Corporate governance and boards of directors have always fascinated me.
I work for a public company and I spend a lot of time working on external reporting (10-ks, 10qs, proxy statements). In this position, I’m more aware of what the board of directors is doing than a typical employee.
Recently, I read the book How Boards Work by Dambisa Moyo. I wanted to gain a more complete view of the board. This book was helpful but is not a one-stop shop for learning about boards of directors.
Below I will share more about this book and what I learned about how boards of directors work.
How Boards Work Overview
The first third of the book discusses how boards of directors operate. It discusses the three committees most boards have. It also talks about legal terms such as ‘duty of care’ and ‘duty of loyalty.’
It goes into detail about the CEO selection process and common pitfalls boards fall into.
The last two-thirds of the book delves into the issues boards face today. This includes cultural and societal revolutions that are putting pressure on boards. Issues such as pay equity, gender equity, environmental concerns, and many more.
Who is Dambisa Moyo?
The author Dambisa Moyo is a business leader who was born in Zambia. She worked for World Bank and Goldman Sachs. She also wrote a book called Dead Aid.
The success of her first book brought her some notoriety and she was asked to join the board of directors at SABMiller in 2009.
Since that time she has written a few more books and has joined something like 8 different boards.
What do Boards do?
Boards of directors provide governance. Ray Dalio defined governance as:
“an oversight system that removes people and processes when they are not working well. It is a system of checks and balances on power, desgined to ensure that the interests of the community always superseded the interests of any individual or faction”
The board provides this governance to the company and helps support the CEO and management. The CEO is chiefly tasked as being the day-to-day leader.
Boards of directors have 3 main tasks:
- Shape company strategy
- Select leaders (CEO and new board members)
- Safeguard company culture, ethics, and values
To achieve these tasks the board comprises various committees.
Boards of directors typically have 3 main committees:
- Nominations and Government
- Audit Committee
- Compensation Committee
These committees meet at different times than the normal board meetings. A board member is usually delegated as the head of each committee. Members assigned to each committee usually have some type of expertise related to the committee.
As I mentioned above, this book didn’t provide me with all the answers I wanted to know about boards. Most of the book (2/3rds) is about issues boards face today. While this was interesting, I wanted to know more about “how boards work.” But if you, like me, are interested in learning more about boards of directors then you should read How Boards Work by Dambisa Moya.