Who is on the board?
Given the importance of their function, who gets to sit on the board is always a closely watched item. Usually, companies propose candidates, but a separate individual can also run, and shareholders can propose their own directors. This often occurs when an activist investor wants to shake up a poorly performing company by proposing directors of its own selection.
An example of this comes from an activist investor like Starboard Value and its agreement with agriscience company Corteva (CTVA +1.55%), which agreed to propose three independent directors of Starboard’s choice in 2021. Indeed, retail investors can follow activist investors' machinations if they believe the case for appointing new directors to improve company performance is a good one.
Some examples of a board of directors in practice
The responsibilities discussed above cover the basic requirements of a board of directors, but there’s much more to it in practice. In reality, the caliber of people appointed to the board directly influences the company. A great example is General Electric (GE +0.20%), where the board failed to rein in the acquisition spree, share buybacks, and strategic direction set by its former CEO, Jeffrey Immelt. The end result was a mountain of debt that created a challenge to the company’s existence.
GE ultimately retired Immelt in 2017 and appointed a successor, John Flannery, and later appointed a heavyweight industrial executive Larry Culp to its board of directors in April 2018. Six months later, the board removed Flannery and appointed Culp as CEO.
The GE example highlights the importance of the board of directors, first in failing to ensure the company was satisfactorily run with Immelt and second in taking swift and decisive action to appoint Culp.
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