Board oversight of capital expenditures.

• Author: DARAZSDI, JAMES J.

Issues for the director to consider in assessing management's intentions for deploying capital.

THE SCENE IS SET. Nine directors sit around an oval-shaped table. The board meeting, which began at 10 a.m., is now well into its fifth hour. One director is beginning to fidget, nervously looking at his wristwatch. He is concerned about his scheduled 5 p.m. departure from LaGuardia. Another begins to contemplate potential traffic congestion during her cab ride to Penn Station.

The chairman, aware of the hour, scans the open agenda items. Only two remain unaddressed: capital expenditure requests and other business. Frustrated, he silently ponders why these blasted meetings always take so long. Perhaps the 30 minutes spent discussing revisions to the major medical plan were excessive.

Then again, the debate about the new advertising campaign was a departure from the agenda. Although the topic is important, did it really warrant the 50 -minute dialogue? Well, in any event, he quickly concludes that the meeting can't be dragged out much longer.

Chairman: "The next item on the agenda is capital expenditure requests. There were four included in your folders. As you know, in accordance with policy, we must approve all requests in excess of $1 million. I assume you have taken the time to review management's descriptions of the projects and the associated financial analysis. Are there any questions?" Pause, "Yes, Jack."

Jack (outside director): "Why are we spending $6 million on new packaging equipment? The returns are paltry and I'm not aware of any serious problems with the existing equipment."

Chairman: "Who from management would like to address this question?"

Bill (VP of operations): "I'll try. Our division president feels that this expenditure is necessary to keep us competitive in the marketplace. Several competitors have already adopted the new technology. If we don't move quickly the equipment manufacturer will be heavily backlogged, and we may have to wait nine months or more for delivery."

Jack: "Yes, but it seems to me that $6 million is a lot of money for...well, I'll let it go."

Chairman: "Okay, any other questions?" Pause. "Well, hearing none, I'll entertain a motion to approve all four requests as a group."

Bill: "So moved."

Tom (LaGuardia-bound director): "I'll second."

Chairman: "Any further discussion?" Silence. "All in favor?"

Board: "Aye."

Chairman: "Opposed?" Silence. "Please let the minutes reflect that the board has approved the...