89. What is a decision?

What this episode covers

SCRIPT In the previous episode we established that individual directors have no authority, or in other words that boards can only make decisions collectively. And we’ve also beaten to death my preferred definition of corporate governance as the way that decisions get made in an organization. But we HAVEN’T spent a lot of time talking about what a decision is in the first place. And I don’t mean this in some annoying philosophical way. What I want to explore is how a board knows if it has made a decision or not, and how formal (or not) it should be. Most boards will be familiar with the Roberts Rules approach of tabling a motion and holding a vote. There’s not much ambiguity there as long as you have a rule or guideline that articulates whether passing a vote requires a majority or unanimity or whatever. But what about, for example, when a director just spontaneously asks management for new data relating to an agenda item? Should management just get on it right away? Does the board need to vote on it? Should there be a formal motion? Do you take it offline and have a side conversation? Management has no obligation to just run off and capitulate to the whims of a single director. So, once this episode is over, take a second and think about how your organization reacts to spontaneous requests from directors. If a director has no authority on their own, what should happen next?

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