They met in the Crimson room, just as usual. Tim was there, so were Paul and James. Michael with his striped tie, angled for power with the CEO. Becky was in animated conversation in a corner of the room. Murakami had an urgent word for Terry.
King, designated to run the meeting, started to read out the agenda. Not everyone seemed to agree on the priorities. There were rumblings about missing topics. Paul did not seem to recognise item number 3. Well, he did have a lot going on with his responsibilities on 4 other corporate boards!
The closely-drawn, dark blinds in the background seemed sinister than usual. The banter was noticeably toned-down! The crimson room seemed tense.
There were 20 of them, the nerve centre of a mighty corporation. Between them, they had over 200 years of experience in Strategy & Sales, IT, Audit & Risk, Human Resources, Finance, Marketing and new ventures. They had valiantly steered the company for the first ten years. The company had grown and shown resilience to new challenges. However, in the last 2 years…there had been issues. The CEO was under serious pressure, the P&L red in places and large investors engaged in considerable ‘finger waggin’.
What went wrong?
While a few clues are hidden in the story of the Crimson board, it would help to understand what industry pundits have to say about Board best practices.
· Is the board the right size, for the size of the company?
· Does it have the right set of competencies/ skills?; i.e. suited to the size of the organisation and its peculiar issues.
· Does it include an adequate number of independent directors? Independent directors are likely to ask the harder questions, discipline managers & ensure shareholder interest is taken care of.
· Does the board meet at regular intervals and have a clear agenda for every meeting? Does the agenda cover all matters of importance to the company?
· How flexible is the agenda? Is it easy enough to call for special meetings or to include new issues?
· Does the board receive the meeting pack in sufficient time, prior to the Board meeting?
· Is the board able to allocate time across topics such as Strategy, Risk Management, Financial performance, Compliance, Compensation & Succession planning? (Smaller boards may have fewer focus items.
As per Korn & Ferry’s 20 Best Practices to improve Board Performance, ‘boards can play a critical role in evaluating how well the business strategy of the organisation is being carried out’.
· The board should carry sufficient diversity; provide sufficient coverage to minorities, foreign nationals and women. This can help avoid ‘group think’.
· Do new and old members both contribute to the discussions and do board members have sufficient time to invest in their board duties?
· Does the board have open, hi-quality debates leading to effective decisions? Do board members challenge decisions? As per the FRC UK, ‘An effective board should not necessarily be a comfortable place. Challenge, as well as teamwork, is an essential feature.’
· Does the board have a good understanding of the core business and is able to use its own observations together with the data presented to it.
· Is the board proactive in responding to external events?
· Do the chairman & CEO work well together and does the CEO trusts the board enough to share information? Or ‘Does he wait until the night before to dump on the directors a phone-book-size report that includes, buried in the thicket of sub-clauses and footnotes, the news that earnings are off for the second consecutive quarter?’, says Jeffrey A. Sonnenfeld in the Harvard Business Review article, ‘What makes great boards great’.
· How effective is group dynamics & interpersonal relations between directors, between board and management and between chair & board?
· How well are conflicts executives and shareholders managed? Members of the board, as trustees of shareholder rights, must play the role of owners as best as they can!
· Are the board’s sub-committees properly constituted, perform their delegated roles and report back clearly and fully to the board?
· Is the board place value on the reputation of the company as much as corporate performance?
· Is the board representative of large and small shareholders to ensure balance of power and improved decision making?
· Is there is appropriate succession planning for key board members?
The effectiveness of the lead independent director, the board’s relationship to management, elimination of information asymmetry and development of the board’s agenda are other important aspects. As per the Canadian Society of Corporate Secretaries, the Best Boards ‘have the right people, get the best information and make the best use of their time.’
Let the Crimson Board remember that when boards lose, not just shareholders but employees and all other stakeholders lose too!
© Anu Maakan 2016
(Disclaimer: all views published here are the personal views of the author and do not represent those of any organization).