Board of Directors
The Board and Its Types as Described by Buffett
Most directors are courteous and very capable at their work. However, they are also very human and can hardly take actions that threaten their livelihood. Therefore, some succumb to temptation in order to keep their livelihoods.
In a boardroom filled with courteous people, it is almost impossible to raise the need to replace the CEO.
When There Is No Controlling Shareholder
Because directors cannot restrain the CEO, the board should be small, with no more than 10 directors, and most should be classified as outside directors. They should also meet periodically to evaluate performance without the CEO present.
This is because it is very difficult for directors to deal with an incompetent manager. Unless dissatisfied directors make up more than half of the board, they are virtually helpless.
When a Controlling Shareholder Also Runs the Company
In this type, the board cannot act as an agent between shareholders and management, and directors can bring about change only through persuasion.
When a Controlling Shareholder Is on the Board
If outside directors are unhappy with the manager's ability or integrity, they can go directly to the controlling shareholder-director and voice their complaints. This is the ideal type for outside directors.
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Category: Wiki/Economy