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What it’s like to be on the board of a Fortune 500 company (jayshah.me)
203 points by jayshahtx on Jan 9, 2018 | hide | past | web | favorite | 76 comments

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.

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.

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.

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


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.

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.

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."

> 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

Good catch!

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.

> 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_...

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)

> - 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.

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.

> 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.

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 ?

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?

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.

> 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.

They do (one seat), same in France

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.

> You know Jay, at this level – it’s the White House. Everything needs to be clearly documented and written down.

I understand from the Pod Save America people that taking notes is usually avoided at the White House, since they are required to be part of the permanent record and can be subpoenaed. Destroying notes is not allowed, so it's best to not take them in the first place.

Naturally the current crowd have their own ways.


> Naturally the current crowd have their own ways.

The whole situation with Michael Wolff is a little worse than staff just taking notes considering he kind of just kept showing up at the White House and got a couple hundred interviews over half a year.

The link I gave is about Sean Spicer, former press secretary, who apparently kept detailed journals.

Everyone would expect a journalist not employed by the White House to keep notes.

This is interesting but a bit self-serving. Imagine going around where you work and interviewing someone about their job: "Is your job easy?" "The days of my job being easy are over. Everyday I work very hard." etc.

Especially when you blame your investors for how hard your job is these days: "[It] used to be that way but its changed in the last ten years because the activists [investors] have gotten more involved."

Those darn meddling activists!

That's unfair. He's giving credit to activists for making him do an honest day's work.

>And when you say board meeting, most people probably think of you taking a corporate jet somewhere, eating a fancy dinner, and showing up to a few CEO meetings before taking the jet back. How accurate is that?

>See Jay, it used to be that way but its changed in the last ten years because the activists [investors] have gotten more involved. It’s a real job. You really have to stay in touch with the company and understand what its doing.

said the guy on 4 boards

This guy must have been on the boards of companies that weren't in too much trouble. When the ship is sinking, being a director can become a full time job for a while. If the ship sinks without heavy board involvement trying to prevent it, the board members were negligent.

It's easy to manage things that don't need managing.

What I didn't hear was anything about the customers.

You may have heard the old saying about relationships: "If Momma ain't happy - ain't nobody happy". I think the same thing goes for a firm's relationship with their customers. If the customer isn't happy, there's no repeat sales and no positive word-of-mouth advertising, leading to decreased sales and revenue, leading to reduced shareholder value.

You can say the same thing about 10 different factors.

"If the employees aren't happy, nothing is going to get done."

"If your suppliers aren't happy, you aren't going to have anything to build your product with"

"If the government isn't happy, they are going to shut you down"

In the abstract, they are all important. Practically, if you try to focus on everything at once, you aren't going to get anything done. One of the most important skills in any job is figuring out which areas to focus on, and the answer to this is always going to differ depending on your specific circumstances.

No, not really. Your source of revenue is by far the most important thing to focus on. If you treat your clients well, you can charge a premium, and the additional revenue means you can pay your employees more and have more leverage when talking to suppliers.

"No, not really. Your employees are by far the most important thing to focus on. If you have great employees who're engaged, they will build for you an amazing product/service which will blow away your competition, which your users will love to use, which you can sell at a massive premium."

We can play this game all day folks.

They didn't mention customer satisfaction because it's not always a priority, shareholder value is.

A fantastic example of this is Comcast. It is regularly voted America's most hated corporation in the country, yet because of its unique leverage in the areas that it operates, this poor customer satisfaction rating just doesn't matter. They're still able to satisfy the shareholders.

Incidentally I love comcast. 150mbps cable, cheap price, no outages, free hbo, X1 remote rocks. Pricing is a bit annoying (paying extra for HD) but is a great product. Just thought I'd mention it because it gets too much hate.

Never move. You are on a magical island... or the eye of the storm.

As much as I dislike Comcast, I voted you up because I once also had this magic serenity for a few years.

Then I switched to Comcast for TV and it all went down the tubes. Random outages (sometimes daily), substandard speeds, Netflix speeds suffering (or stuttering) at peak times, etc.

Who knows whether this just reversion to the mean, or the techs botching the install. Even "reddit trick to email the Comcast VP" didn't fix it (though that did get a quick response).

I'm guessing you have FiOS and/or at least one other wireline broadband provider in your area.

Comcast is ludicrously expensive in my neighborhood where they are the sole broadband option. It's so bad the city council is looking seriously at muni fiber.

Yes, most people are on FiOS in my area so comcast tries hard.

> 150mbps cable, cheap price,

1Gbps download, 500Mbps upload, 10 USD/mo. How cheap is Comcast, again?

Exactly. Companies have figured this out long time ago. The customers whose voice matters are not the same group as the customers you are nominally serving. You can see clear examples of that not only with corporations like Comcast, but also in startup economy - often (the way I see it, more often than not), the customers-that-matter are the investors, and not the actual users.

Because in startups, users are a cost center and the investors are paying all the bills til runway runs out

That's why when they tell you they care about you as a user, they're lying.

The problem there are the endemic local monopolies on internet and cable rights that prevent meaningful competition. (I have no disagreement that Comcast/Xfinity aren't anyone's favorite company.)

Exactly, and in this situation, the Board of Directors would probably work diligently to maintain that which differentiates Comcast from its competition, namely political leverage and monopolistic behaviors in their areas.

It's not a failure of the Board of Directors to think this way. Its sole purpose is to provide shareholder value within the existing legal framework. Like they said in the article, those on the Board who don't produce value get removed.

Most ridiculous aspect of corporate American governance, or lack there of, is making CEO the Chairman of the Board, almost always.

It flies in the face of the whole point of the Board! It blows my mind.

You are basically there to approve stuff, like the budget. Only if there's something really stupid it's your job to say no, but that rarely happens. If it's a smaller org you also do some job, like making policies, organize, etc. The smaller the org the more job you will do (and the less you will be paid). Being on the board of a small org like non profit is not very prestigious so it's easy to get in. But it can be a good learning experience. You first have to figure out who is responsible for recruiting new board members, then you have to get someone to suggest you. They don't want someone who actually want's to be a board member.

A guy who was an expert in big cats was featured on a shark show. He commented on how polite and well behaved they were. It wasn't a feeding frenzy. They got in line and took turns.

Which only makes sense if you think about it briefly. If sharks were not well mannered, they would all be missing big hunks and covered in gruesome scars. If two sharks fight, someone is going to get maimed.

I have no doubt these are very polite, well mannered things. But not because they live in fear of being disagreeable. Instead, it is because if someone on the board cocks an eyebrow, people tremble.

Kind of like military bases where people mind their manners because lots of folks there know how to kill you. So, no, you generally don't go around being a blatant disrespectful asshole for lulz.

This is actually a pretty decent overview of what it's like to be on a well-functioning nonprofit board. In that case, instead of shareholder value you're focused on the nonprofit's mission and its long-term viability.

Why do you keep giving CEOs barrels of money?

This person gets paid 1 million dollars per year for twenty days of not-rocking-the-boat. It's not their money and the only way they get fired is by asking questions like that.

Why investors put up with it is a better question. I think the implicit antitrust of index funds has something to do with it, few investors want more competition. https://www.theatlantic.com/magazine/archive/2017/09/are-ind...

Great read on a subject that I don't know much about.

For someone interested in how large corporations function and the power dynamics among the top, do any of you folks have any other recommended reading?

qntty on Jan 9, 2018 [flagged]

Das Kaptial

You've posted quite a few unsubstantive and/or uncivil comments. We ban accounts that do that, so would you please (re-)read https://news.ycombinator.com/newsguidelines.html and clean up your act?

Do I need to point out the irony of the incivility of telling someone to "clean up your act" in a comment complaining about incivility?

It's true that that phrase is a bit harsher than what we usually post. I use it in a somewhat precise situation: when an account's comment history shows that they've been breaking the rules habitually. That's a worse situation than a one-time offence and seems to merit a stronger tone. Also, I've noticed that some people don't get the message unless the volume is turned up that way. It's hard to predict whether a user is that sort, or someone who would respond better to a softer touch. I presume you would be the latter.

If you can think of a better phrasing that I could use that covers the above issues, I'd like to hear it. And if you'd read https://news.ycombinator.com/newsguidelines.html and only post in the spirit of this site going forward, I'd appreciate it. Other links to take a look at are https://news.ycombinator.com/newswelcome.html and http://www.paulgraham.com/hackernews.html.

>>> Well the first responsibility is to ensure the company is being run in the best interest of shareholders

Do me a favor and tell me that best interests are something else than money, please...

I hope it isn't. My 401(k) won't provide for my retirement using Good Feelings. The best interest of the shareholders is running a profitable enterprise.

When you're 30, your concept of profit is different to when your 60. When you're 60 and considering living on the income from shareholdings in enterprises, you need both length and breadth. 15% next year but it tanks the two after is worse than 7% year on year.

Long term profitable enterprises do not asset strip, fail to invest, or destroy the market for a short term gain. These are all things which inside a 5-10 year planning cycle, many enterprises will willingly do, for apparent short term profit. Destroying the environment destroys future capital. Failing to employ women (51% of the population) for fair renumeration ignores competent staff, and destroys goodwill from half your market who in fact, make 75% of the significant purchase decisions in a domestic context.

Think about it.

I don't disagree with anything you wrote. I still won't invest my retirement into a company that doesn't prioritize profitability. I can't. It won't work if I lose money in my 401(k).

15%, 7%. These are positive numbers. They're profit.

Your retirement could include classes which only show a realized ROI on termination, and do not demonstrate profit across their life. Forestry for instance, is almost nothing but cost until 30 years later.

Profitability is inherent in anything which strives to increase value in the wider sense. You shouldn't invest in remediation of the environment directly as a retirement strategy, I agree. its solely cost. But you could chose to invest in a company which ethically contracts to perform the remediation. Now, you are both sides of the equation if (for instance) you live in Love canal, and its remediating the years of toxic waste, you benefit from the health outcome. So, what "cost" will you be prepared to pay in local taxes to fund the company you directly invest in, to earn profit to remediate?

Shareholders live in the world that the company creates. For example if the company contributes to global warming, it doesn't affect the stock price but it does affect the shareholders.

Money and markets are great tools, but they aren't gods; they aren't the answer to all questions.

Not that it's right or good, but shareholders profiting off of global warming are probably getting a net gain on the backs of the rest of the world.

If you want boards of directors to prioritize carbon neutrality and similar goals, you have to translate that into money. Tax the carbon and price the negative externalities. If you don't do this, and just hope all business people make decisions from their heart, you will always be let down.

The question really boils down to over what timeframe is shareholder value measured? A long-term approach would take into account externalities like global warming which affect future business operations and future shareholder value.

A short-term approach would look only to the current price of stock, regardless of all other considerations, justifying such things as massive layoffs, selling off core business assets, etc.

If we could get our whole culture to understand this the world would be a much better place

Social, environmental, moral concerns are all reputational, and should hence be reflected by the share price. So it all comes down to money.

The extent to which those factors are NOT priced into the stock, they typically won't be included in the "best interests".

The story depicts a lovely bohemenie and spirit of agreeableness; it sounds like it's almost enforced:

> You need to have a cohesive thought process to move the company forward.

> if a board member isn’t performing well, we get rid of them

> [I’ve] sat on boards with some amazing people who have done some amazing things in the world.

What a wonderful club. It doesn't sound like one conducive to dissenting opinions and disagreement. With so much at stake - so many jobs, so much money, and such an impact on communities - it seems that harmony would take a back seat to asking difficult, challenging, critical questions. The interviewee doesn't mention any of that happening. Also:

> Each year, all of our names are put up for voting by the shareholders. Shareholders say yes or no and vote [to keep the director]. If the shareholders vote yes, we have automatically put our name in for resignation and the board determines if they are going to accept [the resignation].

Shareholders almost never vote no. Effectively, the system above means that the board determines its own members. Again, the board member who challenges consensus or engages in threatening oversight might not last long (or be invited to join another board).

It confirms other things I've read about boards, but certainly someone knows more than I do ...

C'mon man. This is like a kid asking their parents how the marriage is going.

You're not going to hear about the affair or addiction or whatever dirt you're looking for. But it'll still be educational just to know the time they spend on things and what perspectives people try to maintain.

Honestly, this area is such a crazy mystery to the working class (including most white collar workers like myself) that I'm grateful to the mystery guy for giving the interview.

I found the interview to be valuable, too, for the reasons you say. I should have mentioned that; good point.

> This is like a kid asking their parents how the marriage is going.

Only to a limited degree. A good journalist asks challenging questions and gets their interviewee to talk. The board member was anonymous, after all, so they could have spoken more openly and even generally about these kinds of problems. The interviewer asked easy questions and the board member painted a nice picture. (In fairness, I don't have a right to expect more (or anything at all) from some guy's blog; it's not the NY Times; so a genuine thank you is owed to Jay Shah!)

interesting insight from inside the bubble

It's always fun to learn about the workings of small systems that have such disproportionate effects on larger systems -- the random articles and comments flowing through HN gave me a better education than what I got in public schooling and university.

Death to maximizing shareholder value above other concerns, like customers and employees

If shareholders aren't getting value, the company dies.

Only because we cultivate a culture that prioritizes them.

The role of shareholder should be that of stewardship for the steward (the CEO), and both the board and their charge are in positions of servant leadership towards customers (first priority) and employees (second). Focusing on both those points creates the financial success needed to recoup investments.

In old times, you took money from investor, built a company and finally returned them their principal + interest. You then went your way to care about whatever values you held close about your business. In new times, you become their employee permanently (as in CEO works for shareholders) and hence your goal is to increase their value.

I guess it’s because the level of capital that is required for modern endeavors is such that it is usually impossible to do full buyback like Dell did, for example. In part, it’s also because we have designated the investment itself as an asset as opposed to a loan. So even if a company wants to do full buyback it’s market cap is a moving target usually prohibiting that.

To understand this, imagine you got loan from your uncle for $100k to buy a house. But then your uncle sells your liability to another person for $200k because house prices are on the run. Now suddenly you must pay $200k if you really want to own the house. But then the cycle continues with people selling your liability at higher and higher price so one day you wake up and be happy that your house is now $10M but you can never truly be its owner unless you actually pay $10M. This is the magic and power of capitalism.

In antiquity, it was sometimes loathed upon even demanding interest on a loan because it was like stealing from someone else’s fruits of labor and making income through no or little effort of your own (aka passive income). But that prohibited the utilization of capital and people saw that there was nothing sinful in collecting interest on your capital as a reward for taking risk. Capital is an asset just like your house is an asset and demanding rent on is perfectly legitimate.

But then people with capital took one step further. Instead of demanding just interest, they started demanded ownership share of your endeavor as well. This was again loathed upon as the people landing money now also got all the rights and privileges in the creation of a person who actually did all the work. But soon people saw that this increased flow of capital even more. Investors now were suddenly more willing to participate in risky propositions. An entrepreneur can raise order of magnitude more capital than any other of time in history.

But then people with capital took one step further. Why can’t they sell your loan liability as an asset to someone else? This meant that original principal given to an entrepreneur as a loan now had undefined value. It was only determined by the wish and whims of buyer of his liability. This also meant that entrepreneur was freed up from any expectations that original loan would be paid up. Investors would instead be just happy with continuous flow of dividends and speculating how he will do in future. The loan became thus permanent. Soon need for larger and larger capital grew such that majority of ownership ended up with investors and the entrepreneur become the employee of the investor. This again allowed even higher order of capital collections. And that’s how we got here.

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