Great boards deliver on their core mission of providing strong oversight and strategic support for management’s efforts to create long-term value for the organization. To do so, the members of the board, the directors that are recruited, must be independent thinkers who can collaborate with their peers and provide a value-add with relevant experience and knowledge that benefits the entity they serve. It takes commitment, courage, clarity and discipline for a board to properly execute its role.
What do great boards share in common?
Great boards have a vision of what the board needs to be, and they aspire to be that type of board. They commit to be a great board, and everyone on the board knows what the parameters are. Too few boards have an understanding of what their vision and their standards are.
Great boards understand the organization they serve by understanding the long-term vision, mission and strategy of the organization and being fully aligned with them. The latter is critical, since part of the board’s role is to engage in strategy, as highlighted by the National Association of Corporate Directors (NACD) at their annual conference in October 2014. A board can effectively engage in strategy when each board member understands exactly what the strategy is, how it fits within the mission and how the mission fits within the vision of the organization.
These boards can clearly and transparently articulate and present the organization’s strategic direction to its key stakeholders, such as shareholders and employees. They stay current with critical driving and restraining forces to ensure that they appropriately question strategic choices to provide oversight and guidance to the CEO and its management, and effectively assess associated risks. It is their role to demand a strategy and to request amendments and improvements to it from management. Boards can’t be complacent and approve a strategy without understanding the strategic choices and the positive and negative strategic consequences. Boards need to keep a pulse on the organization’s effectiveness by meeting with management, visiting R&D and manufacturing sites and visiting business units at inflection points to gain a real comprehensive understanding of the organization they serve– all in the spirit of not bypassing management.
Great boards govern with strong governance.
- They lead with a strong leader (Chair) who capitalizes on the talent within the board and works well with the CEO/Executive Director and management.
- They adopt a strategic approach to board composition, with diversity being top-of-mind. They carefully hand pick each director when building, expanding and refreshing their boards.
- They commit to impeccable oversight, both financial and legal, and prioritize issues.
- They are aware of the board climate and dynamics with an intention to minimize dis-functionality, including:
- Healthy dynamics with the CEO
- Healthy dynamics within the board.
- They attract, hire and develop quality leaders and let go of the leaders who no longer can achieve their strategic goals, lead inappropriately or fall short of their accountability.
- They supplement their skills with great advisors, who are proactively identified, to address matters that warrant outside expertise.
- They have processes for addressing crises, surprises such as “hiccups” in financials or financial performance, and they don’t procrastinate about addressing “sticky issues,” such as CEO compensation and CEO succession.
- They evaluate themselves with clear performance standards. They reflect on the effectiveness of each board meeting, honestly evaluate their effectiveness on a yearly basis, know what works in leveraging their assets, and know what needs improvement and what must be overcome.
- They regularly evaluate the CEO/Executive Director.
Great boards are forward thinking and progressive. Our boards need to adapt to changing times. Great boards are letting go of convoluted, massive information and labor-intense board books. They welcome management to create comprehensive board books with dashboards leveraging new technology that depicts critical information and enables decisions to be made more easily.
Great boards have a global mindset, regardless of the organization’s base. American boards need more directors who really understand global markets and have had first-hand experience with international markets. Too many boards for American companies, whether start-ups, small- to mid-cap size or large public conglomerates, don’t have directors with market experience outside the US– when they could. Boards of multinational organizations need to revisit their governance structure and not assume that their current model has the optimal corporate governance practices.
Great boards operate as a team with independent directors. The boards of the past operated as group of individuals. High performance boards, today and in the future, realize that they must coalesce while respecting their duty of coming together as independent directors. They are not afraid to conduct peer reviews and to communicate amongst themselves their shortcomings and how they need to improve. They openly deal with the behaviors that get in the way of being effective as a board and with management.
Great boards are wisely proactive with known and potential threats, as well as opportunities that are highly dependent on timing. We began 2015 after being exposed to a series of corporate cyber breaches which drew very negative publicity, created doubts in customers and users and inspired regulatory scrutiny. Boards of organizations around the globe are now fully aware of these threats and do not need to wait until the organization they serve is exposed or attacked. Boards must now duly prioritize a process to deal with a potential cyber breach and more importantly proactively address and manage this risk. At the same time, boards and management can’t miss a market opportunity that might be detrimental to a cycle of positive earnings. Boards and management need to be in touch with select customers to ensure that they detect early market opportunities. And, in the social media era, it is imperative that boards and management evolve their culture to be in sync with the organizations they serve and the impact and exposure of the social communication stakeholders can have with the organization. Assessment of needed rules and policies can not be overlooked.
In conclusion, great boards carefully assess the motivation of incoming directors, as there is no room for a less-than-ideal board director. The complexities and responsibilities encumbered on boards are too great to not be considered when building the optimal team of directors. A board shouldn’t need to be challenged by activists and institutional investors to get in gear!
This article also appears in my first complimentary eBook, “Board Basics.” Please click here to download a copy!