Final answer:
It is problematic if board members lack the necessary skills and experience as it can lead to ineffectual company oversight and decisions that do not align with shareholder interests or the company's strategic goals, resulting in potential financial and reputational harm.
Step-by-step explanation:
When board members do not possess the requisite skills and experience, they may face challenges in successfully guiding the organization and making informed decisions that align with the strategic goals and interests of the shareholders. A lack of expertise can lead to poor oversight, ineffective policies, and a failure to adequately challenge and advise the executive team. This could result in detrimental consequences for the company, ranging from financial loss to reputational damage.
The Board of Governors of the Federal Reserve, for example, needs longer terms to ensure stability and continuity in monetary policy, which requires a long-term perspective often at odds with the short-term political pressures faced by elected officials. The theory behind corporate governance is to ensure that the firm is run in the best interests of the shareholders; however, if the board lacks proper skills and experience, there is a risk that they may not effectively represent shareholder interests against the persuasive influence of top executives within the firm.