Evolving The Effective Board
January 1 1989 by Robert W. Lear
In preparation for the conduct of a CEO seminar on board effectiveness, I questioned a half dozen long-term directors whom I respect and who serve on a variety of boards. My question:
“You probably see a number of companies where maximum use is made of the outside directors and where the board engages in spirited and constructive discussion of critical issues. You perhaps also see companies where these relationships have not jelled. What seems to be the difference between the ones that are getting good results and the underachievers? What can a CEO do to improve the effectiveness of his board? Nearly everyone agreed there was a gulf of difference in board effectiveness between companies and that it is within most CEO’s power and ability to measurably improve the low performers.
Also, to begin with, my counselors cautioned me that the Harvard Business School answer-”It depends”-applied to all of their comments. Quite justifiably, they pointed out that the effectiveness of the CEO/Board Team is significantly influenced by the maturity, experience and leadership ability of the CEO; by the background, quality and expertise of the outside directors; and by the economic circumstances of the company at that point in corporate time.
It seems that a number of companies simply do not talk about it. The CEO doesn’t tell his board what his philosophy of corporate governance is or what he expects from his directors. In return, the outside directors show a similar reticence; they are somewhat less than candid in telling the CEO how they think he should chair the board. Without this communication, the board wastes time on piddling issues, drifts into sloppy work habits and commits errors of both commission and omission.
The enlightened CEO, particularly one with a reasonable feeling of security and who has recently come into the chair, seizes upon the opportunity to talk openly and constructively with his board. Under the guise of efficient stewardship, he can ask questions about or comment on an astonishing variety of matters. What information do his directors want to receive and in what format? What do they prefer in the way of agenda items, presentations and background reading? How to structure and work with board committees. How best to participate in strategic planning reviews, acquisition and spin-off deals and major corporate changes. There should be such a list for all CEOs and companies.
Naturally, there are variable styles for the CEO to choose from as he works towards increasing board effectiveness. One way, obviously, is head-on, formal agenda discussion in the boardroom. Another is by asking board committees to cover certain areas and recommend improved procedures.
One CEO schedules an annual luncheon with each of his directors and starts off with the question, “What can I do to become a better chairman and make our board more useful to the company?” In turn, he is in a better position to raise issues that lead to more productive participation by individual directors.
A secure CEO who has been working with board members who were elected during his tenure is much more comfortable in talking about delicate problems of participative boardmanship than are relatively new CEOs who must work with their predecessor’s board.
Accordingly, it may take a while before changes of scale can be made. The sooner after his appointment that the CEO works out his philosophy and communicates it to the board, the better chance he has of being able to sell it.
One of my director advisors offered an interesting sidelight on chairmanship style. I asked him what kind of a document might be used in presenting the CEO’s philosophy to the board. He answered: `I’m sure that it ought to be reduced to writing, but I’m not so sure that it needs to be that formally submitted to the board. There can be so much hassling over exact word choice (as we sometimes find when we discuss the words used in formulating the mission of the corporation), that the board fails to focus on the real thrust of the CEO’s philosophy. If I were a CEO, I’d write it out, keep it in my desk and periodically revise it.”
Everybody knows that good, strong outside directors are a difficult lot. They are often opinionated and can be either subjective or objective to a fault. Although they invariably put a strain on the process of change, they are nevertheless a vital ingredient in the process. If a CEO does not have one or more strong outside directors who can help him make the board more effective, then he should seek out such a person who can begin to set an example and work with him for positive change. Board retirement is a spanking opportunity for the chairman to convince the nominating committee to bring in a new director.
Developing an effective and participative board is not a random process. It means a regular review and update of goals and timetables. It means, in time, a confrontation with a director who is uncooperative or incompetent. Sadly, it sometimes has to wait until key, recalcitrant directors have retired.
The time is passing for the old style CEO who dominated his board into rubber stamp submission. There are still a few around from yesteryear and occasionally a new demagog pops up with docile directors. More and more of our successful companies, however, seem to be led by CEOs who want and get outside directors who speak out and who can help them with their corporate problems. And more and more experienced executives will only serve on boards of companies who have CEOs who believe in effective director participation.
Robert W. Lear is Executive-in-Residence at Columbia Business School, and is former CEO of F. & M. Schaefer Corp. He is the author of How to Turn Your MBA Into a CEO.