“You never walk into a house and compliment how clean it is, but you immediately notice when it’s dirty.”
Deborah Walker Kool shared that observation during the ABA Business Law Section’s Fall Meeting CLE program “The Underused Board: Why Investors Should Treat Governance as a Value Lever,” and it stuck with me. It’s also a great way to think about corporate governance.
When governance is working well, it often goes unnoticed. The company is operating, the board is functioning, and decisions are being made without much attention. But, when a business hits a rough patch, brings in outside investors, seeks financing or prepares for a sale, or is asked to produce records, weaknesses in governance have a way of becoming very visible, very quickly.
This program focused on what effective governance actually looks like in practice, particularly when it comes to board composition, fiduciary duties, and the role lawyers can play as directors.
Moderated by Walker Kool, of counsel at Fredrikson & Byron, the panel featured insights from Jonathan Blackburn, partner at Sidley Austin; Fred Hoch, founder and general partner of TechNexus Venture Collaborative; Sherrin Ross Ingram, independent corporate director and chief executive officer of the International Center for Strategic Planning; and Katayun “Kathy” Jaffari, chair of Corporate Governance and co-chair of Capital Markets and Securities at Cozen O’Connor. Each brought a different perspective, from investing to board service, governance, and corporate law.
Build the Board the Company Needs
A recurring theme was that the right board for a company today may not be the right board for that company as time goes on. An early-stage business may begin with a small group of founders, friends, family members, and trusted advisors. That can work for a time. But as the company raises money, expands, takes on more complex operations, or begins thinking about a significant transaction, its board needs to grow with it.
Hoch discussed the importance of selecting board directors who can contribute something meaningful beyond a recognizable name or an impressive resume. He noted that the best board members bring experience, relationships, judgment, and perspective. They may help management work through a difficult issue, make an introduction, or spot a challenge that the leadership team has not yet considered. Hoch made a similar point when discussing investors, saying, “On the capital side, I would rather take less money or less valuation from somebody who’s going to add value in the short term versus more money for who’s not.” That comment stood out as another way to view board makeup. Investors can contribute more than capital. Through board participation, industry knowledge, relationships, and strategic guidance, the right investor can become part of the company’s governance infrastructure and help create value over time.
Bringing the right people into the boardroom is only part of the equation. They also need to be willing to challenge management when necessary. Blackburn noted the potential downside of a board made up largely of people who are personally close to an owner/founder. Those relationships may make it harder to challenge assumptions or push back when a difficult decision needs to be made. To be the most useful, boards need people who are willing to ask uncomfortable questions when necessary and create some “tension and a different opinion” from what a founder or management wants to do.
The central theme was that a board is not there simply because the organizational documents say there should be one. Done well, it should serve as an active resource for management while still providing meaningful oversight.
Fiduciary Duties Matter
The panel also spent time on fiduciary duties, including the duties of care, loyalty, and good faith.
Those concepts are familiar to business lawyers, but the conversation was less about reciting the standards and more about what they require from directors.
The duty of care means directors should be informed before making decisions and should exercise appropriate business judgment. The duty of loyalty requires directors to recognize and disclose conflicts of interest and, where appropriate, step away from decisions in which their own interests may conflict with those of the organization. Good faith requires directors to carry out their responsibilities honestly and with the interests of the organization in mind.
One practical point that stood out was confidentiality.
It is easy to assume that everyone at the board meeting understands that the information shared there is confidential. But, the panel shared, that assumption can create problems. Boards are better served by making those expectations explicit, particularly where directors may have other business interests, investor relationships, or professional roles that overlap with the company’s industry.
The panel also mentioned oversight obligations through the lens of the Delaware Court of Chancery’s pivotal Caremark decision. Jaffari stressed the importance of having reporting systems, internal controls, and monitoring processes in place before a problem occurs.
That point is particularly important because governance systems are difficult to build in the middle of a crisis. Companies are much better positioned when the board has already considered what information it needs to receive, how often it needs to receive it, and who is responsible for escalating significant issues.
Lawyers Bring Something Different to the Boardroom
One of the more interesting parts of the discussion involved lawyers serving as directors.
As lawyers, we inherently bring skills that translate well to board service. We are trained to identify risks, ask questions, think critically through consequences, recognize potential conflicts, and anticipate what might go wrong before it happens. Those instincts are valuable to a company’s board. But they can also create a temptation to slip into lawyer mode.
Ingram made the point that a lawyer serving on a board is not there to solve every legal or operational issue. The role of a director is different from the role of outside counsel. A director should be asking whether management has identified the issue, whether the right people are addressing it, and whether an appropriate process is in place. That does not mean taking over the problem personally.
Jaffari captured the distinction in a phrase that was probably one of the most memorable of the program: “Noses in, fingers out.” In other words, directors should know what is going on. They should ask questions, challenge assumptions, identify risks, and make sure management is addressing important issues. But they should not cross the line into solving the issue themselves.
That balance is ultimately what good governance requires.
The program reinforced that governance should not be treated as a box to check or something to address only when a transaction is on the horizon. A thoughtful board can become a real strategic asset. To Walker Kool’s point, most people never compliment a clean house; they simply expect it. Governance operates much the same way. While strong board processes, engaged directors, and thoughtful oversight may not generate headlines, their absence almost certainly will.
To learn more, view the program as on-demand CLE, free for Business Law Section members.
