WTF Does the Board of Directors Actually Do?

The Big Board Shakeup: Dana White Joins Meta#

So, to kick off the New Year, Mark Zuckerberg – a guy definitely not having a midlife crisis, mind you – made an announcement: Dana White, the president and CEO of the Ultimate Fighting Championship (UFC), had been elected to Meta’s board of directors.

Now, this news got some mixed reactions from folks working at Meta and other company stakeholders. But here’s the thing most people miss: this sort of decision really isn’t all that weird or unusual when you look at how boards are put together.

Think about it. The board of the somewhat struggling Boeing Corporation recently brought in Mortimer J. Buckley. He used to be the CEO of the Vanguard Group. He also happens to be on the board of Pfizer. And who else is on Pfizer’s board? James Quincy, the CEO of the Coca-Cola Company. And who’s on Coca-Cola’s board? Bella Bajaria, the chief content officer of Netflix. And the Netflix board? Well, that includes Ann Sweeney, who used to be the chairman of the FX Networks. And she worked under Tony Vinciquerra, the chairman of the Fox Networks Group. And he is currently on the board of Qualcomm, a company that used to be run by Steven Mollen, who currently sits on the board of directors at Boeing.

See? It’s a great big club. And well, you and I? We’re probably not in it.

But the real question is, what do these people actually do on these boards?

Let’s go back to the start: On Monday, Meta founder and CEO Mark Zuckerberg announced that UFC president Dana White would be joining his company’s board of directors in January. He tapped Dana White for a Meta board spot.

(Just a quick side note from the original text, seemingly a related but separate news item mentioned in the stream: This factchecking Metro Health Board of Trustees terminated Dr. Brutos yesterday, effective immediately. Okay, back to the main topic.)

What Boards of Directors Are Supposed to Do#

Before you can really get a handle on what modern boards of directors actually do, you should understand their intended purpose.

If you get appointed to the board of directors for a major company, it is absolutely not a full-time job.

If everything is running smoothly, you might only need to show up for a monthly or quarterly board meeting.
In these meetings, you’ll get a presentation from the management team explaining how the company is doing.
Normally, the CEO gives this presentation.
But they can also bring in other executives if they’re talking about a specific area the board might be interested in.
For instance, let’s say (just a random example!) the company was thinking about investing $46 billion into some augmented reality social platform. The CEO might bring in their technology officer and the Chief Financial Officer (CFO) to discuss whether that project is actually viable.

The main role of the board is to provide advice. In more extreme situations, they can even veto ideas from the company leadership. The hope is that the leadership is acting in the best interest of the shareholders that the board represents.

The CEO doesn’t have to listen to the board’s advice.
BUT, the board has the power to fire the CEO.
So, if the CEO wants to keep their really high-paying job, they usually try their absolute best to keep the board happy.

The board also oversees executive compensation. CEOs and shareholders don’t always have the exact same goals.

If you’re a CEO, your top goal is to make as much money as possible while you have the job.
How do you do that? A) Don’t get fired, and B) Get the biggest paycheck you possibly can.
This often means CEOs might focus on getting quick, short-term wins instead of thinking about the company’s stability in the long run. Why? Because if they get fired after a year of bad stock performance, it doesn’t matter if the share price would have been amazing 10 years down the road.

The idea is that the board of directors should add a layer of human intelligence and long-term thinking to how the business is managed. They’re supposed to call out CEOs who are just playing games with the system just to enrich themselves.

The Reality: You Don’t Have To Do Anything#

Now, here’s the flip side: If you’re a company director, you don’t technically have to do any of this stuff we just talked about. You don’t even really need to show up to those quarterly meetings. There’s nobody above you in the company hierarchy, so there’s no one who can fire you from the board itself.

To make the deal even sweeter, the pay for being on the board of large public companies can be extremely generous.

According to company filings, in the fiscal year 2023, the directors at Meta were paid anywhere between $397,000 and$ 4.2 million.
This compensation came in various forms: equity, cash, and travel reimbursements.

This can be especially profitable if you manage to get onto multiple boards. People like Alex Gorsky or Deborah Reid each sit on four public company boards, including some of the most valuable companies in the world.

This practice used to be even more common, with directors on dozens of boards, just a few years ago. We’ll get into why that changed a bit later.

It’s definitely not a bad gig if you can land it!

How to Get a Board Job: The Private Company Route#

So, if getting paid six or seven figures for showing up to a few meetings a year sounds appealing, here’s how you might try to land a job on a board.

The first path is to get nominated to the board before the company goes public.

The easiest way to do this is to start the company yourself. Then you can just pick yourself, maybe a family member or two, for the board.
Another way is to be an early-stage investor who specifically requires a board seat as part of your investment deal into the business.
A lot of early-stage Venture Capital (VC) investors really push for one or two board seats. This gives them a few special perks.

Is high pay one of those perks for startups? Nope, usually not.

Board members for small companies, especially startups that are short on cash, often don’t get any pay at all.
But for big investors, getting paid to sit on the board wouldn’t really make sense anyway – it would just be like paying themselves their own money back.

However, there are some real benefits to being on the board as a VC investor:

They get to be privy to company information that isn’t shared with regular investors.
More importantly, they can fire the CEO if they feel like the CEO isn’t doing a good job.

If you ever find yourself trying to raise venture capital for a new startup, you need to know this: You can be fired from your own company if you give away too many board seats by selling too much ownership in your business.

You can write specific rules into the company’s bylaws to try and prevent this.
But if you do that, you might find it much harder to raise capital from investors who really want that “big red button” option to fire the CEO.

Of course, VC firms usually really don’t want to have to fire the founder. If the founder still owns most of the company, they can make life difficult for the investors to get their money back in other ways. But having checks and balances on power is generally a good thing, even in tiny little startups.

So, unless you’ve already got millions to invest or you’re super passionate about some new tech or a nonprofit project, you’ll probably be more interested in being a board member for a public company instead.

How to Get a Board Job: The Public Company Route (In Theory)#

Once a company goes public, there are a lot of rules about how the board is elected. Shareholders must be able to vote on who represents them. So, in a perfect world, a company’s board of directors should act like elected representatives who always do what’s best for the people they represent (the shareholders), right?

Well, to figure out how modern boardrooms actually work, it’s time to learn how money works.

(Just so you know, this next part is a message from a sponsor, but it’s included here because it was in the original text you gave me.)

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How Modern Boards Actually Work: The “Contact Network”#

Okay, back to the boards. Let’s look at who is actually on them.

According to company filings put together by Fortune Magazine, the average age of an S&P 500 board member is 63.1 years old. That’s just the average! So, for every Mark Zuckerberg (who’s only 40), there’s likely an 86-year-old holding onto their board seat like it’s a Senate seat.

So, what is the real job of most board members in companies today? It’s primarily to be a contact network connecting the company with regulators, politicians, and other business leaders.

The reason board directors tend to be so old is often because these roles are given to people who have already had long, successful careers in business or government. They’ve spent decades building up a long list of friends in high places.

Let’s look at the Dana White example again. He might genuinely be a very talented businessman. And yeah, there’s surprisingly a lot in common between the kind of mindless hand-to-hand combat you see on Facebook and in the UFC. But the real reason he was likely elected to the board? It’s pretty obvious: He’s close friends with the newly elected President Trump.

The Trump administration has been very vocal about wanting to be “more business friendly.”
They’ve said they plan to slow down actions from the SEC (Securities and Exchange Commission) and the FTC (Federal Trade Commission).
On crypto, they’ve said things like, “We’re going to let it grow, we’re going to let it grow.”
Trump even stated, “On day one I will fire Gary Gensler and appoint a new SEC chairman.”

But here’s the catch: Almost all of that is true, except when it comes to just two companies: Alphabet (Google’s parent company) and Meta. Hating the biggest, most intrusive tech companies might actually be the one thing that truly unites America right now.

So, getting Dana White on the board gives Meta a friendly connection to the White House. Could they have achieved the same thing with someone less famous? Probably. Dana isn’t the only person with friendly ties to the incoming administration. But other than perhaps Elon Musk (who has his own social media company), Dana is probably the most famous person who could reasonably take on this kind of board role.

The fact that you’re even hearing about this appointment? That’s likely because the company wants you to hear about it. It’s a marketing play. It signals that the company isn’t just some “soy-cap-sipping California hive mind.”

Modern boards often act as a contact network and a kind of marketing display to other institutions and government agencies.

One of the most popular “jobs” for retired senior government personnel is to sit on boards of directors.
Why? It’s a pretty low-stress retirement gig that pays really well.
And their lifetime of building contacts during their careers is a huge asset to the company they join.
Another perk for certain companies: It gives them a level of credibility in their operations.
Military supply companies, like Boeing (that we mentioned earlier), normally have one or two retired high-ranking military personnel on their board. This sends a signal that they listen directly to the armed forces.

And finally, the last reason modern boards have gotten so cozy is something you’re not really supposed to say out loud. If companies have a long history of putting former government officials on their boards, then current government officials might try to get a little more friendly with those companies. Why? To potentially secure a nice post-retirement job for themselves later on.

How to Get on the Board (Putting It Together)#

So yeah, if you want to get elected to a board of directors, here’s what you really need to start doing:

Start building a contact list of absolutely anyone and everyone who could possibly make or break a company.
If you want to go the private sector route, work in areas like audit or a big consulting firm.
Or, work in a government authority like the SEC or the FTC. Just try not to be like Lena Khan and actually do your job a little too well (implying being tough on corporations might not help your board prospects).

Who the Board Represents Now: The Big Asset Managers#

The board is supposed to represent the best interests of the shareholders. But it’s getting harder and harder to figure out what that actually means these days.

The largest shareholders in most public companies are almost always Vanguard, BlackRock, and State Street.
These are massive asset managers. They build index funds and other investment products on behalf of other investors or institutions.

Now, trying to talk about the role of these companies too much can sometimes lead you down the “lizard man rabbit hole” where people claim they secretly control the world. The reality is a bit less exciting.

But the sheer immense size and scale that these companies have reached means this: If you want to get elected to the board of directors of a major company, you really only need their vote. The votes of the other shareholders matter much less.

It’s important to note that these companies don’t actually own the shares themselves in the traditional sense. They hold them in a trust on behalf of the actual investors who buy into their index funds.
Some of these funds have even started offering tools that allow their individual investors to vote on how the fund’s shares will be voted.
But honestly, the kind of investors who buy these “set-it-and-forget-it” index funds usually aren’t all that interested in submitting detailed proxy votes for the hundreds or even thousands of companies held in those investment products.
So, because most individual investors don’t vote, the asset managers themselves end up having a huge amount of influence over who gets onto boards and, by extension, over the companies they oversee.

The Vanguard/BlackRock Rule: Limiting Board Seats#

Here’s an example of that influence: The reason you don’t see as many directors sitting on dozens of boards simultaneously anymore is because both BlackRock and Vanguard introduced policies.

They announced that they would vote against any director who already held four or more board seats in public companies.

This is a really clear demonstration of just how much power these passive (meaning index fund) guidelines can have.

As a result of this policy, there are now no S&P 500 directors who hold more than four board seats.
Interestingly though, there are still a lot who hold exactly four. So, make of that what you will.

Consequences and Criticisms#

Now, you might initially think this is a positive thing – it’s limiting how concentrated the “global director’s club” can get, right?

But here’s the problem: You might not agree with the other ways these huge asset managers use their massive voting power.

The voting guidelines for these companies are actually available online for anyone to read. Of course, most people never will.
In these documents, there’s a very strong emphasis on things like diversity, inclusivity, representation, and environmental efforts when it comes to their board votes.

Again, these might be very good initiatives! But the way they are implemented creates two main issues:

Ineffective Internal Regulation: These efforts can turn into internal company regulatory measures. These are often highly ineffective and sometimes just used by companies to claim, “See? We can keep ourselves accountable! No need for government authorities to come in and do real checks.”
Box-Ticking: It’s become really easy for well-connected people with corporate interests to stack boards with who they want by simply making sure candidates check the right boxes (like diversity, etc.). This can happen instead of genuinely electing someone who is truly focused on looking out for the best interests of the shareholders.

What are the consequences of having boards that aren’t as critical or challenging as they could be? Things like record-breaking CEO pay packages, even when paying someone hundreds of millions of dollars might not actually be in the best interest of the investors who own the company.

The Final Steps to the Board#

So, if this job still sounds like a sweet deal for you, here are the steps again:

Step One: Gather as many high-profile connections as humanly possible.
Step Two: Get cozy with current company leadership.
Step Three: Make sure you tick as many boxes as possible on the voting guidelines issued by big firms like Vanguard.
Step Four: By the time you get this far, you probably need to still care enough to actually want the job. You’ve likely already had a very long and successful career. Unless you’ve been working in government for most of that time, a few hundred thousand dollars a year probably isn’t going to change your financial life much.

So, the real reason most people would want a board seat is for the power and prestige. It gives you influence without the hassle and tradeoffs of having to hang out with the sometimes strange people who work in Congress.

This stagnation and focus on checking boxes in corporate boardrooms has also contributed to a lot of companies just following the latest investment trends, even if those trends make absolutely no business sense for their business. It can feel like making profits doesn’t even matter if the whole company can just get sold off to a bigger company that wanted to buy it just to get it out of the way.

If you want to see how that’s working out for companies, go watch another video (linked here: https://www.youtube.com/watch?v=s2oql936g94) on “how companies got so dumb.”

And make sure to subscribe to keep on learning how money works!