Forum Archive Index - February 2001

["G Stolwyk" <stolwyk@wave.co.nz>]

 

Hugh,

 

We first discussed this item on Dec.27, 2000. Reference was made to mediocre - or incompetent directors.

 

H: I suggest that there are two types: the "ordinary-" and the "professional" directors.

 

G. If there are too many of either type - or from a combination -on the board, then that could spell trouble.

The other directors will have to "carry " them in board meetings.

Alternatively, it may result in other qualified directors becoming absent from key meetings.

 

H: As a consequence, the influence of these mediocre directors will be higher than desired.

It is well known that mediocrity attracts mediocrity! They will never resign unless asked to!

 

G: Should something go wrong, then both types may claim that " It was a decision of the Board". If a proposal turns out to be a winner then they may let it be known unofficially that either they proposed it or at least voted for it: None may have attended the meeting concerned!

 

H: The ordinary director is in there for the money while the professional- while interested in the fees- may also feel that he is needed or that he can contribute.

 

G: The latter may be a director of too many public companies already. Many are directors of private companies as well! The unsophisticated investor may think this to be a good recommendation!

 

H: But the well informed investor knows that this type will not be able to do justice to his investment as he / she may spend too much time on his / her own favourite investments instead!  

 

G: The investor should check that directors have shares in the company: refer to the Annual report and / or the web: company news from the stockexchange.

 

H: BCH compels the directors to hold shares. Needless to say that they are a top performing company!

 

G: Sometimes, a well performing CEO, Financial director or other director suddenly leaves; why?  

 

H: Before a director is elected, you, the part- owner / investor may want to put the following questions to the prospective director ( through the Chair of the Meeting ): 

1.What are your qualifications? ( eg. accountant, engineer-state type-, etc. )

2. How are you going to contribute?

3. Please state the number of directorships of (a)  Public companies. (b) Ditto Private companies? (c) The most prominent names of say up to 2 companies?

 

G: Comments: Item 3(c) will give you some idea of the status of the companies he was a director of. ( However, he may also have been made to resign! ).

     

The investor should first mention to the chair that the question is in 3 parts and then read these questions slowly.

It is best to have a friend - who is able to briefly comment on the prospective director's replies - where this is necessary.

 

If the reply is very unsatisfactory, then further comment from another contributor may be needed.

 

H: Any contributors need to behave in a civil manner: bad manners tend to upset the meeting and diminish the cause. 

Where it is possible to have your dissenting vote entered in the Minutes, please have it done!

 

G: It is a pity that most institutions support the directors of a company, right or wrong.

One would have thought that they would be most interested if certain directors were shown to be performing badly.

After all, it affects their returns; these tend to be poor!

 

Gerry