When the time comes for your organisation’s annual meeting, as a shareholder, it is likely that you will be asking yourself whether each member of your board is still qualified for their position.

It is certainly a question that should be carefully considered by prospective and current users of board secretary services like those that London Registrars can provide, but it is not the only one that is important.

That’s because it is also vital to think about your firm’s board as a whole, and whether its mix of people is the right one for the company.

Theranos saga brings crucial lessons

The importance of the right board mix in the context of recent events can be perhaps best understood with reference to the scandal that has engulfed the high-profile start-up Theranos in the past year.

The company stated that it would revolutionise blood testing by requiring only a few drops, rather than vials, of blood from patients, and maintained this even amid mounting evidence against its technology.

However, while the firm was eventually exposed, had anyone considered its board members merely as individuals, they would have struggled to find a “bad one” among the many distinguished leaders – including former US secretaries of state, senators, admirals, generals and a defence secretary.

The lesson to be learned here is not that the Theranos board had any disreputable members, but that it lacked the necessary mix of general experience and specific knowledge with either biotechnology or start-ups.

Such members of the board were unable to challenge the firm’s charismatic founder, Elizabeth Holmes, and her insistences that the technology was developing as expected.

What does this mean for the composition of your firm’s own board? 

Such scandals arguably show that even when individual directors seem well-qualified, care needs to be taken to ensure that boards demonstrate certain characteristics.

These include the presence of one or two “utility player” directors who are wise, battle-worn business leaders, as well as a strong CEO, as the board itself does not run the company. Instead, the board’s most crucial daily requirement is to oversee the performance of the CEO, so whoever occupies this role must be strong.

A strong relationship between the CEO and the chair/lead independent director is also a must, as is a board overindexed on industry experience, to aid fast and informed decision-making. It is also essential for members to be willing to fire themselves, as boards that don’t continually monitor their own performance are doomed to failure.

While shareholders aren’t aware of the inner workings of boards, they do need to consider the mix of board members and its overall agenda, rather than merely the individuals’ qualifications, when they come to cast their votes.

March, 2017