Generally, the board of directors are responsible for the following duties: 1) duty of care – duty to make/delegate decisions in an informed way; 2) duty of loyalty – duty to advance corporate over personal interests; 3) duty of good faith – duty to be faithful and devoted to the interests of the corporation and its shareholders; 4) duty not to “waste” – duty to avoid deliberate destruction of shareholder value. There is no reason to believe that the duties of Vector’s board should be any different.
The major conflict between Vector’s board and its president centers on President Wiegert’s management style, belief of excessive spending and his deceitfulness towards the board members and potential investors. Although President Wiegert’s management style was not initially noticed as a concern, it was brought to the board’s attention by the finance VP, Don Johnson, but he failed to receive any support. Johnson had observed the president not giving employees the “freedom to be effective” and focusing more efforts on profit and promotion instead of engineering and production.
The board would finally acknowledge this was a rather large issue two years later. There were several instances where the board questioned the president’s misuse of company expenses but had a difficult time producing evidence of any wrong doing. The amount of excessive spending that the president was responsible for was noticed as a problem but no action was taken. The board members also voiced concern about the over exaggerated “fraudulent” business plan that President Wiegart was using to raise money for Vector.
Wiegart was not only losing the trust of his board members and employees but also his potential investors. Another problem, not mentioned in the case, was the board members themselves. They were all selected by the founder and president of the corporation, with the exception of Baduraman Dorpi (he was appointed by the Indonesian investor per the purchase agreement). The board members also failed to notice As mentioned in the class textbook, board members have two main control responsibilities. They safeguard the equity investors’ interests and they protect the interests of other corporate stakeholders.
There was a clear conflict of interest having the president of Vector not only residing as the board chairman but also the individual responsible for selecting the board members. President Wiegart chose close business associates as the company’s board members. There were many mistakes and ignorant decisions that would ultimately plague Vector’s board. It was recognized early on, by the other board members, that the effectiveness of President Wiegart would not be sustained but they decided not to identify or train a possible replacement because Wiegart would “strongly oppose such actions”.
This is a clear example of how the board members chose to ignore other poor actions made by Wiegart in the years that followed. He was even so inclined to add another board member, also another one of his long-time business associates, when he did experience a little resistance with the other board members. Possibly in hopes of shifting the power back in his favor. The board members rarely received information prior to their meetings and what information they did receive, just enough was given in order for Wiegart to achieve the conclusion that he wanted.
None of the decisions the board made were in the interests of the investors rather they were made in the interest of keeping a feeling of cohesiveness within the company. The only board member that was not personally selected by Wiegart was Dorpi (as I mentioned earlier), who was appointed by the Indonesian investor as indicated in the purchase agreement he had with Vector. Following this addition, one of the members resigned because Wiegart deliberately lied to the members stating that the investor insisted on there only being four board members.
In the meantime, Wiegart continues trying to sell his fabricated business plan with potential investors, losing their trust, and burying the company in a huge financial deficit. The board members did not challenge Wiegart and try to take control of the situation until the financial position of the company was in dire straits and it was, in a sense, too late. The board members acted completely inappropriate despite Wiegart’s deceitfulness and manipulation.
The boards major failure was waiting too long to take action and failing to notice the clause in Wiegart’s contract that mentions receiving a “90 days’ written notice and opportunity for Employee to remedy any non-compliance”. They never confronted him formally about his poor management or ill-fated decisions and the board will now have a hard time firing him and not receive some form of legal action taken against them. However, the first initial mistake was the president and founder of the company appointing himself as the chair of the board. There were many possible ways in which this could have had a much more favorable outcome.
The most obvious one is a law set in place that does not allow the president and the board member to be one in the same. The board members should only be selected by the investors and should have knowledge and management experience in relation to the business it is a board of. A background in real estate would not benefit someone needing knowledge of the exotic sports car industry (as in the case of Wiegart selecting Barry Rosengrant as a board member). Collectively, the board should have had a blend of skills tailored to Vector’s needs and goals.
There should have also been an uneven number of board members, to avoid ties when making decisions. The board members should also have been required to sign a conflict of interest statement, saying that they would only act in the best interest of the business and not profit from his or her service on a board of directors, placing the company in jeopardy (as Wiegart placed Vector in jeopardy). The board members should have made sure that they were receiving all the information needed prior to the meeting with the Vector executives so that they were able to make solid informed decisions on behalf of the stakeholders and potential investors.
Another solution would have been for the board members to evaluate each other and the group as a whole to ensure their performance level was up to par and assess improvements that could have been made. This might have helped right some of the wrongs that Wiegart was creating but most likely not, considering his interest were focused purely on Vector’s profits. In conclusion, Vector Aeromotive Corporation has doomed for failure with the initial set up of the board of directors.
President Wiegart had a great business concept and might have done very well had there been laws in place to dictate the proper duty of care, loyalty, good faith and avoiding deliberate destruction of shareholder value. However, if Wiegart was to make a comeback with Vector he might want to think about acquiring some management skills as well as business ethics. He will have a difficult time achieving success with a bad reputation of trying to deceive potential investors and withholding valuable decision making information from board of directors.