WTF Does the Board of Directors Actually Do?

Summary

This video explores the power dynamics and complexities of corporate boardrooms, focusing on the role of directors and the influence of major asset managers like Vanguard and BlackRock. It highlights the surprising connections between board members, such as Mark Zuckerberg's appointment of UFC president Dana White to Meta’s board, and examines how boardrooms often prioritize connections and marketability over long-term strategy. The video also sheds light on how diversity and inclusivity initiatives have influenced board decisions, and how passive investment firms shape the future of corporate governance.

Takeaways

• 😀 Mark Zuckerberg appointed UFC president Dana White to Meta's board of directors, sparking mixed reactions among company employees and stakeholders.
• 😀 Modern boards of directors act as networks connecting business leaders, regulators, and politicians, influencing corporate strategies.
• 😀 CEOs and boards sometimes have conflicting interests; while CEOs aim for short-term profit and job security, boards are meant to ensure long-term stability.
• 😀 Board members are not full-time employees and typically attend quarterly meetings where they provide strategic advice or veto decisions.
• 😀 Compensation for board members of major companies can be very generous, with directors earning millions in cash, equity, and reimbursements.
• 😀 Becoming a board member often requires a strong network, either by starting a company, being an early investor, or building government and business connections.
• 😀 Public companies have strict rules for board elections, but large asset managers like Vanguard and BlackRock wield significant influence in shaping boards.
• 😀 The appointment of Dana White to Meta’s board was likely more about creating connections with government officials than about his business expertise.
• 😀 Retired senior government officials often sit on corporate boards, providing companies with access to their extensive networks and credibility.
• 😀 Asset management giants like Vanguard and BlackRock have policies to limit the number of board seats a director can hold, reducing boardroom consolidation.
• 😀 Despite efforts to promote diversity and inclusion in boardrooms, there is concern that companies may prioritize these factors over actual shareholder interests, leading to issues like excessive CEO compensation.

Q & A

Why did Mark Zuckerberg appoint Dana White to the board of Meta?

Mark Zuckerberg appointed Dana White to the board of Meta to strengthen Meta’s connection with influential networks and potentially signal a shift in Meta's approach, highlighting its non-California-centric mindset. The move also likely serves as a marketing tactic, signaling that the company is not part of the typical Silicon Valley culture.

What is the primary role of a board of directors in a major company?

The primary role of a board of directors is to provide strategic oversight, offer advice to the company leadership, and ensure that the company’s actions align with the best interests of the shareholders. They also have the power to veto decisions and fire the CEO if necessary.

How much can directors of Meta earn for serving on the board?

In 2023, Meta’s board members earned between $397,000 and $4.2 million in equity, cash, and travel reimbursements, depending on their roles and the level of involvement.

Why are board members of large companies often so experienced and old?

Board members tend to be older and more experienced because the role requires a strong network of business, political, and regulatory connections. Many members are individuals who have had long and prestigious careers in business or government.

What is the significance of having government officials on corporate boards?

Having former government officials on corporate boards provides valuable contacts with regulators and policymakers. It also signals credibility, especially in industries like defense, where a company may want to show its connection to the military or government.

What influence do asset management companies like Vanguard and BlackRock have on company board elections?

Asset management companies like Vanguard and BlackRock hold significant influence in company board elections. As major shareholders in most public companies, they essentially decide the vote on board elections and can sway decisions based on their voting guidelines.

How has the practice of board members sitting on multiple boards changed recently?

Recently, companies like Vanguard and BlackRock have introduced policies limiting directors to holding no more than four board seats, in an effort to prevent the concentration of power among a few individuals and to ensure more diverse and effective leadership.

What are some of the benefits of being on a board for retired government officials?

Being on a corporate board offers retired government officials a low-intensity, high-paying retirement gig. Their extensive networks and connections are valuable to companies, providing them with access to critical information and influence.

What is the relationship between modern corporate boards and government connections?

Modern corporate boards often reflect a network of political and business connections, with many members having ties to government. This relationship is part of a broader strategy to gain favor and support from regulatory agencies and policymakers, which can be beneficial for companies navigating government regulations.

Why are corporate boards sometimes criticized for not acting in the best interest of shareholders?

Corporate boards are sometimes criticized for prioritizing the interests of powerful insiders and failing to hold CEOs accountable for actions that may enrich them in the short term at the expense of long-term stability, ultimately not acting in the best interest of shareholders.