(Excerpt from article that appeared in Risk & Compliance Magazine, April-May, 2014)
Boards today 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 avoid dysfunctional politeness.
Cherish trust. Consider holding an Executive Session at the beginning of meetings to underline that the board is in charge and give every director an opportunity to be heard before ‘game time’ or consider holding a standing pre board meeting breakfast which all non-management directors are expected to attend.
Manage the agenda. Do not wait for management to set the 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. Consider holding a call to collect agenda requests. It is human No one wants to rock the boat. Management wants to prepare well for the board’s needs, and 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 is dangerous as it creates a sense of false security in which reality is defined by what is in the power point, and can often mean that the board’s only view of what is going on flows through the CEO.
Preserve time for discussion. Providing time for unscripted discussion of each critical area of the agenda is imperative. Consider requiring 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. 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 behavior 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. 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.
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 analyzed, 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. 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 analyzed 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’.
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.