You can't sit on too many chairsA.B.A. ▼ |
You can often read that some person is a member of the several boards of directors. We must here distinguish two situations: in first those companies are doing business together or they have the same owner; in second companies are totally unrelated.
Now, let's imagine the situation when there are two companies with the same or similar products. It is quite possible that someone experienced enough sits on both boards because he understands both product lines and that basically comes down to managing two large departments of the same company.
Now imagine the similar companies, but, let's say, ten of them. Indeed, they are similar but now our imaginary friend must think about ten different product lines, strategies and tactics and that is fairly impossible.
Let us now think a bit about ten absolutely different companies. In this case the problem of execution becomes more serious. Board members are very capable persons indeed and they are trained to lead the company no matter is it in a pharmaceutical or computer business.
However, again we must have in mind the number of companies. It's not physically possible to work for too many companies: each of them demands serious work several hours a day and that's impossible.
So, why some people sit on too many boards? There are two sides of the coin: company's and director's. The company needs well-known name not just because of someone's capabilities: the more famous name on the board, the more valuable name of the company. In the other hand, people who love newspapers and TV cameras enjoy in their membership in many boards because that give them media exposure. In other words - a pure ego.
However, besides ego, we must think about salary. In every for profit company board members are paid in average several thousand dollars per week, but that sum can be much higher because the salary is a matter of negotiations.
Bearing that in mind, there's no wonder that every additional board seat brings a big income. In addition to that, the more boards, the more industrial influence. There is an old saying: "Once director, always director" and that stands true: in business circles directors are highly respected and more than one board brings even more influence.
In the case of many boards one more thing must be taken into account: the conflict of interest. An executive or director should not sit on the board of the competition. However, here we have two problems: in some countries there are no rules that forbid that, and in other that have rule there will always be a way to overcome them. It is obvious that sitting on competitive boards has no other goals but high salary.
Now, look at Warren Buffet. He's the richest man on Earth and he's CEO of his company and that's it. He doesn't sits on every possible board although every company in the world would love that. So, follow his example and concentrate, as a rule of thumb, on one to three companies. Everything else is too much, you won't be able to make a good decisions, and in the end that isn't good neither for company nor for you. ■