The board’s role is ambiguous. Conflicting interpretations of responsibilities and boundaries impede the ability of many boards to make purposeful decisions. Without a clear and common foundation, board members flounder. And, without a basic understanding of their true purpose, many simply check the boxes on their checklist du jour, offering little constructive help to the CEO.
The Solution: Work with the board to clarify the decisions to be made by the board only, and those to be made by the CEO and management team in consultation with the board. Putting this in writing provides a valuable basis on which to build the system of decision-making throughout the company. While building a better understanding of the board’s role is immensely important, this interim step – already taken by a number of companies – may help as the larger effort continues.
The board meets infrequently and often lacks key information. Boards meet periodically in an isolated and insular environment, generally after the fact, to review information that has been carefully curated for them. Now largely comprised of independent directors who lack native knowledge of company operations and industry dynamics, boards are easily manipulated and marginalized by shareholders and management alike, who may prefer to keep the board on the sideline – and out of the way.
The Solution: Though it is challenging to prepare for board meetings as so much effort needs to go into bringing board members up to speed, it can be helpful to turn this issue on its head. Consult with board leadership to determine what information they really want to have. Often it can be broken into smaller pieces that can be shared in a routine fashion. Develop frequent reports on key financial, operational and competitive measures, for example, to keep the board in synch with the company.
Establish a separate package regarding developments that need attention: products, pricing, acquisitions, divestitures. Doing this will help refocus the time actually spent in person on the key issues that do not fit easily into reports: what are we doing, what are we thinking of doing, what are we not doing – and why. Instead of lamenting a director’s lack of knowledge about the company, find ways to use their outsider position to your advantage. What do they see that you cannot?
Dysfunctional politeness inhibits effectiveness. As board meetings are infrequent, directors strive to be on their best behavior when they do meet. Communication is often structured and ritualized, and the bonds of trust that support candid conversation and the processing of complex and difficult material are slow to develop. The strong human desire to be accepted, and thus conform to group norms, makes it difficult to ask questions or suggest different interpretations for fear of rejection.
The Solution: Clarifying decision making processes and breaking shared information into manageable chunks, as suggested above, will certainly help, but the imperative is to be sure each individual voice is heard and valued. Committee work, often more task-oriented, can be a good place to develop candid communication patterns.
Another technique is to use the executive session following each meeting as a forum to be sure that every board member offers observations on what went well, what could use some work and what concerns each member would like addressed in future meetings. Doing this requires an extension of trust from the CEO, since he or she is not present. Meeting with board leadership in advance, however, to determine how such sessions will be conducted, what you as the CEO most want to learn from them and how and when executive session results will be conveyed to you will go a long way toward building the fabric of trust required to get the benefit of candid communication.
Do not confuse dissent with disloyalty. Some of the most successful boards are the most contentious because all are deeply interested in the company, trust each other enough to state their views openly and push for consideration of difficult questions. That push is management’s protection. If they are off the mark, a little time wasted. If they are on the mark, consider the value that apparent detour created, or avoided losing.
Passivity is prevalent. If the issues raised above are not addressed, boards can find themselves in a passive position, deferring too easily to shareholder desires. This puts the board into a reactive mode, leaving them irrelevant and unable to assist the CEO in developing a strong culture, robust strategies, lasting value and necessary agility.
The Solution: Moving from a passive to an active culture at the board level takes time, but is necessary for the health of the entire organization. You may want to start by focusing on a particular area, like cyber risk or corporate resilience, and building a working group that includes management and board participants. Do not wait for the conclusion, but participate in the process to build a strong fabric of engagement and awareness.
“Monoculture” is pervasive. While board composition is changing, most boards remain dominated by white men of a roughly similar age. While many of those men have very valuable experience and knowledge, all are vulnerable to the loss of perspective that comes from looking at the world through a similar lens. Bringing in other points of view is a delicate art, but diversifying board composition should reduce the risk of the company being left behind and the board being blindsided.
The Solution: It is too easy to resort to checklists and skills matrices when looking to broaden the board. Instead, think carefully about what the board and company need now and in the next few years. Consider the types of decisions each candidate has had to make, their range of experience and responsibility, and the degree to which they have had to become self-reliant. Most importantly, evaluate their ability to listen, to learn and to communicate. And realize that it is difficult to evaluate people who are very different from yourself, so take extra care to see the candidate from various points of view. The goal is not to check the box in terms of diversity or skills, but to build a balanced, strong and effective board of directors.
A Final Word on Board Leadership
Every public company board needs a leader who is clearly in charge of making the board itself strong and is dedicated to drawing the best out of every board member and management. Do not assume the work of the board is identical to the work of the company, as the board has overarching responsibilities it must meet to protect the company.
Work with that board leader to turn the board, and each of its members, into a learning organism. Take every opportunity to teach directors about the company and its management, its practices and its people. Be sure, too, that management really is getting access to independent unbiased expertise on subject matter and governance practice, as well as market and customer and investor dynamics. Directors are often talked at endlessly, which leaves the available expertise somewhere outside the board room door.
Yes, getting governance right is an elusive task. But by adopting a mindset of constant improvement and continuously teaching our board members to learn and question, our companies – and CEOs – will be inoculated against the huge array of challenges they face.