Perhaps this is the natural conclusion from the several insights previously explored.
While the CEO and management offer the vision, strategies, and tactics as well as the 
proposed budget, it is the board that controls with its votes the execution of strategy, the expenditure of cash, the taking on of debt or new equity, the very direction of the company as well as its ultimate health. Surprised?
Then who is most important?
The most important person in a corporation usually is and should be the CEO. This person, often the founder in early-stage companies and beyond, is the originator and keeper of the vision, leading all others below and the board above as willing believers in the vision advanced. But the board is responsible for providing resources to fulfill that vision, which may include new cash infusion or assumption of new debt.
Does this ever happen?
Yes, but… In extreme situations, it is the board that must step up and replace the CEO, assuming the responsibility for finding and integrating a new leader quickly and efficiently. Sometimes this means having a board member step in for a short time as CEO for continuity.
A true story…
[Email readers, continue here…] One of the CEOs in a round-table who had been active and vibrant for years in both his company and the round-table, died suddenly of a heart attack. His board met in emergency session and managed a smooth transition to a new leader within a month, during the most traumatic of times for all employees and the board itself.
Remember the most important duties of a board member?
For non-profit boards, the two most important duties under the duty of loyalty and care are the oversight and eventual replacement of the CEO, and maintenance of the entity over its infinitely long lifetime. I have been a member and even chair of presidential search committees and can attest that board members (and other designated stakeholders) spend hundreds of hours in the recruiting process, all without pay.
It’s all about continuity of the organization.
It is because the continuity provided by the board is the one thing shareholders must count on above all else to protect investment, that the board rises in importance to at least equal stature as the executive cohort.
annually and for some reason aggressively change members, you will experience the steep learning curve required to get the newest board members up to speed to contribute with deep knowledge of the company and of your management style. And that’s not good. Re-electing board members again and again is not a problem – if those re-elected members contribute effectively as they fill their seats. But annual re-elections signal to all that a board seat is not permanent or even long-term.
For non-profits, this allows for the creation of a board development committee to find and recruit outstanding new board members and find ways to unseat those who are no longer contributing or even attending board meetings. Such a policy further reinforces the duty of care for the corporation by its board. Unseated board members with longevity and a history of participation can be invited to become “emeriti” members of the board with observation rights but no vote.
Sometimes, as in one board where I sit today, there are so many classes of investors, each with one or more seats, that a seven-person board is not enough.
bring it to a vote. The corporate attorney was present, recommending this as a relatively safe move for the CEO. I called the question after a drifting discussion. You can guess that the three friends voted down the measure, perhaps as a sign of unison, since this was the first vote by the two new members. It was the final nail for me. I engineered the extraction of the outside investors, even at a near total loss. At least the investors could then take the loss against ordinary income under rule 1244 of the IRS code, worth something to each, rather than being locked into what was a slowly failing lifestyle business with no effective oversight.
forget this point. They write in their investment documents that they will occupy a seat on the board for as long as they are invested in the company, thinking of this as a protection for their investment and tool for them to influence growth.
corporation comes first. Some investor board members are also member of boards for companies that may overlap in markets or even compete directly, although rare. Either way, I have seen many instances over the years of my board service with VC’s on the board, which the VC’s have had information about other firms that would be classified as confidential – that they offered at least piecemeal in a board meeting of another company where they serve. There are issues that stress the loyalty of board members such as placement of employees or recruiting of executives from firms where the VC or board member has inside knowledge. These are rare, but each stresses the duty of loyalty to the corporation on whose board they sit.
years ago, we were hired by one of the largest companies in the industry (yet another Fortune 50) to perform a top-to-bottom audit of their processes across 27 facilities, and recommend measures to increase efficiency, increase income, better the customer experience, and of course, decrease costs while also increasing the quality of service. We were quite confident that our services would yield great, measurable results. The work continued for about eight weeks between the two of us as we visited the 27 locations and worked with employees in departments across all disciplines within each location and at central offices that performed services for all locations.
“I want you to all imagine that it is tomorrow morning, looking back upon today’s reporting of these past months of work by your consultants. Imagine that today I build for you a beautiful sandcastle exactly at the water line of the ocean nearby. Tomorrow, we both will visit that beach and look at the water line, and find not a beautiful castle, but just smooth sand, just as it had been the day before building our beautiful sandcastle. In other words, I would not be surprised if you accept our report today with enthusiasm, but then in the overwhelming rush of daily business, fail to implement few if any of these recommendations that you so enthusiastically received.”
expenses are accounted for as earned, not when the cash is received. (You, on the other hand, account for your individual income on a cash-accounting basis, counting the cash not the date of your earning or accrued expense.) The difference: If you earn pay due December 31st and it is paid January second, you pay income tax on those earnings in the following year. But the corporation that pays you accrues the expense and takes the deduction in the year in which the income was earned or expense actually incurred.)
creating and reviewing data. Bookkeepers are often trained on the job although sometimes more formally and handle the physical work of accounting for the transactions. To expect a bookkeeper to provide analytical planning is to ask for something they often cannot provide, except in a cursory way.
Many early-stage CEOs are not trained and ready for such tools even if available. The lesson here is twofold. There is a benefit to using a good accountant to help devise critical reports for a corporation; and CEO’s must quickly become financially savvy in the analysis of financial statements and metrics that measure the health of a business. To fail to have this skill is to reduce the corporation’s capability to discover problems early and take advantage of growth opportunities.
advice they receive from their attorney highly enough not to doubt the conclusions or the experience behind the conclusions offered. And since attorneys are paid to protect, often they will give a litany of warnings about what could go wrong when accepting a contract clause that they have been trained to challenge.
shows with time to spend with competitors. Some of these are old friends, some even former associates. It is natural to want to associate with these people for many reasons, certainly socially. Most CEOs want to obtain information about their competitors in the most subtle and non-obvious ways. And of course, most are willing to trade information to get information.
On the other hand, often a salesperson or marketing manager would show up at my office door with a complete package of a competitor’s materials, including price lists, a proposal with discount percentages clearly shown and a list of feature functionality meant to reinforce the proposal. The source of this information was typically the purchasing decision-maker for a friendly customer or candidate customer. The question is one of ethics, since the competitor certainly did not volunteer any of the information, which would have been the competitor employee’s violation of confidentiality and cause for being fired.
