Thursday, July 22, 2010

Board Member Quality Index for Shareholder Proxy Voting

Corporate Boards of Directors are, in theory, elected by the shareholders.  But how often do shareholders know anything meaningful about the candidates when they receive the proxy vote sheet, and how much time does a diversified investor spend perusing their bios and resumes? 

It may contribute to good corporate governance to condense a relevant set of qualifications into a single quality score that would appear alongside a candidate's name on the proxy vote sheet.

Now... I understand it is a gross oversimplification to sum up a person's quality with a single number - but it can be helpful in certain instances like this.  After all, complex comparisons of NFL quarterbacks have benefited greatly from a similar development of the passer rating, a composite score based on: completion percentage, average yards per attempt, percentage of touchdown passes, and percentage of interceptions.

Perhaps such a Board Member Quality Index (BMQI) could be derived for publicly held companies based on a formula like the following:
25%*(number of years work experience in same or related industry/50)
+ 15%*(number of years all work experience/50)
+ 20%*(number of years on other boards/20)
+ 20%*(number of college degrees/3)
+ 20%*(percent of personal net worth invested in company)
- 25%*(number of indictments of questionable or criminal activity)

It would be nice to include some sort of metric to capture "X factors" or "confidence of one's peers" ... maybe averaging a 1-to-10 vote of confidence by existing Board Members.  Anyways, it's a work in progress.  Any other ideas for a BMQI calculation?...

Hypothetical example shown below:

CATEGORY: Economics, Business
IDEATION: July 22, 2010

1 comment:

  1. Take a series of language samples. Independent of the business at hand the language the individual uses to express him/herself reveals underlying personality traits, beliefs, and assumptions. Even a basic structural analysis would reveal frequency of words used (me, I, not, can, will, etc). How to best analyze and apply the findings has yet to be determined.