Gustavo Ballvé on August 11th, 2011
Corporate Governance, Food for thought, Home, Mental models, Portfolio Management, Risk management

Sure there must be incentives for Directors to act on their fiduciary duties, and one possible line to follow is the one implied by this article: increase the liability – but then again “Directors and Officers Liability insurance” is usually part of the benefits package. The point is that this issue is very hard to judge and there are no rules to ensure a good Board of Directors. Honest, incorruptible people can still make inadequate Directors if they owe their revenues to the executives that put them there – subconsciously as it may be. Then you have information – and sometimes skill-level – asymmetry between execs and Directors. Or maybe there are execs at Company A who are Directors at Company B, whose CEO is a Director at Company A. None of the factors above, not even the combination of all three with other “warning signs”, are any guarantee that Company A will have poor governance, by the way. The risk is getting a bunch of checklist-followers that will say that Berkshire Hathaway’s board is a shame. Getting to understand the “people” aspect of a company is a case-by-case, long, investigative effort and there’s no substitute for time/experience and hard work.

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