Monday, February 11, 2013

Boards of Directors Responsibility

I’m assuming the reader is running a small or medium size business, but the following advice can apply to the biggest companies.

Many corporations are guilty of using friends, relations and acquaintances to fill open spots on the board. But ability is strongly needed.

The board of directors has the actual legal responsibility for the proper function of the corporation. Moreover, each director has joint and several liability for any sins of omission or commission, in this pursuit. That means he or she can be sued individually for neglect of responsibility of the entire board, in the event of any board errors or conceived fraud by board members. In other words, the board member with the deepest pockets or most to lose may get the brunt of a lawsuit.

Do you choose by race, by gender, or by culture? Definitely not, but these days, societal pressure and anti-discrimination laws may, and do enter into consideration. To the detriment of many corporations who still discriminate by quotas despite laws on the books.

Most important, business experience ought to be the number one requirement for board membership. However, that too often gets short shrift.  (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at twitter.)

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