Questioning the Board?

In my Corporations class at law school, we learned that Boards of companies act in a way that benefits the company, otherwise an efficient market would remove the socialist offenders to be replaced with Randian actors that will better serve the interests of the shareholders. I unlearn this lesson at least weekly and sometimes daily. Fortunately, I was also well-versed in the idea that the ivory towers operate in the world with only slight resemblance to real life (this part of my schooling began early with the classic movie, Cocktail–Tom Cruise doesn’t need community college to teach him business, he has Coughlin’s Laws).

Exhibit A for ways in which Boards don’t act rationally: LHC Group, a home health care and hospice company, recently added Jake Delhomme (fomer NFL quarterback for the Carolina Panthers) to its Founder’s Advisory Board. I am not quite sure what a Founder’s Advisory Board is in the first place, but more importantly, what does Jake Delhomme know about home health or hospice care? The press release certainly does not relay any useful facts as to what Jake’s qualifications are, instead we get vague comments on teamwork: “I know from experience that success requires teamwork, and that teamwork requires a positive, nurturing culture across the entire organization.” (This statement may have actually been generated by this neat “Business Buzzwords Generator” from the WSJ: see here).

Jake’s main qualification for this position appears to be that he is a home-town boy, i.e. he is from the same place the company is based. If I had to place a bet, I would guess this represents a good example of back-scratching at the expense of outside, minority shareholders.

Another one of my favorite examples is from an appliance/furniture rent-to-own company, Aaron’s. They sponsor various Nascar racing teams, which from a business perspective appears at first glance to make sense; there is most likely significant overlap among the Nascar audience and their potential customers. If you dig slightly deeper into the filings, however, you discover that the two of the teams sponsored by Aaron’s are related-parties: the drivers of each team are sons of the COO and board member (the father recently retired in 2013). I wonder if these are the “best” drivers the company’s money could buy or if there are any other reasons Aaron’s chose these two drivers.  I will ask that at my next law school alumni gathering.




More to Explore

Returns for Great vs. Bad Businesses

Munger and The Cattle Rancher

Munger’s ability to find great businesses is directly related to his ability to consistently discard bad businesses. He is excellent at inverting, and discarding the bad businesses as quickly as possible.

The Abominable No-Man and Bad Management

Some investors think a business is good, but know that management is bad.  These investors justify the investment based on the idea that the great price of the business is worth the bad management. This is akin to marrying a supermodel who is going to yell at you all day.  Whatever pleasure your eyes may derive from the marriage, your ears will endure a greater amount of pain in the long run. The pocketbooks of those partnering with bad management are likely to see a similar 50%+ decline in their net worth.

Leave a Reply


Close Menu