Specifically, how can company management be a part of its Board of Directors? Wouldn’t that make a Board’s integrity questionable?
In: Economics
Let’s use JP Morgan as an example, since Jamie Dimon is the CEO and Chairman of the company. The company is considered (among the industry at least) to be among the best-run banks of any size, and Jamie among the best bankers.
The JPM Board also has Lee Raymond, the Former CEO of Exxon, as its lead independent director, which is exactly what it sounds like: the leader of the board members who are not directly employed by JPM. He is basically Jamie’s primary sounding board, but also has specific governance controls in place like the ability to call a board meeting (full or independent only), set the agenda, etc.
Where Jamie is primarily charged with running the company day-to-day and setting the strategic vision, Lee is essentially in charge of running the independent Board oversight and being a sounding board.
It’s also worth noting that Jamie is a member of any of the Board committees, including Audit, Compensation, Governance, or Risk.
So the short answer is: Boards have management on them because they want management (who are in many cases substantial if not majority shareholders) to be in on major decision making and have a vote. Good corporate governance is having policies in place that provide oversight to those Board members.
If you’re truly interested in this, a company’s proxy statement usually provides details the oversight structure the independent Board members creates over the management Board members.
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