The greatest board failures

The greatest board failures: a look back at some of the biggest history board screw-ups that should shape our corporate governance training.

What happens when corporate governance goes wrong? When a business strategy isn’t adhered to? What happens when board members don’t do their job? What happens when a focus on return or short-term gain drowns out effective leadership or a real business strategy? 

In these instances, don’t be surprised if the end result is serious financial trouble, shattered long-term goals, and a scandal that is more than worthy of media attention. Although it’s obvious that proper corporate governance education can mitigate these risks, the sad fact is that many still ignore it and land in hot water because they can’t handle basic situations or spot red flags. 

Here’s a look at some of the most significant board failures in modern history and how a better business strategy could have provided more effective leadership.

Here are three of the greatest board failures that modern business has seen:

Sports Direct is a massive sporting goods provider. It operates a slew of brick-and-mortar and online stores that sell many different types of sporting goods. The company employs nearly 27,000 people in various areas, including running its massive warehousing and logistics facilities. And that’s where the problems started.

In 2015, a shocking exposé showed horrifying working conditions for the company’s warehouse-based workforce, highlighting dangerous issues, management failures, pay violations, and more. 

The result was that the company’s CEO, Mike Ashley, was forced to testify in front of the British parliament, the company’s bottom line took a hit, and a series of legal issues ensued. 

The board of directors’ failure here was apparent: The board had failed in its fiduciary duty to properly oversee and ensure adequate working conditions for its workers — particularly vulnerable workers who could be easily abused. This meant that a “profit first” culture took control of the company, mainly led by Ashley himself. 

After the scandal hit the headlines in the UK, the board of directors and others stepped in, creating policies and amending their business strategy to support workers. This allowed employees to anonymously make complaints and ensured that there were additional inspections of the company’s facilities. These charged board meetings made real changes, and improvements helped, but problems remain. 

Again, this can be seen as a reflection of the board’s success and failure, as much work remains to be done.

There is perhaps no more significant corporate scandal in history than that of Enron, whose business strategy essentially incorporated criminal acts. 

The high-flying American company was devoted to the sale and production of energy. With the help of their accounting firm, Arthur Anderson, Enron began to engage in a series of actions motivated by greed and a desire to mislead the public and their shareholders. In short, Enron cheated and cheated big.

Many books have been written about the scandal, but the crux is this: Enron fraudulently altered its financial records, hid its debt, and used a unique accounting method known as “mark-to-market” to make up a profit. 

Eventually, investigators found out what was happening. The company went bankrupt and erased $74 billion in shareholder value. As a result, tens of thousands of employees lost their jobs and retirement savings, and many went to jail.

The corporate failure is apparent: A lack of oversight on behalf of the board of directors and a total lack of director training for board meetings, who very clearly bought into the “old idea” of what it means to be a director: being pliable, smiling, nodding, signing off on un-examined strategy, then heading off to a cocktail party. 

The real job of a board member is to investigate and provide oversight. Many warning signs showed that the company was cooking the books, but board members refused to acknowledge them. This resulted in one of the most massive and shocking corporate scandals the world has seen – one that remains in textbooks and business lectures worldwide as the prime example of how not to do your job. 

A more engaged and independent-minded board may have seen these issues and stopped them before hitting this astonishing point. Director training may have helped as well, but crucially, the board members had to want that training to succeed.

The former worldwide leader in video rentals found itself on the wrong side of public opinion due to its failure to innovate.

Blockbuster was once known worldwide as a leader in home movie and video game rentals. Before the digital age, its products were the Netflix of the day. 

The problem: the world eventually moved on, and the company refused to innovate. They refused to innovate. 

Changes came to the market. In the 2000s, a start-up known as Netflix started a rental-by-post service. Blockbuster eventually tried to respond by creating its own programmes that allowed people to get videos delivered directly to their homes. However, it wasn’t enough: Netflix had moved to online streaming, and Blockbuster failed to properly prepare itself for this rise in the digital age. It never created a pace to match its competitors. 

Their most egregious failure? A lack of imagination and a failure of business strategy. The company was offered the chance to purchase Netflix — but said no.

Blockbuster did not have a corporate culture that embraced innovation, effective leadership, or thinking outside of the box. Board members were clearly given no director training to help them be better at their job. This led to a failure to see where the market was going and new ideas that challenged their previous assumptions. Board members must stay plugged into the functions of the real world, making sure that they are up-to-date on the latest market trends and working to ensure that the company is positioning itself where it needs to be. Unfortunately, this never happened with Blockbuster. And it cost the company everything.

If you want to become a board member and provide effective leadership at board meetings, the above examples should give you an idea of the kind of legacy you don’t want to leave behind. 

In this day and age, with increasing responsibilities on board members, that fact has never mattered more. 

Explore how you can enhance your boardroom credentials now with dedicated training in corporate governance.