What’s the role of corporate boards of directors? A recent Washington Post op-ed by professor Franklin A. Gevurtz, a specialist in corporate law, caught my attention. Titled “Why do corporations have boards of directors anyway?”
In the context of Hunter Biden’s role on the Ukrainian gas company Burisma board – with no apparent qualifications in the field of energy (or anything else for that matter) other than his father was vice president of the U.S. at the time – Gevurtz asks “why so many individuals with famous names — say, former secretary of state Henry Kissinger or former vice president Al Gore — end up as directors of companies in industries they know nothing about.”
It’s a fair question. Many corporate boards of directors have become lapdogs to the CEOs of the companies they serve. Gevurtz says, “Let’s start with one fundamental fact: Directors do not actually manage corporations. That job falls instead to full-time managers: the chief executive and his or her subordinates. Why, then, do corporations have a board of directors?”
The answer, he posits, is historical overhang, as corporate boards “are like your tonsils – something in your body that once served a purpose during human evolution, but no longer does.” Conventional wisdom holds that boards of directors are watchdogs over management behavior. But the typical board is often a group hand-picked by the company’s managers, led by the CEO. Lap dogs.
The idea that boards are watchdogs – Gevurtz says it’s a residue of history – doesn’t explain how Hunter Biden ended up on the board of a natural gas company, or Henry Kissinger ended up “on the board of Theranos, a bogus medical-tech company,” or how Al Gore landed at Apple.
It’s a persuasive case. But my experience covering energy policy and politics suggests that it isn’t entirely characteristic of boards of companies I have followed. The most recent example that comes to mind is PG&E, in the aftermath of the horrific wild fires of 2019, following the criminal neglect that led to the 2010 natural gas pipeline explosion in San Bruno.
In the aftermath of San Bruno, PG&E in 2017 promoted Cuban-American Geisha Williams, a 10-year veteran with the company, to CEO. In the fire fallout, the board fired her, eventually hiring former TVA and Progress Energy CEO Bill Johnson to lead the company.
My quick, by no means definitive, look at electric company boards of directors — specifically PG&E, American Electric Power, and FirstEnergy, some of the largest and most controversial companies in the electricity business — doesn’t reveal high-profile, unqualified names in the mold of Kissinger, Gore, or Biden. Rather, the collective biographies appear to be people with solid experience in energy, finance, telecommunications, and regulation.
So the Gevurtz op-ed is provocative. It may well be true in many cases but doesn’t seem to hold for the electric utility companies I follow on a regular basis. That doesn’t mean they don’t make mistakes (don’t we all?), but they appear qualified for the job of overseeing company management.
— Kennedy Maize