Sound-Up Governance

Each week, we will release two illustrated definitions of corporate governance jargon in order of increasing complexity. In this instalment we have the definition of "board composition". Check the episode thumbnail for an illustration by Nate Schmold.

Originally published Jun 12, 2023

What is Sound-Up Governance?

The real impact of corporate governance isn't about compliance or structure or policies, it's about the conditions that impact decision-making. Sound-Up Governance features fresh perspectives to help boards and executives to be a bit better tomorrow than they were yesterday.

As you already know, RZA just got some of his cousins and friends together and they became the Wu-Tang Clan. It might seem to make a lot of sense to bring a group of *your* cousins and friends together and put them on the Reallie Steilish board. Think about it: you trust them, they seem to like Reallie Steilish hats, they probably won’t argue with you too much, plus your cousin Kyle (short for Skyler) has a friend who can hook you up with some idli for your board meeting, which is super convenient because your other cousin Ana (short for Xanadu) is bringing sabzi. What else could you ask for?

Board composition is a term that just refers collectively to who’s on a board. When people are curious about board composition, they might wonder about board members’ skills or experience, they might wonder about independence, or even about who nominated the directors.

For instance, a Reallie Steilish shareholder might look at your board and say, “Wait, all of these people are cousins and friends. I don’t trust them to think about *my* interests when making decisions. Also, can I get in on that food? I make a mean dosa.”

A non-shareholder stakeholder might say, “Hold on a second! I think there should be someone on the board who isn’t so focused on shareholder interests. What about providing philanthropic support to marginalized people in the Eyelash community? I think someone on the board should be thinking about that! Besides, I really prefer Punjabi cuisine. What’s with all this South Indian stuff?”

And the thing is all of those reactions are completely fair. The main problem is that your board can’t have everyone in the world on it, which means that board composition will never be perfect. All you can do is try to make it perfect-ish and keep trying to make it a bit more perfect-y all the time.