GMI RATINGS: Snoozing Boards Can Stunt Your Stocks

GMI Ratings

June 6, 2013

“Entrenched boards can lead to company-stunting problems. CEOs are overcompensated, risk is poorly addressed or managed, new consumer trends are missed, stagnant bureaucracies petrify, and terrible disasters like the financial crisis happen. The beauty of a system with checks and balances fails.”

According to Wharton Professor Luke Taylor, “entrenchment cost per firing was, on average, $1 billion — far more than the hundreds of millions in direct costs.”

“Some may point to insufficient supply of board-ready women, but statistically this does not fit with the representation of women in the labour force, in higher education and in C-suite positions. Furthermore, in recent years, a number of organizations have created publicly available lists of board-ready candidates. While there has been increased interest and take-up of these candidates, there is no evidence that interest in casting a wider net for talent is occurring widely and that we’ve come up against a supply threshold.”

Download Related KeyMetrics Report from GMI Ratings

  • Entrenched Board – While individual directors can perform well at any age and stage of their service, a board with a concentration of long-tenured and/or aging directors may raise entrenchment concerns. GMI Analyst’s Entrenched Board metric allows subscribers to identify firms where director tenure and/or age may be a concern, as a spur to further investigation of the company’s governance quality.