Amazing.com?

May 4, 2009 at 12:22 pm 1 comment

Last week Amazon.com announced surprising growth in earnings for its first quarter on stronger than expected sales. Net sales increased by 18% over last year’s first quarter and net income increased an impressive 24%. Can we start calling the company Amazing.com? Does the company’s board of directors have any role in these better than expected results?

As in most cases, the present success can be attributed to any number of factors, however a simple analysis of Amazon’s board indicates several elements that are advantageous and ought to be emulated in other companies.
Firstly, of the three board committees two are standard: the Audit Committee as well as the Nominating and Governance Committee. However, the third committee, the Leadership Development and Compensation Committee is uncommon phrasing to say the least. Most, if not all publicly traded companies have a Compensation Committee unquestionably. However, it is unusual that the Compensation Committee have leadership development as part of its mandate. Specific to this initiative, Amazon states:

The Committee monitors and periodically assesses the Company’s programs and practices for ensuring the continuity of capable management, including succession plans for executive officers.

How nice that an implicit component of any Board’s work is actually stated explicitly and that the importance of succession planning is acknowledged.
Another facet of understanding a board and its functioning is how long the Directors have served together. While longer tenure implies a deeper understanding of the company, it also implies increasing familiarity and even friendship amongst the group. This tends to discourage independent thinking and objectivity. While Amazon.com was founded only fifteen years ago in 1994, almost half of the current directors have been on the board for five years or less. This denotes new ideas and autonomy are presumably being brought into the boardroom.

Interestingly, Amazon.com board’s is not populated by CEOs or even retired CEOs. There are several venture capitalists, a number of senior level business executives from varied industries, an eminent scientist and representation from the non-profit sector. The idea that active CEOs may not have the time to adequately serve on boards other than their own may have come into play in structuring the Amazon board (or it may simply be a lucky coincidence).

Finally, governance best practices dictate that the Chair and CEO roles be separate. The debate on this matter has been longstanding but it is generally accepted that the objectivity of the board and independence from management is enhanced by separating the roles of Chairman and CEO. In the case of Amazon.com, Jeff Bezos is Chairman and CEO. He also happens to own 25% of the company. While this structure may not be optimal, stakeholders may take comfort in the company’s results as well as the aforementioned board highlights and anticipate that these positives prevail.

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Entry filed under: Business, Corporate Governance. Tags: , , , , .

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