Why Are Some Boards So Darn Stupid?


It's been a great week to celebrate incompetent boards.

Boardroom resolutions at Francesca's Holdings (NAS: FRAN) , Best Buy (NYS: BBY) , and Yahoo! (NAS: YHOO) may have put thorny issues to rest earlier this week, but we're still left to wonder how some boards can be completely clueless.

  • How did Francesca's board not know that its CFO had a lively Twitter account?

  • How could Best Buy's chairman know that his CEO was violating company policy and sit on that information for months before the rest of the board figured it out?

  • Why didn't anyone at Yahoo! verify that its incoming CEO's resume was accurate?

Francesca's CFO, Best Buy's chairman, and Yahoo!'s CEO were all shown the door in recent days, but what about the incompetent boards? Are the blinders company-issued, or do they have to bring them from home?

Francesca's fumbles
Who knew CFOs could be so chatty?

Gene Morphis was dismissed as Francesca's CFO on Monday after the board delved into some problematic Facebook status updates and Twitter posts.

He would occasionally complain about work, though he's obviously not alone in doing so. Executives at public companies are human, too.

However, one tweet in particular finds him possibly leaking insider information.

"Board meeting. Good numbers=Happy Board," read his tweet on March 7, nearly a week before the apparel retailer posted blowout quarterly results. Clearly the implication is that Morphis had some good numbers to feed the board days before the financials became public.

As a public Twitter account, anyone could have access to his feed. You would think that the board would be following him to nip this early, not react to it after it blows up more than two months later. And it's not as if Morphis was keeping this on the down-low. He ran a public blog. His LinkedIn account has a link to his Twitter page.

Best Buy bungles
Best Buy was already a mess before allegations were raised that then-CEO Brian Dunn was having an inappropriate relationship with an employee.

In drumming up a timeline of the events leading up to Dunn's dismissal, the audit committee discovered that founder Richard Schulze -- Best Buy's own chairman of the board -- knew about the pairing for months. He even told Dunn that he disapproved of the matter, but he failed to disclose the violation to Best Buy's board.

The end result is laughable. Dunn will still be receiving a severance package worth roughly $6.6 million, and Schulze -- while stepping down when his term expires next month -- will be given the honorary title of chairman emeritus.

Yahoo! jinxed
The Scott Thompson era ended quickly at Yahoo!, after the board didn't buy his excuse that an executive search team had added a bogus computer science degree to his official corporate bio several years ago -- and that he had never seen it.

The board member who headed up the search resigned.

One can rightfully argue that all three boards eventually got it right, but why did it have to get that far? Whether we're talking about executives who serve as directors or outsiders who are compensated well to provide guidance as directors, nobody has an excuse.

Francesca's board should've been all over the ill-advised tweet just as it came out. Best Buy's situation was made worse when the chairman -- who, as the struggling retailer's founder, should be well-versed in the company's policies -- somehow was able to keep the rest of the board in the dark. Thompson's not-so-little white lie should've been smoked out before an activist investor shocked the board with the information.

Bored of directors
Boards are mortal, but there's no excuse for everybody to be stupid at the same time.

Why did nobody on Green Mountain Coffee Roasters' (NAS: GMCR) board realize that having two directors with leveraged positions backed by the company's stock could result in margin calls during the worst possible times?

Silly boards. When will they ever learn?

Battle in the boardroom
Directors are paid to look ahead -- and that's something that also pays off for investors. Start digging into the stocks that could soar after the 2012 election. It's a free report, and it's yours now.

At the time thisarticle was published The Motley Fool owns shares of Yahoo and Best Buy.Motley Fool newsletter serviceshave recommended buying shares of Yahoo and Green Mountain Coffee Roasters.Motley Fool newsletter serviceshave recommended creating a lurking gator position in Green Mountain Coffee Roasters. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Green Mountain. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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