By Nancy May, President and CEO, BoardBench Companies

In Through the Looking Glass, Alice’s comment on the nonsense poem, Jabberwocky, was: “It seems very pretty, but it’s rather hard to understand.” My point here – one can find many words and phrases that seem to mean something, but, on closer look, are hard to understand, at best, and dangerous to follow, at worst. Some are losing their popularity, as more experts disparage them. However, some are still bandied about frequently in board and financial circles. Here are my three favorites:


Earning Before Interest, Taxes, Depreciation and Amortization (EBITDA). This term or “analytic tool” persists in private equity, banking, and M&A circles. Boards, companies, and investors are still presented with this “indicator” as an enticement. Accounting and financial authorities too numerous to mention have, for some time, chipped away at its analytical value. Some refer to it as “the lazy man’s analytic tool,” as “Frankenstein math,” and as accounting gimmickry (not being GAAP, it’s not even accounting). Yet it’s still frequently used and spouted. Defenders point to it as a way of analyzing and comparing profitability between companies and industries because it eliminates the effects of financing and accounting decisions.

Unfortunately, there’s no set way to calculate EBITDA, so it has often been manipulated creatively (Kroger Co. bonus awards) and sometimes fraudulently (see Enron, Worldcom, etc.). It’s come down to this: If you’re still spouting EBITDA, you will eventually be perceived as naïve. If you’re touting it, you will likely be seen as a scammer. Go ahead, it’s your reputation. You can trash it if you like. Directors, if you must use something, go for more straightforward analyses like Free Cash Flow and Net income.


Boards have long sought to define and articulate their purpose and value. In the 1970s, two professors and a noted economist proposed that boards’ and companies’ primary purpose was to “maximize shareholder value.” Following this misguidance has since led to disastrous economic and corporate consequences (e.g. The Great Recession). This was a very attractive concept: neat, concise; could be stated quickly, and seemed to make sense. But in reality, it is simplistic, and, where companies have many or varied shareholders, it’s a mantra that’s almost impossible to execute. It starts to break down when one asks: Who are our shareholders, what do they value, and who else has wants or needs that can severely impact our company? Even though all shareholders buy and retain shares to derive some financial benefit, their reasons and timing vary dramatically. Some shareholders look for income from dividends, some want predictable sustained price gains to offset their obligations, some want the company to be liquidated immediately for a quick pay off. Also, non-shareholders need to be considered. Customers who think the company’s products or service are shoddy or see scandalous activities can tank your business. Lenders who’ve lost trust can choke off access to funds. Regulators who perceive predatory practices can hamstring or kill your future. How can all of these interests be considered and satisfied when a board’s focus is only on “maximizing shareholder value?”

These seem to be pretty words but on closer look, may illustrate short thinking by boards. Instead, directors can better serve everyone by seeking to “ensure sustained value for all stakeholders.”


Board self-evaluations are mandated by the NYSE and are considered a good practice by Nasdaq companies and self-appointed governance groups. But are they really as effective as they want us to believe? Several recent survey reports show cracks in the present state of board self-evaluations. This research draws from the observations of numerous directors and highlights their concerns about the process. To understand it better, one must consider self-evaluation’s two sides: 1) the board’s own estimate of its functions and structure, and 2) the performance of individual directors.

In the first instance, most directors (over 90%) rate their boards as either very or moderately effective. Sounds pretty good on its face, but effective as compared to what? Most boards use and reuse a fairly generic list of things they’re supposed to do, drawn from listing agencies, statutes, and governance publishings, along with spoonfuls of ISS criteria tossed in. Specific discussions on board interactions, culture, and leadership don’t seem to get much attention. To be effective, it seems one has only to check off whether the board is actually doing these things. Unfortunately, some think being “very effective” means exceeding their own expectations. If they can’t, it’s easy enough to just lower those expectations. After all a “D” is a reportable passing grade, requiring less effort than shooting for an “A.” So, are such assessments truly reliable? About the only thing outsiders can rely on is that poor performers will never rate themselves accurately.

What may be more understandable, and useful, is making such evaluations less self-driven. Regularly soliciting the opinions of others including management’s, employees’, even customers’ and industry analysts’, can reveal a clearer picture of what really is, even if it’s uncomfortable.

In the second instance, directors seem to see things more darkly. Only half of boards surveyed evaluate individual directors, and only about a third say they do a good job. This report, while concerning, may not give a clear picture. It depends on what is used to evaluate performance – who does it, and how it’s done. Directors’ self-ratings may be near worthless: incompetent ones rarely think they are, and those who know they are will never want others to know it. Also, many directors loathe criticizing peers for fear of retaliation or damaging “collegiality.” So the real picture may be far less pretty (or understandable).

Boards need to evaluate director performance – few can find fault with that. They need to be more robust and clear about it. Performance criteria should come from the real world, not from ideal director lists. Outside opinions (360 degree exercises) show different perspectives and may provide more truth and deeper insights. Also, forced rankings of each director, from best to worst in a number of areas, will highlight who’s first and who’s worst with each contribution. Double talk, obfuscation, and just plain nonsense are best left to children’s poems, not for business or boards.

Nancy May, President and CEO of The BoardBench Companies, has been cited in Forbes as one of America’s governance experts. She has over 25 years’ experience as a strategic advisor to highgrowth, mid-cap, and Global 100 public and private companies. BoardBench is a corporate governance, director and CEO succession, and board candidate advisory firm.

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