The role of a board member of any organization is constantly evolving. Economic cycles, leadership transitions, market dynamics, competitive changes, governance activists and even political shifts can impact board composition and best practices in corporate governance seemingly out of the blue. Then add the unexpected challenges of a global pandemic, and the environment changes quickly again.
There are certain constants, however, which have proven useful over time as essential elements of the most successful boards. In defining a great board, we suggest these for your consideration:
G Governance as a defining characteristic of a high performing board may feel like stating the obvious. Except the board’s role is precisely that—to govern and not manage. The old saying “nose in, fingers out” still rings true today. Boards exist in large part to oversee management on critical issues such as strategy, risk, CEO succession and transactions, and to provide sound counsel to the CEO and leadership team. Despite what some directors may still think, the board’s job is to guide and advise management and not to run the business.
R Risk is a critical aspect of appropriate board oversight, and has become increasingly more complex over time. The impact of a “black swan” event like we have recently experienced with the global pandemic is a prime example. Boards should be regularly updated on the strategic risks facing the company, and must ensure that appropriate procedures for compliance, controls and reporting are in place and functioning well across the organization.
E Engagement as a director is often overlooked. Throughout our firm’s experience advising boards, it is all too common that we encounter directors who are simply not engaged in governing. Often these Directors do not properly prepare for meetings, worry about the time and length of the meeting, and do not partake in constructive conversations. Whether due to overly lengthy board tenure or outdated skills, a lack of consistent engagement may drive consideration for offboarding.
A Accountability. Boards in some organizations do not hold management truly accountable for results, which is a crucial element of governing. Such boards at times may find excuses for poor performance or reward management for underperformance or tenure, rather than pushing back to explore why goals may not have been achieved. Sometimes there are legitimate reasons why an organization does not perform (external factors; lack of resources; faulty expectations; global pandemic, etc.). Boards need to make sure the company leaders have what is needed to succeed going forward, and then hold them accountable to deliver.
T Talent-Centric. Well-governed organizations have boards that are consistently focused on CEO succession and executive talent development. Some firms are so focused on crafting an awesome strategy that they forget about the other side of the coin—execution of the plan. Talent is the biggest variable in execution, and boards need to make sure that the CEO and leadership team are consistently focused on and held accountable for the attraction, development and retention of talent above the norm.
B Broadly-skilled boards are comprised of people with an appropriate mix of relevant talents and experiences, to enable proper guidance and provide a variety of useful viewpoints. This skill mix should be both functional (for example, financial, technology, marketing, human resources) as well as industry (reflecting competitive dynamics, customer segments, emerging markets, etc.). Too many directors with similar backgrounds, or a lack of broad and current skills, compromises the value derived from the board table.
O Open-Minded. Boards benefit from directors who are informed, insightful, and inquisitive. In other words, willing to challenge assumptions, consider new ideas and approaches, and are able to think outside the box. A room full of directors with blinders on, who operate with “group think,” or who want to pretend that this is still “the good old days” does not enhance governance or add value.
A Awareness of the dynamics taking place outside the organization is important as well. This may apply to the competitive landscape in your market or industry, or knowledge of the external factors which could significantly impact the business. Also included here could be the potential for regulatory impact or strategic transactions—wanted or unwanted—which could quickly reshape the organization. Ongoing director education to remain current and relevant is critical.
R Respectful. Often times boards are called upon to make tough calls, or push back on management regarding critical issues. These types of messages are never easy, but need to be delivered firmly yet respectfully. Boards have an obligation to be courageous in the face of difficult decisions which may arise, including at times whether to allow underperforming directors to continue serving. Respect also needs to extend to the viewpoints of other directors, always, even when disagreeing.
D Diversity is the order of the day! As has been well documented, boards comprised of leaders with diverse perspectives generally make better decisions. Boards representing of a robust variety of backgrounds and life experiences—whether diverse by race, gender, ethnicity, or other criteria, are not only appropriate but vital for success in today’s business and social climate. In addition, having diverse role models on the board and at the top of the organization sends a very strong positive message to current and prospective employees.
The willingness to truly govern and tackle the important business challenges are hallmarks of great boards. However, the dynamics of crafting a board with the right blend of skills, relevant experiences and diverse perspectives remains difficult for many institutions. A thoughtful approach to board composition, recruitment and succession will enhance both the quality of corporate governance as well as organizational performance.
Alan J. Kaplan is Founder & CEO of Kaplan Partners, a retained executive search and board advisory firm headquartered in suburban Philadelphia. You can reach him at 610-642-5644 or alan@KaplanPartners.com.