainly a fun idea to play with

Well…

First, its not like bees get to negotiate their salaries and seek employment elsewhere.

Secondly, at scale you have to consider large beekeeping operations or even small ones which all have…shareholders.

So either the co-op needs to take into consideration societal and personal needs (ie. crime, health, housing) or your comparison needs to be rooted in basic economics (ie. supply, demand, labor markets).

Which is what the OP meant by “monarchy or communism” because fundamentally bee societies are more akin to government than business.

BUT, lets ask the bees what they think. I’m sure they’d prefer modern Westernized human employment over a labor camp like existence ;)

> First, it’s not like bees get to negotiate their salaries and seek employment elsewhere.

They switch hives by accident, the beekeeper can cause it (to beef up a weak colony or by accident) and sometimes they do it intentionally, the males in particular.

> I’d prefer not to lose my life

I'm not sure why you jump to this extreme. Being removed from your job sounds about right.

I meant a human organizational structure.

Boards could have ICs that are voted in by fellow employees.

Better have an air tight employment contract if you’re expected to speak up and keep the executive management honest.

Wash?

This is usually resolved by requiring a minimum ownership stake for each prospective board member, and to make sure it represents a significant fraction of their total net worth.

To guarantee that the board would lose their shirts if they make decisions completely opposite to reality, thus motivating a more thorough investigation of what they see and hear.

Sounds a bit like buying a commission, by having enough money you proved worthy of it.

It is quite similar, the most widespread usage historically would likely be the 18th century trading companies such as the British East India Company which used this method along with others to operate with a relatively tiny managerial workforce by modern standards.

There was another post on HN a few weeks back with an article that looked into it and the numbers were really staggering.

if you could find it I'd love to read that.

Could you find that article, perhaps via algolia HN search? I didn't see it.

A couple of people asked where this was. I think the article is

https://www.strangeloopcanon.com/p/some-things-to-learn-from...

and the HN discussion is

https://news.ycombinator.com/item?id=32710002

(but I am not MichaelZuo and it's possible that I've got the wrong thing).

I think that's the exception, not the rule. Many large public companies have many board members with only trivial ownership stakes.

What you’re saying is implied. They’re proposing requiring a minimum ownership percentage (I assume legally) would make board members care more about decisions because, as it is now—-according to the comment parent—-board members largely don’t care as long as their wallets get fatter.

What? In what case has this ever happened?

Berkshire, Costco to a certain extent, many of the big Japanese and Korean conglomerates, Bosch, Dassault, traditional old money banks, etc...

Excluding external board members, by definition.

I've been in preparation of board materials for Fortune 100 companies (primarily for the audit committee) and honestly that is not my experience.

The audit committee would be the one place you'd expect that not to happen.

Do say more!

From the opposite side I've regularly presented in board meetings at 3 small to medium sized startups and this has not been my experience as well. One CEO was even removed at one of them.

> the information they receive is extremely carefully managed in a way that allows responsibility to seem to flow downwards rather than upwards.

The Plan

In the beginning, there was a plan, And then came the assumptions, And the assumptions were without form, And the plan without substance,

And the darkness was upon the face of the workers, And they spoke among themselves saying, "It is a crock of shit and it stinks."

And the workers went unto their Supervisors and said, "It is a pile of dung, and we cannot live with the smell."

And the Supervisors went unto their Managers saying, "It is a container of excrement, and it is very strong, Such that none may abide by it."

And the Managers went unto their Directors saying, "It is a vessel of fertilizer, and none may abide by its strength."

And the Directors spoke among themselves saying to one another, "It contains that which aids plants growth, and it is very strong."

And the Directors went to the Vice Presidents saying unto them, "It promotes growth, and it is very powerful."

And the Vice Presidents went to the President, saying unto him, "This new plan will actively promote the growth and vigor Of the company With very powerful effects."

And the President looked upon the Plan And saw that it was good, And the Plan became Policy.

And this, my friend, is how shit happens.

https://web.mnstate.edu/alm/humor/ThePlan.htm

> sometimes the co-founders really want to be the CEO for career or ego reasons (even though the investors usually don’t keep these promises: after taking out the CEO, the co-founders are usually next, partly because nobody can ever trust someone who stabbed a friend in the back, even the person who asked them to)

Everything I Need to Know in Life, I Learned from Mobster Movies

>That said, I’m sure this is true for any large organizational unit

It is characteristic of all committee discussions and decisions, that every members has a vivid recollection of them, and that every members recollection of them differs violently from every other members recollection, consequently we accept the convention that the official decisions are those, and only those which have been officially recorded in the minutes by the officials, from which it emerges with an elegant inevitability, that any decision that has been officially reached will have been officially recorded in the minutes by the officials, and any decision which is not recorded in the minutes is not officially reached, even if one or more members believe they can recollect it, so in this particular case if the decision had been officially reached, it would have been officially recorded in the minutes, by the officials and it isn't, so it wasn't.

The board has other jobs. They have to sign off on the validity of financial statements in public companies, for instance. CEOs bring them decisions that need to be made like granting a conflict of interest waiver to a CXO employee. Just two examples that they usually are required to make. They also help with other major course setting.

This is why it is so extremely important to get out there and meet with people in the company, talk to them, look at stuff, rather than only get fed information by people. See what is really happening.

Technically, the board’s job is to represent the interests of common stock holders.

Are board members rewarded for digging in beyond what's provided to them?

They are not punished if they don't -- this is the right question. Except if they are a major-ish stock holder which is usually not the case (for publicly traded).

Insofar as board members are compensated by stock grants, they are incentivized to increase the stock price. But if a board member starts trying to do independent verification of what the CEO/team is telling them, that's a sign of mistrust. Because the board primarily interfaces with the executive team, would they know where to start?

That said, I've seen some board members try this out by offering to help/chat with some under-performing teams that they have expertise working with and asking light questions/giving advice... but having been on the receiving end of a conversation like that, it often feels like there is a lot of politics going -- you don't know if someone genuinely wants to be helpful, is vetting your capabilities and fit for the role (based on the trickle-down responsibility), or is trying to do independent fact finding (trickling it back up).

In some rare cases the board has retained outside counsel to conduct an independent investigation when there is potential wrongdoing or conflict of interest involving the CEO or other senior executives. The board doesn't receive any extra direct rewards for this, beyond protecting their own holdings and reputations.

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