It’s Not Just Us.Ten Famous Corporate Boards That Made Higher Education Boards Look Positively Competent. A Lightly Comic Addendum to The Good, The Bad, The Board

A Word of Solidarity

At some point in every board governance workshop, someone in the back of the room raises a hand and says something like: “I hear you about fiduciary duties and staying in our lane and not micromanaging the president. But honestly, are boards really that bad?”

The answer, of course, is yes. Sometimes spectacularly so. And it is not unique to higher education. The boardroom dysfunction described throughout The Good, The Bad, the Board is not a peculiarity of the academy. It is a feature of human nature, organizational psychology, and the gravitational pull that power exerts on people who are otherwise quite reasonable in every other room they enter.

What follows is offered in the spirit of companionable misery. Ten vignettes from the corporate world, involving companies every American has heard of, patronized, complained about, or watched collapse in real time. Their boards made mistakes that would look familiar to anyone who has sat through a trustee meeting wondering how things got to this point.

The specific failures are different. The underlying pathologies are nearly identical. Enjoy.

1. Enron - The Board That Voted to Suspend Its Own Ethics Rules. Twice.

Enron was, at its peak, the seventh-largest company in America by revenue. It was also, at its peak, committing one of the most elaborate accounting frauds in corporate history. Its executives were hiding billions in debt through a maze of off-balance-sheet entities with names like Raptor and LJM that sounded less like financial instruments and more like rejected superhero villains.

Enron’s board was not a collection of rubes. It included retired senators, university presidents, and internationally recognized business figures. These were credentialed, accomplished, well-compensated professionals. And twice, they voted to temporarily suspend Enron’s own code of ethics so that CFO Andrew Fastow could personally profit from the very deals he was structuring for the company. The board knew. They signed off on it, and they later expressed surprise when it turned out that a CFO being allowed to profit from his own company’s transactions might produce conflicts of interest.

The company filed for bankruptcy in December 2001. At the time, it was the largest corporate bankruptcy in American history. Employees lost their retirement savings. Shareholders lost everything. Fastow went to prison. CEO Jeff Skilling went to prison. The board was never charged, but a Senate subcommittee investigating Enron’s collapse concluded that it had “knowingly allowed Enron to engage in high-risk accounting” and had “failed to ensure the independence” of the auditors who were supposed to catch problems. The board’s failure was so consequential that Congress passed an entirely new law, the Sarbanes-Oxley Act of 2002, specifically to prevent it from happening again.

The takeaway for trustees: if you are voting to suspend your institution’s ethics policy so that a senior administrator can profit from his own deals, that is not an act of governance flexibility. That is the whole problem.

A board that waived its own ethics rules, decided the CFO could enrich himself from deals he structured, and then acted surprised when things went sideways. The board was never indicted. Congress rewrote securities law anyway. 

2. Blockbuster - The Board That Had a Chance to Buy Netflix for $50 Million and Said No Thank You.

 In 2000, Netflix was a struggling DVD-by-mail startup hemorrhaging cash and desperate to find a buyer. Its co-founder, Reed Hastings, flew to Dallas and pitched a merger to Blockbuster’s CEO John Antioco. The pitch: Netflix would run Blockbuster’s online business…Blockbuster would provide its retail presence…and together they would own the future of home entertainment. The asking price was $50 million. It was a slam dunk in retrospect, but Blockbuster passed.

According to reports, some in the room actually laughed at the proposal. Blockbuster was generating billions in revenue, had 9,000 stores worldwide, and was famous for an innovation called the late fee, which customers universally despised but which generated an estimated $800 million a year. The board was satisfied. Elated even. The board was, it would turn out, catastrophically wrong.

Netflix pivoted to streaming. Blockbuster, after years of attempting to build its own online service while simultaneously fighting off a shareholder revolt led by activist investor Carl Icahn who opposed the changes as too expensive, filed for bankruptcy in 2010. There is now one Blockbuster store remaining on Earth. It is in Bend, Oregon. It is a tourist attraction. It has a documentary. The board that passed on Netflix for $50 million presided over a company that eventually sold its name in bankruptcy for less than the cost of a used couch.

The takeaway for trustees: when your entire revenue model depends on customers being annoyed by your policies, and a competitor is offering them a better experience for eight dollars a month, asking the board to notice this earlier than the literal collapse of the company would have been helpful.

Had the opportunity to buy Netflix for $50 million. Said no. Now worth less than the Netflix account you have been sharing with your sister since 2019.

3. WeWork-The Board That Let the CEO Trademark the Word “We” and Charge the Company $5.9 Million to Use It.

 WeWork was a company that rented office space, subleased it to people who worked on laptops, and convinced some of the world’s most sophisticated investors that this was a technology company worth $47 billion. Its founder, Adam Neumann, was a visionary, a charismatic disruptor, and, as it eventually became apparent, a man who was also taking the concept of founder perks to creative new heights.

Neumann owned buildings that WeWork then leased. He had taken out loans from the company and used company funds to invest in a wave pool company. His wife Rebekah, the company’s Chief Brand and Impact Officer, used company resources to start a private school called WeGrow. But the piece of governance theater that stopped the world was this: Neumann had trademarked the word “We” through a personal entity and then licensed it to WeWork for $5.9 million. The board approved it. The company was paying its own founder almost six million dollars to use a two-letter word he happened to own.

When WeWork filed its S-1 prospectus in preparation for its 2019 IPO, the financial press read the ins-and-outs with the combination of fascination and horror typically reserved for watching someone light their own house on fire. The valuation collapsed from $47 billion to roughly $8 billion before the IPO was cancelled entirely. Neumann was ousted, but he received approximately $1.7 billion on his way out the door. Not surprisingly, WeWork filed for bankruptcy in 2023. The board had given one man 20 times the voting power of any other shareholder and then discovered, as the prospectus made public, that he had been systematically treating the company as a personal expense account.

The takeaway for trustees: a governance structure in which the CEO has 20 times the voting power of everyone else, leases his own buildings to the institution, and can trademark the institution’s name and charge it back is not a governance structure. It is a confession.

Valued at $47 billion. Paid its founder $5.9 million to use the word ‘We.’ Now bankrupt. The founder walked away with $1.7 billion. Governance experts continue to marvel at the hubris.

 4. Boeing-The Board That Had No Safety Committee While Making Airplanes.

 Boeing is one of the most iconic American manufacturing companies in history, and the maker of the aircraft most Americans fly on most of the time. Between November 2018 and March 2019, two Boeing 737 MAX aircraft crashed within five months of each other. 346 people died. The cause in both cases was a software system called MCAS that had been designed to compensate for the aircraft’s altered center of gravity and that when activated by faulty sensor data pushed the nose of the plane down repeatedly until pilots could not recover.

A Delaware court examining Boeing’s governance mechanisms found that none of the board’s committee charters mentioned airplane safety. None. The audit committee, which was responsible for overseeing risk, had never examined or discussed airplane safety in any audit plan. The enterprise risk function, which was supposed to flag major institutional risks, focused primarily on production schedules and financial metrics. After the first crash in Indonesia, the board treated the event, in the court’s description, as “an anomaly, a public relations problem, and a litigation risk,” rather than asking whether the plane was safe. Between the first crash and the FAA’s mandatory grounding five months later, the board never discussed whether the aircraft should be grounded.

One former Boeing director who had retired in 2011 testified that the board “doesn’t have any tools to oversee” safety issues. This was a board overseeing a company whose entire reason for existing was to make aircraft that did not fall out of the sky. The board eventually created an Aerospace Safety Committee in August 2019, nine months after the first crash and five months after 346 people died.

The takeaway for trustees: the most important thing your institution does should have a board committee assigned to oversee it. If you are an airplane manufacturer and no board committee has ever discussed airplane safety, you have located the problem.

Made airplanes for decades. Had no board committee for airplane safety. Created one after 346 people died. The board members, many of whom were described as ‘well-qualified and long-time members,’ are now defendants in shareholder litigation.

 5. Wells Fargo-The Board That Did Not Notice 3.5 Million Fake Accounts.

Wells Fargo is one of the oldest and largest banks in America, a company that survived the 2008 financial crisis in better shape than almost any of its peers and that had for years marketed itself around the image of a sturdy, reliable, community-focused institution. The stagecoach. The sturdy American bank that was there for you.

Yet between roughly 2002 and 2016, Wells Fargo employees opened approximately 3.5 million unauthorized bank and credit card accounts in customers’ names without their knowledge in order to meet aggressive internal sales quotas. Customers were charged fees for accounts they had not requested. Some had their credit scores damaged. The scheme was driven by a sales culture, championed by CEO John Stumpf and consumer banking chief Carrie Tolstedt, in which employees were relentlessly pressured to cross-sell products to existing customers. Employees who raised concerns internally were reportedly fired for doing so. The practice was known colloquially within the bank as “sandbagging.”

The board, which had access to the bank’s ethics hotline reports and employee misconduct data, did not catch the practice. The Consumer Financial Protection Bureau did, and in 2016 issued a $185 million fine. Stumpf was called before the Senate Banking Committee, where Senator Elizabeth Warren suggested that the board should demand his resignation. He did. Tolstedt, who had retired earlier in the year with a retirement package worth approximately $125 million, clawed back only a portion of it. The Federal Reserve subsequently took the extraordinary step of capping Wells Fargo’s total assets until it could demonstrate adequate governance reforms, a cap that remained in place for years and cost the bank tens of billions in foregone growth.

The takeaway for trustees: the ethics hotline exists so the board can learn what the president is either not seeing or not telling them. If three and a half million people are being victimized by your institution’s practices and no one mentions it at a board meeting for fourteen years, the hotline is not working, and the board is not asking.

3.5 million unauthorized accounts. 14 years. One Senate hearing. One CEO resignation. One Federal Reserve asset cap that lasted until 2023. The stagecoach is still on the logo.

6. Theranos-The Board That Had Two Secretaries of State, a Secretary of Defense, and Zero Doctors.

 Elizabeth Holmes founded Theranos in 2003 with the premise that a single drop of blood drawn from a finger prick could be used to run hundreds of diagnostic tests with greater accuracy than any existing laboratory technology. It was a revolutionary idea. It was also, as it turned out, fraud. The technology did not work. The company knew it. Tests were often being run on conventional blood-analysis equipment purchased from other companies and results sent to patients frequently contained errors that could have affected medical decisions.

Theranos’s board was a remarkable collection of distinguished Americans. It included George Shultz, who had served as Secretary of State under Ronald Reagan. Henry Kissinger, who had served as Secretary of State under Nixon and Ford. James Mattis, former four-star Marine general and later Secretary of Defense. William Perry, former Secretary of Defense. Gary Roughead, a retired admiral. Richard Kovacevich, former CEO of Wells Fargo. Serious people with distinguished careers in public service, military leadership, and finance. Not one of them had a background in medical technology, laboratory science, clinical diagnostics, or the regulatory landscape governing blood testing.

Thus, the board did not apparently question why Theranos refused to publish peer-reviewed research on its technology, or why it operated under extraordinary secrecy for a company making medical claims. When a Wall Street Journal reporter named John Carreyrou began asking questions in 2015, the company’s response was threatened litigation. Eventually, the house of cards fell and Holmes was convicted of fraud and conspiracy and sentenced to more than eleven years in federal prison.

The takeaway for trustees: having illustrious credentials in an adjacent field is not a substitute for competence in the field being governed. A board of retired generals and former secretaries of state is extraordinarily qualified to govern a geopolitical think tank. It is not qualified to oversee a medical device company’s clinical validity claims without at least one person who knows what a blood assay is.

Two secretaries of state. One secretary of defense. Zero doctors. One multi-year fraud. The board was outranked only by the audacity of the founder, who was also its only medical expert.

 7. Sears-The Board That Let a Hedge Fund Manager Run America’s Oldest Retailer Like a Social Darwinist Experiment.

 Sears was, for most of the twentieth century, one of the defining American retail institutions. It invented the mail-order catalog. It built the Sears Tower. And at one point, roughly one in every five dollars spent on retail purchases in the United States went through Sears. It was the Amazon of its era, except that the era was the 1950s and the catalog weighed four pounds.

In 2005, dwindling revenues led to Sears merging with Kmart under the leadership of Edward Lampert, a hedge fund manager who became the combined company’s largest shareholder and eventual CEO. Lampert had a management philosophy that might charitably be described as competitive and less charitably described as setting your business units against each other until they fight for resources like small, terrified animals. He reorganized Sears Holdings into roughly 30 autonomous business units, each with its own leadership and P&L. They were expected to compete with one another rather than cooperate. The appliances division did not share customer data with the tools division. The clothing department did not coordinate with the home goods department. Every unit protected its own margins. The stores themselves went without investment.

The board, which included Lampert himself as chairman, allowed this strategy to continue as revenue declined year after year. From 2007 to 2018, Sears lost roughly $11 billion. Lampert’s hedge fund, ESL Investments, continued to lend money to the company at interest and to buy assets from it, arrangements that generated lawsuits from creditors who alleged he was enriching himself at the company’s expense. Sears eventually filed for bankruptcy in October 2018. It was 125 years old.

The takeaway for trustees: a board that allows the chairman to also serve as CEO, lend money to the company at interest, and purchase company assets while presiding over a decade of consecutive losses has not confused governance with management. It has dispensed with governance entirely.

125 years old. Invented the catalog. Built the tallest building in the world. A hedge fund manager organized its divisions against each other, bought assets from it at discounted prices, and the board watched for a decade while it lost $11 billion. Now mostly parking lots.

 8. Kodak-The Board That Sat on the Invention of Digital Photography for 20 Years to Protect Film Sales.

 In 1975, a Kodak engineer named Steven Sasson built the world’s first digital camera. It was the size of a toaster, weighed eight pounds, captured a 0.01 megapixel image onto a cassette tape, and took 23 seconds to record a single photograph. It was also, unmistakably, the future of photography. Sasson demonstrated it to Kodak management. Their response, according to Sasson’s later account, was essentially: “That’s cute. Don’t tell anyone about it.”

Kodak’s business model depended on selling film. It was the film that was extraordinarily profitable. A company that had built its entire industrial and financial infrastructure around the manufacture of silver-halide film had powerful reasons not to be enthusiastic about a technology that eliminated the need for film entirely. Kodak continued to develop digital technology through the 1980s and 1990s and continued to avoid commercializing, protecting its film business from its own invention. By the time digital cameras became ubiquitous consumer products, Kodak was already behind the companies that had not been protecting a film monopoly.

Predictably, the company filed for bankruptcy in January 2012. It had invented the technology that made it obsolete and then spent two decades hoping the technology would politely wait. A board exercising genuine fiduciary duty would have asked at some point in those twenty years whether the company had a strategy for the world in which film was not the primary medium of photography. The answer, had the board asked, was that the company had a prototype sitting in a drawer and a culture that had decided the question was inconvenient.

The takeaway for trustees: institutions that protect their existing revenue model by burying the threat to it are not managing risk. They are deferring risk until it arrives as a catastrophe rather than a strategic challenge. The board’s job is to ask what the institution’s future looks like when the current assumptions no longer hold.

Invented digital photography in 1975. Protected film sales for 20 years. Filed for bankruptcy in 2012. The invention is now in your phone. Kodak is now in Wikipedia’s list of corporate bankruptcies.

 9. Hewlett-Packard-The Board That Fired Its Successful CEO Over an Expense Report and Then Hired His Replacement Without Meeting Him.

 Hewlett-Packard is a storied Silicon Valley technology company founded in a garage in 1939 by Bill Hewlett and Dave Packard. By 2010, under CEO Mark Hurd, it had become one of the most profitable technology companies in the world, with revenues that had more than doubled during his five-year tenure. Hurd was widely credited with having executed one of the most successful corporate turnarounds in recent memory, cutting costs, clarifying strategy, and growing HP’s market share in key product categories.

In August 2010, following an allegation of sexual harassment that was investigated and found not to have violated company policy, the board concluded that Hurd had nonetheless violated HP’s code of conduct through inaccuracies in expense reports related to his interaction with the woman making the allegation. The total amount in question was somewhere around $20,000 on expense reports for a company reporting revenues of $114 billion. The board forced Hurd out. He went directly to Oracle, where Larry Ellison hired him within days and later called HP’s board one of the worst he had ever seen.

The board then launched a search for Hurd’s replacement. It hired Leo Apotheker, the former CEO of SAP, a German enterprise software company, who had been pushed out of SAP after a turbulent tenure that had included massive employee layoffs and a significant stock price decline. Most of the HP board members had, according to multiple reports, never met Apotheker before voting to hire him. He lasted eleven months. Under his tenure, HP’s stock fell nearly 50 percent. The board fired him, paid him roughly $13 million in severance, and hired Meg Whitman to clean up the damage. Hurd remained at Oracle until his death in 2019 after successfully leading that company’s cloud transformation.

The takeaway for trustees: firing a successful leader over a $20,000 expense report discrepancy in the context of $114 billion in revenue, and then replacing him with a CEO most of the board had never met, is a sequence of governance decisions that requires no additional commentary to illustrate what went wrong.

Fired a CEO who doubled revenues over a $20,000 expense discrepancy. Hired his replacement without most of the board having met him. Stock fell 50 percent in 11 months. The expense report is now a business school case study.

10. General Electric-The Board That Let the Incoming CEO’s Predecessor Run the Succession Process and Then Watched $150 Billion in Value Disappear.

 General Electric was, for most of the twentieth century, one of the most admired companies in America. Its CEO, Jack Welch, was widely considered the greatest corporate leader of his generation, the subject of bestselling books, the subject of management seminars, and the subject of a business press that had elevated him to something approaching secular sainthood. When Welch announced his retirement in 2001, GE’s succession process was treated as a defining moment in American corporate history. Three candidates had spent years being evaluated. The chosen successor was Jeff Immelt.

The GE board that oversaw this succession allowed Welch to dominate the process. Welch had opinions about his successor. Many opinions, and the board had great respect for those opinions. The board had, it should be said, very good reason to respect Welch’s analysis, given what he had built. What the board perhaps did not adequately account for is that the world for which Welch had built GE, a world of rising interest rates, of capital markets that valued industrial conglomerates, of an era in which GE Capital could borrow at near-sovereign rates and lend profitably, was already changing.

Immelt inherited a company optimized for a world that was quickly passing by. He led GE for sixteen years, during which time the company lost roughly $150 billion in market capitalization. Its stock price fell from approximately $40 per share at the time of his appointment to roughly $13 when he resigned in 2017. GE’s financial arm, GE Capital, proved to be a ticking liability that required government support during the 2008 financial crisis. GE was eventually removed from the Dow Jones Industrial Average, where it had been listed since 1907. Welch himself reportedly became increasingly critical of Immelt’s performance in his later years, which raised its own question about whether the succession process had been as rigorous as advertised.

The takeaway for trustees: the most consequential decision a board makes is the selection of institutional leadership. Allowing the outgoing leader to dominate that selection process is natural, understandable, and frequently a mistake, because the outgoing leader is optimized for the world that produced them, and the institution needs a leader for the world that is arriving.

Jack Welch picked his own successor. Jeff Immelt ran the company for 16 years. The company lost $150 billion in market value, was bailed out, and removed from the Dow Jones after 110 years. Welch’s reputation survived. GE’s did not.

 A Final Word

The boards in these stories were not composed of bad people. They were composed of people who were overconfident, incurious, isolated, star-struck, protecting the wrong things, or simply absent at the precise moment their presence was required. They were, in other words, very much like every other board.

The difference between a good board and a bad one is not character. It is structure, culture, and the disciplined insistence on asking the uncomfortable question one more time before the vote is called. Boards fail the same way every time: they stop asking the hard questions, they trust too much, they act too fast or not fast enough, they protect the leader rather than the institution, or they protect the institution’s past rather than its future.

This is true whether the institution makes airplanes, rents office space, sells appliances, or educates the next generation of students who are counting on someone in a boardroom to be paying attention.

The students are counting on it. The stakeholders are counting on it. And occasionally, 346 passengers at 35,000 feet are counting on it.

Govern accordingly.