Put an economist on your board: having them throw cold water on unrealistic forecasts and on bad strategy ideas are just two ways shareholders could benefit.

• Author: Fry, Robert C., Jr.
• Position: GUEST COLUMN

In my 30 years as a corporate economist, I often spoke to the boards of directors of my employer and its major customers. In retrospect, I think I could have helped those boards more as a member of the board than as a guest speaker. I'm not unique in that regard. Economists have knowledge and skills that can make us valuable as directors. Every company should put an economist, ideally a business economist with real-world experience, on its board.

Why? Don't most boards already have accountants to help them with the numbers?

You may have heard that the difference between economists and accountants is that, while both have a facility with numbers, economists lack the dynamic personalities needed to become accountants. All joking aside, the real difference is that while accountants are good at telling you what the numbers are, economists are good at telling you what they mean and, more importantly, when they mean nothing.

Economists know that cash is a fact, earnings an opinion. They also know that managers and analysts pay too much attention to magnitudes measured in percentage points and not enough attention to magnitudes measured in dollars.

Economists, especially business economists, take a long view of history. Ask an accountant for history and you're likely to get data for this year and last. Ask an economist for history and you'll get insight going back decades, and, as a bonus, insight into the future.

Economists, because they understand history and numbers, are unusually good BS detectors. When an executive or consultant or investment banker comes to the board and makes an unrealistic forecast, an economist can say, "That has never happened before." Economists are more likely than others to point out when the emperor isn't wearing any clothes. When asked what an economist was, Keith Collins, former chief economist of the U.S. Department of Agriculture, said, "Someone who throws cold water on the bad ideas of other people."

Economists can be especially valuable in this role when management wants to make a cash-for-stock acquisition. We know that such deals are almost always bad for the shareholders of the acquiring company because buyers almost always overpay.

Economists understand the difference between cycles and trends. If you calculate a growth rate starting at the bottom of a cycle, you'll overstate growth. If you extrapolate that growth rate and use it as a forecast, you'll be disappointed. Remember Herb Stein's Law...