In parts of Indonesia, Komodo Dragons make unwelcome and unannounced visits to villages that border their habitat. Even though the giant lizards and humans lived in harmony for generations, contention exists now because environmentalists have imposed new policies in a region where people perceived a sacred duty in caring for the Komodo Dragons. The relationship between lizard and human has not been the same since.
External forces have imposed new regulations on Boards of Directors too, causing CEOs and directors to experience a similar loss of symbiosis.
Now, more than ever, directors are taking their responsibilities seriously, speaking up and striving for results; but in many cases, the evolving relationship between the CEO and the Board has not found the right symmetry. Discovering it will depend on several factors, with improved corporate governance leading the way.
“Governance” is one of those all-encompassing words that people use, but that few can explain in concrete terms. The dictionary defines governance as supremacy, domination, power or authority. People in corporations usually use it to mean general Board oversight.
Governance underpins the Board’s ability to do all the aspects of its job. While strategy and succession planning address specific “what” questions, governance deals with the “how.” It includes, but is not limited to, decisions about the Board’s size, frequency of meetings, director selection, shareholder relations and social responsibility. When a Board has a governance committee, those directors initiate action plans with specific timelines for implementation of recommendations. This committee should have the authority to shape and recommend policy and structure.
The existence of a governance committee doesn’t let the CEO off the hook, however. To improve overall Board performance, CEOs need to play an active role in how things happen. Here are 10 ways to do that:
- Formulate strategy for the Board’s critique, and have strategy drive the agenda. Effective Board governance involves assessing strategy, not setting it. Therefore, the more the CEO does to articulate the strategic direction and clarify the measurements, criteria, timelines and standards for evaluating it, the more likely the Board will be to offer oversight of its progress.
- Tackle important, difficult and unpleasant issues immediately after the meeting starts. If you wait several hours, everyone will be tired and impatient. You’ll get a better caliber of discussion earlier in the day, and the energy will be higher once you’ve made the tough calls.
- Most Boards hold executive session meetings following the Board meeting. Once again, if the meeting occurs late in the day, people will be spent. You can benefit, therefore, from an “executive session sandwich.” In other words, meet before the general meeting to address critical issues and then use the low-energy time after the session to tie up loose ends.
- Use the Board book to inform, not persuade. If the book includes mountains of data with little salient information, directors will overlook key issues. Lead with a summary page, the questions you’d want to discuss and the topics that merit debate. In short, discuss, don’t present the book. Whenever possible, enrich committee reports too. Typically, these reports include a detailed description that lacks relevant information or that rehashes an entire committee meeting or topic. Aggregate the critical information; present it in summary form; and offer analysis, not just information.
- Avoid death by PowerPoint. Too often the slide presentation offers little more than the book in electronic format, and the presentation eats up valuable meeting time. Dialogue, not more slides, holds the key.
- Encourage directors to communicate regularly about their experience and expertise. You should know how to pull this from the directors when you need it, but if you have never formally gathered this information, it won’t exist in a time of emergency or decision making.
- Play an active role in the selection of new directors, and work closely with the governance committee to choose the best and brightest that will bring diversity of thought to your Board.
- Unless you are the chair, evaluating the Board won’t be your primary responsibility, but you can still drive it. Encourage regular evaluations of directors. Have a clear, agreed-upon purpose for conducting the evaluation. Do you want to improve overall performance? Individual performance? Drive shareholder value? Or eliminate someone from the Board? In a confidential format, have directors evaluate their peers based on observable behavior that highlights how this person can add more value. Then, provide one-on-one, private feedback to each director, preferably delivered by a third party. All records should be “paper and pencil” so they can be shredded to protect confidentiality. Include an assessment of committees in a Board evaluation. What is the quality of their reports? Are they transparent? What is the overall relationship to the Board? Does the committee drive shareholder value? When using a survey for the entire Board or committees, customize it to your needs. Measure only those categories that are directly applicable.
- Routinely evaluate the composition of the Board, not just the performance of the directors. As the direction and strategy of the organization shift, so should the skills and experiences of the directors. Ask the Board to conduct separate evaluations of key executives at least once a year, but seek timely feedback in executive sessions or private conversations. Above all, don’t create materials that can be subpoenaed.
- Request a Board evaluation of yourself. Ask for feedback about these:
- Recruitment of top talent
- Development of executive team
- Allocation of the company’s resources
- Role modeling of effective leadership
- Implementation of long-term strategies to maximize opportunities and mitigate risks.
- Acting as the chief spokesperson for the company
- Effective communication with shareholders and all stakeholders
- Communication with the members of the Board of Directors
Active, compliant Boards and CEOs no longer offer organizations enough. Companies need and demand stellar performance from both individual contributors and the Board as a whole. Your success and that of the organization depend on your taking a more dynamic role in finding symmetry and symbiosis for all concerned.Corporate Compliance Insights is a wholly owned subsidiary of Conselium Executive Search, the global leader in compliance search.