This is what Charlie Munger had to say on the board of directors.
Finally the institution of the board of directors of the major American company. Well, the
top guy is sitting there, he’s an authority figure. He’s doing asinine things, you look
around the board, nobody else is objecting, social proof, it’s okay? Reciprocation
tendency, he’s raising the directors fees every year, he’s flying you around in the corporate
airplane to look at interesting plants, or whatever in hell they do, and you go and you really
get extreme dysfunction as a corrective decision-making body in the typical American
board of directors. They only act, again the power of incentives, they only act when it gets
so bad it starts making them look foolish, or threatening legal liability to them. That’s
Munger’s rule. I mean there are occasional things that don’t follow Munger’s rule, but by
and large the board of directors is a very ineffective corrector if the top guy is a little nuts,
which, of course, frequently happens.
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