Jenny Butler. The bad apple argument: Tim Draper says let boards be boards.
Sitting on the board of a public company isnét a cakewalk anymore. Just ask Tim Draper. The Silicon Valley venture capitalist is a director on five of them, all recipients of startup funding from his firm, Draper Fisher Jurvetson. With Washington and Wall Street awash in new regulations on corporate accounting and ethics, Draper-a libertarian iconoclast who poured $20 million into a losing school voucher measure in California-argues that todayés boardrooms need fewer constraints, not more.
WIRED: Is being a board member a harder job in the wake of Enron, WorldCom, and the other scandals?
DRAPER: No, but people are spending a lot more effort being careful not to violate any regulation than they are building value for shareholders. I hope this political distraction blows over shortly.
What should board members pay attention to?
The real job of a board is to hire and fire a CEO. If the CEO is not to be trusted, the board should fire him or her. A board can check facts with other sources in a company, but generally we rely on the CEO to lay out the facts.
Do we need more regulation of financial statements?
The answer to misstatements or fraud by bad-apple CEOs is less regulation, not more. In fact, in some cases, like WorldCom, you can blame the quagmire of regulations for the obfuscation of the facts. With more regulations, the bad apples have more ways to-foolé the system. Many exceptionally talented people will not join public boards because the potential liability can outweigh any benefit they might get from serving.
Then what would you suggest?
Here is food for thought: If the Financial Accounting Standards Board did not exist and there was no financial accounting, so everyone used simple cash accounting, investors would have to dig in to understand business models. CEOs would want to better inform the investors of what was really going on. Cash is cash. There would be no way to hide the facts.
Should board members own company stock?
A board generally serves shareholders better when its members own stock in the company-alignment of interests. I believe that the witch-hunt going on comes from a public need to blame someone for our troubled stock market. There are a few bad apples out there-and they have shaken the confidence of investors.
So you donét believe that stock options should be listed as expenses, as Coca-Cola and some other companies are now doing, rather than merely footnoted?
No. Stock options are a terrific incentive for employees to own a piece of the company they work for. Ownership drives people to do those extra things for their company that make all the difference. Any disincentive for companies to give out stock options is bad for entrepreneurial companies and bad for America.
VCs and top executives usually sit on lots of boards. Can they handle so many and still do a decent job monitoring company performance?
It depends on the person. I would love to have one hour a year of Steve Caseés time. I donét care if he is on 60 boards. Would I throw him off the board because he is too busy? Never. Would he want to take on the liability and hassle associated with board governance given the current political state? Sadly, probably not.
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