Corporate Boards that Work
“Though formality of setting and infrequency of meetings combine to inhibit the ability of directors to speak plainly with each other, the board must find ways to avoid dysfunctional politeness.”
Boards face intense scrutiny from shareholders, regulators, politicians, the media, employees and other stakeholders – many of whom have never set foot in a boardroom nor faced the unique challenges of being responsible but not directly charged with managing the enterprise.
The role is an ambiguous one, calling for both intimate knowledge and loyal support of the company, and the cool eye of the detached professional, ready to act to correct the course as need be. That is a tall order, and many do take the passive approach, screening director candidates by their friendliness to incumbents and their unwillingness to ask uncomfortable questions. It is easy to caricature board practice, and many indulge in doing so. Let’s try instead to unpack the human elements that make great boards great.
Cultivate candor. Though formality of setting and infrequency of meetings combine to inhibit the ability of directors to speak plainly with each other, the board must find ways to avoid dysfunctional politeness. How can this direct speech and open behaviour be developed amongst directors who likely do not know each other well?
Cherish trust. Consider holding an Executive Session at the beginning of meetings. This underlines that the board is in charge, gives every director an opportunity to be heard before ‘game time’, and gives directors the opportunity to highlight among themselves any issues caused by the inevitable asymmetry of information available. Another technique is to consider holding a standing pre-board meeting breakfast which all non-management directors are expected to attend to voice any questions or concerns.
Actively manage the board’s agenda. Make clear distinctions between matters that are best handled and then reported on by committees and matters that must be addressed by the full board. As time passes, the items that must be handled at board or committee level routinely emerge and can be put onto a standing rolling board and committee agenda.
Directors and management can thus organise their preparation time well, and space for agenda items of particular importance can be scheduled. Additions to the standard rolling agenda can be called for by the board and committee chairs well before each scheduled meeting. Holding a call to collect agenda requests may assist with this process in its early days of adoption.
It is human nature for management on the one hand and directors on the other not to want to rock the boat, and to go along with the group. Management wants to prepare well for the board’s needs, and to get the board meeting over so they can get back to work. Directors want to add value but do not want to impede the ‘real work’ of management. This often results in management setting the agenda, with each presentation carefully scripted to address major issues, fill the time allotted and avoid going off script. This routine is dangerous as it creates a sense of false security in which reality is defined by what is in the power point. Whether intended or not, it can often mean that the board’s only view of what is going on in the company flows through the lens of the CEO.
Preserve time for discussion. Providing time for unscripted discussion of each critical area of the agenda is imperative. One technique to consider: require each presenter to boil down their materials (the details of which have been shared well in advance) to a single slide. Inevitably it will focus on critical issues that need discussion and possible decision.
Look past the CEO. A strong CEO will not want to be the sole lens through which the board sees the company. Boards are increasingly encouraging directors to come in early or leave late to provide for meetings on committee related and other business. No board member will want to do this without advising the CEO, and all will be careful not to appear to be giving inconsistent signals. One technique is to match up members of the senior management team with individual board members as mentors, and rotate assignments periodically. Participants get acquainted outside the formal structure of board communication, and directors gain a sense of the depth of the team.
React to smells. If directors have matrixed relationships with management and with each other, if they are actively managing the agenda and looking beyond the CEO, and if they have created a mode of behaviour through standing breakfasts or executive sessions in which questioning is encouraged, it will be that much easier to react when something just does not feel right. We all know that spreadsheets are measuring trends and charting relationships, but people make businesses thrive.
Be willing to ask unwelcome questions. Once again, if the culture built by the non-executive directors supports question asking, this is much easier to do than it is when the rest of the board seems to be entirely in synch, whether the emperor is fully clothed or not. It is the unwelcome question, sometimes asked by the least informed, that often prompts the fresh look that can change the outcome significantly, and for the better.
Strategy is as strategy does. Of course the board plays a vital role in evaluating and fine tuning strategy. Coherent goals, however, are useless without a plan to execute the strategy. Resist the ubiquitous fear of ‘micromanagement’ and insist that management develop and share their plan of execution, including alignment with the vision, necessary resources and how they will be found, possible risks, pitfalls and contingency plans, and measurement systems and milestones. Maintain the appropriate scepticism that goes with reviewing and approving not just once but as the strategy progresses.
Relish challenge and expect mistakes. No plan can be perfectly executed, and all plans change with circumstances. At issue is not whether mistakes and course corrections will be made, but how those unexpected developments are handled. It is human, though, not to want to admit mistakes in a board setting, and it is up to the non management directors to make it not only possible but expected to discuss unexpected outcomes. The learning associated is priceless, and in assessing how well mistakes are analysed, understood and rectified it is possible to assess the quality of management. Expect accountability for mistakes, and that all involved, top to bottom, learn from and not repeat the same ones.
Do not award compensation you cannot explain. The steps outlined above will make it easier to understand the strengths and weaknesses of the management team, including but not limited to the CEO. Be sure every member of the board can explain the way compensation works, and the rationale for the particular methods chosen. Be sure the board has analysed what the package is intended to accomplish, and why it is in the best interests of shareholders. Following serious and conspicuous abuse, many stakeholders focus extensively on executive remuneration levels, but often have a more limited understanding of the complexity directors face as they try to get it ‘right’. Thus all board members must have the chance to question, and ‘own’ the resulting decisions.
Communicate. Communicate unto others as you would have them communicate unto you. Enough said.
Act from humanity. Often it seems as if stepping into the board room as a director strips directors of portions of their humanity as they try so hard to get the moves right and fit in with their peers. On the contrary, to be effective as a board member requires that the whole person show up, using not just the intellect but all of the senses – and all of each director’s experience with a full hearted effort to help move the enterprise forward.