Oversight really matters. The collapse of FTX and this week’s indictment of Sam Bankman-Fried is the latest example of what can go wrong without it. What’s the right amount of oversight and how do you achieve it? Start with the basics: Two-way communication between the board and the CEO, transparency, and honesty as non-negotiables. As always, trust, but verify. Overcommunication and collaboration are the building blocks of proper governance; access to information, benchmarks, and a regular cadence of check-ins all minimize the need to micromanage.
More oversight in the news: Tesla shareholders say that Elon Musk is neglecting his duties at Tesla in favor of distractions at Twitter. And the SEC requires companies to detail their crypto exposure following the bankruptcy of FTX.
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In the Spotlight
Too Much Founder Control can be Bad for Business
This Harvard Business Review story on the dangers of unchecked founder power is a few weeks old, but freshly relevant with the indictment of Bankman-Fried.
"The collapse of the FTX cryptocurrency exchange is a case study in what goes wrong when a startup grows quickly without any checks or balances…After the startup is more than 2-3 years old, for each degree of control that a founder retains (keeping the CEO position or keeping control of the board), the company’s value tends to be 20% lower on average. Founders who keep control of both nearly halve the value of their company.” HARVARD BUSINESS REVIEW
A Demand for Oversight at Tesla
As pressures mount at Tesla and Elon Musk is absent, shareholders wonder: Where’s the board?
“While Elon Musk is busy overhauling newly acquired Twitter Inc., Tesla Inc. is facing increasingly urgent issues and testing the faith of some of its chief executive’s biggest fans. ‘Tesla(‘s) board is missing in action,’ Leo KoGuan, one of Tesla’s largest individual shareholders, tweeted Wednesday as he suggested a stock buyback. He and another outspoken Tesla investor, Ross Gerber, are calling for the board to add a director who would represent retail shareholders.” BLOOMBERG
SEC to Public Companies: Disclose Your Cryptocurrency Exposure
As the SEC works to uncover the financial impact of the FTX collapse, it asks public companies to detail any exposure to distressed crypto entities.
“FTX’s subsequent bankruptcy has revealed a web of creditors, many of whom haven’t been publicly identified… Many public companies have little or no exposure to cryptocurrencies, which have remained largely shut out of the traditional financial system. But a handful have built—or redesigned—their businesses around the asset class.” THE WALL STREET JOURNAL
How Good Boards Can Make Good Decisions
This Directors and Boards article is a good examination of board accountability and what makes a good board: Including what is and isn’t effective oversight.
“When boards make bad decisions, directors don’t get fired. Shareholders are the ones who suffer…Many directors lack conflict management skills, so they avoid asking tough questions. They don’t want to embarrass management. These directors are failing to provide effective oversight, and they’re not safeguarding the interests of shareholders or stakeholders.” DIRECTORS & BOARDS
Risk Oversight: Smoothing the Way Through Turbulent Times
Board members’ breadth of experience gives them a unique position in exploring the remarkable what-if scenarios cropping up in today’s world.
"We’re living in an era of unforeseen events that give rise to risks, including geographic conflicts and a ‘black swan’ event—something so unpredictable that it’s not on anyone’s radar…Given the collective experience of most boards and the fact that directors sit outside of the day-to-day running of the business—they are well-suited to bring this open-mindedness and willingness to explore the ‘what-if’ scenarios.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE
Is Governance Evolving into Global Stewardship?
According to Directors and Boards, boards need to move beyond corporate governance to embrace “global stewardship.” What does this entail?
“Stewardship is a meta-principle that encompasses the comprehensive, long-term responsibility of a board of directors for the health, well-being, performance and sustainability of the organization that has been entrusted to them. It is the careful and responsible management of assets, liabilities, intangibles and equity. Effective corporate stewards preserve, protect and increase value over time.” DIRECTORS & BOARDS
