Identifying Major US Public Companies with Weak Boards of Directors

Boards of Directors play a critical role in managing companies and ensuring shareholder value. However, some public companies in the US are struggling with notably weak boards, often controlled by the CEO. These boards are often complacent until activist investors appear, leading to significant changes.

The Role of Boards of Directors

Boards of Directors are responsible for setting strategic direction, overseeing management, ensuring financial integrity, and safeguarding shareholder interests. Compromised boards can have severe implications on company performance, including poor governance and lack of shareholder protection. This article delves into the key factors that make certain US public companies' boards weak and the role of activist investors in bringing about change.

Quantitative Assessment with ISS Score

To provide a quantitative assessment of US public companies' board strength, organizations like ISS (Institutional Shareholder Services) offer tools such as QuickScore. The QuickScore system evaluates board performance based on a range of metrics, including director independence, effectiveness of board committees, and the overall board composition. Companies with low QuickScore ratings suggest weak board governance.

The Problem of CEO-Controled Boards

One of the most prevalent issues within US public companies is the presence of CEO-controlled boards. When the CEO serves as a significant board member, they can disproportionately influence decision-making, leading to a lack of independent oversight. This creates an environment where board members may be reluctant to challenge or counteract management's actions, leading to potential conflicts of interest.

The complacency of CEO-controlled boards is evident until the arrival of activist investors. These investors often enter the fray with the objective of driving change and reinvigorating underperforming companies. Activist investors use the threat of replacing the board to push for reforms, demonstrating the primary role they play in challenging the status quo.

Case Study: Yahoo! and the Role of Activist Investors

A prime example of the impact of activist investors on US public companies is the situation at Yahoo! In this case, an activist investor, eager to improve Yahoo!'s performance, initiated pressure on the existing board of directors. The presence of an activist investor forced the board to reconsider its stance and implement significant changes. This example underscores the critical importance of board independence and the role of activist investors in promoting better governance.

Conclusion and Recommendations

In conclusion, weak boards of directors are a significant concern in the US public market. The role of activist investors in driving change and improving governance cannot be overstated. Companies should actively work towards enhancing board independence and ensuring transparent and accountable practices.

Keywords: Weak Boards, Activist Investors, ISS Score