Langone explained that directors generally feel that they are under pressure to fit in so they’ll be renominated. Annual evaluations led PepsiCo and Target to change their processes for reviewing strategy with their boards. Take board size. Many successful companies already view customer engagement as the whole organization’s responsibility. A 2001 Korn/Ferry study of board directors found that only 42% regularly assess board performance, and only 67% regularly evaluate the CEO. Don’t punish dissenters or forbid discussion of any subject. It is impossible for a board to monitor performance and oversee a company if complete, timely information isn’t available to the board. And what are the right tasks for them once they are on the board? If you’re the CEO, don’t punish mavericks or dissenters, even if they’re sometime pains in the neck. Out-and-out criminals themselves? New best practicesfor electing and re-electing board directors are emerging to assure regulatory bodies, shareholders and the public that boards are performing their due diligence in overseeing the corporations they lead. Michael Dell (Dell Computer placed tenth on Fortune’s 2001 list of most-admired companies) told me that when he incorporated in 1987, as a 21-year-old college dropout, he found it invaluable to have then 70-year-old George Kozmetsky, Teledyne’s visionary founder and the former dean of the McCombs School of Business in Austin, Texas, serve on the board; Kozmetsky stayed for more than a decade. Non-profit organizations also have a board of directors. Longstanding best practices for board member re-election have included issues such as conflicts of interest, ethics, accountability, transparency, fairness and compliance. Successful boards must also ask broader questions about technology and IT strategy. A board that truly adds value is not just a group of high performing individuals. Strong collaboration between the CEO and board chair can help define a broad and forward-looking board agenda, one that, rather than pressuring management to maximize short-term shareholder value, instead helps the company thrive for years. Board of directors software with the best protection All your sensitive data is perfectly safe with a meeting collaboration software. Discover top board of directors recruiters and executive search firms. Appoint an ambitious chair. Another dissenter convinced George and the board to reverse themselves and not to get out of the angioplasty business—and, indeed, to intensify those services—and that shift has paid off handsomely. Push everyone—including the CEO—to challenge his or her roles and assumptions. Use minimal essential What brought down the CEO eventually was an apparently private financial matter—the board seemed content to keep him on indefinitely. Respect and trust do not imply endless affability or absence of disagreement. The complicated reality is that sometimes a past CEO’s presence is helpful and sometimes it’s not. It’s difficult to tease out the factors that make one group of people an effective team and another, equally talented group of people a dysfunctional one; well-functioning, successful teams usually have chemistry that can’t be quantified. One of the most common breaks occurs when the CEO doesn’t trust the board enough to share information. says Beatty, who interprets that growth “as a direct comment on boards of directors and their past performance.” (When companies do attract the attention of activist investors, they should plan their response tactics thoughtfully toward the most beneficial outcome.). Our management team values a strong corporate culture of innovation and dedication. Having a board of directors is optional for an LLC. But they’re not the whole story or even the longest chapter in the story. 3 company in a two-company U.S. telecom market. He or she also gives board members free access to people who can answer their questions, obviating the need for back channels. Yet great boards do far more than just follow good-governance rules. It’s not rules and regulations. To help CEOs and board chairs, as well as executives and directors, build strong boards, this CEO guide synthesizes multiple sources to make quick sense of complex issues in corporate governance, while focusing on four areas that are essential for building a better board. Yet members of this board have claimed to have been confused by Enron’s financial transactions. They all serve as volunteers on the Board of Directors. Unleash their potential. The board of directors is the highest governing authority within the management structure at a corporation or publicly traded business. In addition, they can break down factions by splitting up political allies when assigning members to activities such as site visits, external meetings, and research projects. Without a doubt, these good-governance guidelines have helped companies avoid problems, big and small. The highest-performing companies have extremely contentious boards that regard dissent as an obligation and that treat no subject as undiscussable. At the time of their meltdowns, for example, Kmart had six current or recent Fortune 500 CEOs on its board, and Warnaco had several prominent financiers, a well-known retail analyst, and a top-tier CEO; all those excellent credentials made little difference. One litmus test is the growth and involvement of activist investors. But directors on less effective boards spend an average of 28 to 32 days and say they would, ideally, spend 5 days more. Charles Schwab, Cisco, and Home Depot all have had several board members who are well into their sixties. The Board of Directors is collectively responsible for promoting the long-term sustainable success of the company, driving shareholder value and NatWest Group’s contribution to wider society. Apparently, boards are doing “badly enough that there’s been huge growth in activist firms,”4 4.Activist investors launched more than 550 activist campaigns around the world in 2015, according to Activist investing: An annual review of trends in shareholder activism (PDF–8.26MB), Activist Insight and Schulte Roth & Zabel, 2016, Five crucial questions can help steer boardroom conversations toward not just the costs but also the capabilities and value that IT engenders. Good-governance advocates and stock exchange heavyweights alike have argued that boards with too many insiders are less clean and less accountable. The degree to which this doesn’t happen is astonishing. Foster open dissent. Boards must keep close watch on the shifting nature of their role in today’s corporations and find the right balance between governance and management. On a single day, senior managers announced first that a financial unit would be IPO’ed, next that it would be sold to an investment house, and finally that neither would occur. Flip the odds. Effective board leaders are those who run meetings well, establish a culture of trust and constructive discourse, and invest in training, development, and feedback.2 2.Jonathan Bailey and Tim Koller, “Are you getting all you can from your board of directors?,” November 2014. Simply incompetent? Perhaps the most important link in the virtuous cycle is the capacity to challenge one another’s assumptions and beliefs. What distinguishes exemplary boards is that they are robust, effective social systems. Resources; Mental Health Glossary; Positive Parenting; Parent Guide; Ways To Help. An ideal board member, Home Depot chairman Bernie Marcus has said, “I don’t think you want me on your board. Factor in complexities relating to board composition, culture, and time spent—not to mention social, ethical, and environmental responsibilities—and the degree of difficulty continues to rise. Most secretaries hold at least a Bachelor's degree in business, and they are sometimes required to maintain legal qualifications. These boards even had audit committees, compensation committees, and ethics codes. People create and sustain change. Work to eliminate polarizing factions. The directors on this list are ranked according to their lifetime success (awards & nominations), their directing skill, along with their ability to inspire generations of directors after them. CEOs of the 4,402 publicly traded companies in America have an often underutilized resource -- their board of directors. The ensuing conversation transcended traditional marketing communications and touched on the company’s overall strategy, as well as its approach to crisis response. In evaluating individuals, go beyond reputations, résumés, and skills to look at initiative, roles and participation in discussions, and energy levels. Board of Directors With its excellent leadership and profound industry experience, the Group's management team has led Best Pacific International Holdings to become a leading lingerie materials provider. CEOs should help make sure their own boards are playing this valuable role. Directors need to be aware of what makes a good board and how they can contribute and add value as an individual. I’m always amazed at how common groupthink is in corporate boardrooms. Not only did all but one of the Enron board members own impressive amounts of equity in the company, but some were still buying as the shares collapsed. Please try again later. Members attended meetings regularly, had lots of personal money invested in the company, and weren’t too old, young, or numerous. It seems inconceivable that business disasters of such magnitude could happen without gross or even criminal negligence on the part of board members. It’s certainly true that many board members have their jobs because they’re famous, rich, well connected—anything but financially literate. It matters a lot and, still, as shareholder activist Nell Minow comments, “Some big names on the boards…barely show up due to other commitments, and when they show, they’re not prepared.” Indeed, some WorldCom directors were on more than ten boards, so how well prepared could they be? A board of directors works best when it and the CEO trust each other. The board chair should evaluate the information that management provides to make sure that it links the company’s needs with the board’s objectives. They can also embolden senior management to pursue promising deals that may seem unfashionable or be unpopular initially with investors. Home > Introduction > Board of Directors. Perhaps the most effective enforcement mechanism, though, is old-fashioned peer pressure. Make a board of directors software comparison by customer feedback. The increased attention to corporate governance in the UK is undoubtedly, and at least partly, the result of investor pressure.“The Spencer Stuart review shows an influx of women and so-called ‘next generation directors’ into UK boardrooms, bringing much-needed skills with them. Other aspects of working with your board Oversight: remember you now report to a board of directors So if following good-governance regulatory recipes doesn’t produce good boards, what does? Dora Hoan PBM. And that’s what’s so scary: Like most boards, those of the fallen giants followed all the rules. Fortune’s 2001 list of the most-admired U.S. companies reveals no difference in the attendance records of board members of the most- and least-admired companies. When he was forced to go public with his objections, he was ridiculed publicly in a smear campaign. And one can imagine a happier ending at Arthur Andersen had somebody said, “Wait a minute,” when the document shredding began, or at Tyco when the board learned of millions in undisclosed loans to the CEO and didn’t question them. Executive sessions are also sometimes coupled with a designated lead director. Let’s see what that means. Directors at the most effective boards, according to our recent Global Survey results, spend an average of 41 days per year in their role and say they have no ambitions to spend more time. Board of Directors. Playing different roles gives directors a wider view of the business and of the alternatives available to it. How do you find the right people for board-director positions? However, good and bad companies alike have already adopted most of those practices. Educate and train your board members. Most often, the nominating or governance committee drives these evaluations. One survey found that nonexecutive board leaders have taken over or partnered with the CEO on some functions the chief executive has historically led, such as setting board agendas, recruiting new directors, and more aggressively assessing risk. McKinsey’s recent board survey shows that strategy is, on average, the area boards give most of their attention. The CEO, the chairman, and other board members can take steps to create a climate of respect, trust, and candor. How can boards expand into these new responsibilities while still having time for the traditional fiduciary duties that remain important? Recall that Enron board members Rebecca Mark and Clifford Baxter resigned reportedly because they were uncomfortable with paths the company had taken. What’s the point of criticizing management, they ask, if management isn’t there to answer the criticism? For example, in January 2002, then CEO Dennis Kozlowski announced a plan to split the company into four pieces, only to reverse that plan a few months later. CEO Roger Enrico had previously turned around the unit— which had been the brainchild of two of Enrico’s predecessors, Don Kendall and Wayne Calloway—and must have felt great pride of ownership. DON’T Live In a Vacuum. Please email us at: A 2001 survey by the NACD and Institutional Shareholder Services of 5,000 public company boards shows that 99% have audit committees, and 91% have compensation committees. Yet this destructive, dangerous pattern happens all the time. tab. The 2017 survey of UK boards by specialist consultancy Spencer Stuart in London showed a marked improvement in the adoption of best practice governance. Private companies also have a board of directors if they are organized as an S or C corporation. On this measure, again, we find that Fortune’s most- and least-admired companies alike had board members with the training and experience to analyze complex financial issues and to understand what kinds of risks a company is taking on. In other words, they passed the tests that would normally be applied to ascertain whether a board of directors was likely to do a good job. Harvard Business Publishing is an affiliate of Harvard Business School. If you’re CEO, share important and difficult information with directors in time for them to digest it—not the night before a meeting. Instead of the mind-numbing, back-to-back, business-unit dog and pony shows that boards often suffer, each company decided to spend a full day of each board meeting looking in depth at the strategic challenges of a single business unit.• • •. In individual self-assessments, board members can review the use of their time, the appropriate use of their skills, their knowledge of the company and its industry, their awareness of key personnel, and their general level of preparation. Spinner has been President and Chief Executive Officer and a member of the board of directors of United Natural Foods Inc. since September 2008, and he has served as Chairman since October 2016. Patrick McGurn of Institutional Shareholder Services, like other expert observers, has frequently questioned the financial literacy of troubled companies’ audit committee members. To build better boards, CEOs, lead directors, and board members themselves can work to: Create a climate of trust and candor. Clarify what the board leader does. In the wake of the meltdowns of such once great companies as Adelphia, Enron, Tyco, and WorldCom, enormous attention has been focused on the companies’ boards. The board owes a company's shareholders the highest financial duty under American law, known as a fiduciary duty. Balance trust with challenging discourse. Given the time constraints board directors face, broadening their role will require developing a dynamic board agenda that explicitly highlights forward-looking activities and ensures these activities get sufficient time over a 12-month period (Exhibit 2). The best way to make sure risk is accounted for in a board’s operations is to designate risk as a major component of organizational strategy. Most CEOs aren’t as manipulative as Trippe, and in fact, they’re often frustrated by divisive, seemingly intractable cliques that develop on boards. The board even tolerated an open debate in 1992, led by a former CEO, over the company’s widely recognized corporate color, brown—the hallmark of UPS’s current advertising campaign. The CEO, the chairman, the lead director, and the board in general need to demonstrate through their actions that they understand the difference between dissent and disloyalty. It can evaluate individuals by examining initiative, preparation for and participation in discussions, and energy levels. Board members will need to sign a conflict of interest statement, and they must act in the best interest of the business, not their individual or business interests. I am contentious. On average, a board of directors secretary will make $73,000 per year annually. Copyright © 2020 Harvard Business School Publishing. If you’re asked to join a board, say no if you detect pressure to conform to the majority. Wider views of the business and its available alternatives. No group’s performance is assessed less rigorously than boards—yet no group learns without feedback. Financier Ken Langone tells the story of a widely admired CEO who was invited to join the board of a famous corporation that is suffering great distress today. Another area where good companies don’t necessarily conform to the advice of good-governance advocates: executive sessions, which give boards the chance to evaluate their CEOs without interference. Engage in a continuous improvement process. Ability to raise money for the corporation. Eventually the visionary CEO was pushed out during a business downturn by a former chairman who wanted to reclaim the throne and a former top executive of another company who many felt simply missed the limelight. High-profile board failures, the boom in activist investing, and the disruptive forces of technology are only a few of the reasons effective board governance is becoming more important. Other revelations may include board members’ distrust of outside auditors, internal company reports, or management’s competence. Failing to neutralize such factions can be fatal. Occasionally board members can so thoroughly transcend their normal roles that they’re able to change their minds about something they once built their lives around. Require a big-picture person to dig deeply into the details of a particular business, or a peacemaker to play devil’s advocate. Non-Profit Board of Directors or Trustees. Because I am contentious. Why didn’t directors demand a better accounting of the company’s direction and well-being? (For a quick read of these topics, see the summary infographic, “Four essentials for building a stronger board of directors.”), Infographic Rather, they imply bonds among board members that are strong enough to withstand clashing viewpoints and challenging questions. It is, I should note, the responsibility of the board to insist that it receive adequate information. They’re robust social systems: Their members know how to ferret out the truth, challenge one another, and even have a good fight now and then. Private Board of Directors. Marcus has remarked, “I often say, ‘I don’t think you want me on your board. We strive to provide individuals with disabilities equal access to our website. Reinvent your business. Boards should also (and, in fact, are required by regulations to) play a key role in defining and establishing an effective corporate culture. By contrast, at various times in their histories, Home Depot had five insider directors on its 11-person board, Intel had three on a nine-person board, and Southwest Airlines had three on an eight-person board. Are you getting all you can from your board of directors? Ever since stock-listing requirements prompted many US companies to name an independent director to serve as the chairman, lead director, or presiding director of the board, these companies have been grappling with what, exactly, the board leader should do and how to find the right person for the job. All rights reserved. Sometimes this happens because the CEO sees the board as an obstacle to be managed and encourages factions to develop, then plays them against one another. Shorten the list to top ten providers and collect additional data on them such as board portal reviews on forums, social media, and other platforms. The candidate said, “Fine, I’ll see you in a year,” and of course never got the appointment. We need to consider not only how we structure the work of a board but also how we manage the social system a board actually is. If a board is healthy, the CEO provides sufficient information on time and trusts the board not to meddle in day-to-day operations. More than a few directors are feeling outmatched by the ferocity of changing technology, emerging risks, and new competitors. The concept of inside and outside views is explored by Daniel Kahneman in his book, For more, see Viral V. Acharya and Conor Kehoe, “, Activist investors launched more than 550 activist campaigns around the world in 2015, according to. This happened at PepsiCo in 1997 when the board decided to sell the various components of its well-run restaurant group. In just two years, UPS was running operations in more countries than are members of the United Nations. The most involved, diligent, value-adding boards may or may not follow every recommendation in the good-governance handbook. Most board directors recognize that CEO succession is one of their most important responsibilities, even while the incumbent CEO plays a critical leadership role in preparing and developing candidates (recent research shows some 86 percent of new CEOs are hired from within). It’s proved to be a brilliant decision. Directors at these companies scoff at some of the devices more timid companies use to encourage dissent, such as outside directors asking management to leave while they discuss company performance. See why corporate admins, directors, and executives rely on Aprio board management software to prepare and review board materials, run better meetings, and keep everything secure. our use of cookies, and Three CEOs, plus one board of directors, equals the perennial No. Least-admired companies like LTV Steel, CKE Restaurants, Kmart, Warnaco, Trump Hotels and Casino Resorts, Federal-Mogul, and US Airways had only one or two inside directors on their boards; Enron had only two. United Parcel Service has ranked high on Fortune’s list of most-admired companies since the list was started, and half of the UPS management committee is on its board. When board members don’t challenge one another, individual directors’ roles—the ruthless cost cutter, the damn-the-details big-picture guy, the split-the-differences peacemaker—can become stereotyped or rigid. Most of these remedies are structural: They’re concerned with rules, procedures, composition of committees, and the like, and together they’re supposed to produce vigilant, involved boards. CEOs who don’t welcome dissent try to pack the court, and the danger of that action is particularly clear right now. 5. Another common point of breakdown occurs when political factions develop on the board. There are various methods for enforcing accountability. Not a great place to be. They seem to get into a virtuous cycle in which one good quality builds on another. Knowledge of Best Buy and/or Industry - As the former president and CEO of Cabela’s, Inc., Mr. Millner was a prominent player in multichannel retail. From what the outside directors have seen, none of the insiders has ever been afraid to debate a point with the boss, the CEO. Even though every board director to some degree needs to be a generalist, each has areas of special expertise, perhaps related to an industry, a function, or a geography. Children and Families; Young Adults; Adults; Recovery Community; Child Advocacy Center; Health Home [email protected] [email protected] Locations; Careers; News; Resources. The upshot wasn’t that the board won and management lost, but rather that, after passionate disagreements had been voiced, together they arrived at new conclusions. Start with oversight, a role of the board that, most directors would agree, is no longer its sole function. Another supposed safeguard of good governance—audit and compensation committees—turns out to be near universal. Define a list of the best board portals that meet points 1-3 above. A host of other issues that good-governance advocates propose turn out to be either not truly important or already in place at both good and bad companies. Dissent is not the same thing as disloyalty. We’ll be fighting the wrong war if we simply tighten procedural rules for boards and ignore their more pressing need—to be strong, high-functioning work groups whose members trust and challenge one another and engage directly with senior managers on critical issues facing corporations. Probe silent board members for their opinions and the thinking behind their positions. Rotate board members through small groups and committees so they spend time together meeting key company personnel and inspecting company sites. Board of Directors. Sunbeam, Enron, Cendant, McKessonHBOC, and Waste Management all had the requisite number of committees and guidelines, yet accounting scandals still penetrated this governance shield. And yet a close examination of those boards reveals no broad pattern of incompetence or corruption. Were the directors asleep at the wheel? Ideally, the board brings together individuals with the right combination of skills and background. Some argue that Tyco’s confusing spiral of acquisitions and the apparent self-dealing of the CEO at Adelphia Communications might have been less likely if their boards hadn’t been dominated by insiders. Use a fluid portfolio of roles. In fact, the boards followed most of the accepted standards for board operations: Members showed up for meetings; they had lots of personal money invested in the company; audit committees, compensation committees, and codes of ethics were in place; the boards weren’t too small, too big, too old, or too young. Develop a dynamic agenda. What distinguishes exemplary boards is that they are robust, effective social systems. A few are involving their boards in marketing, too. Team members develop mutual respect; because they respect one another, they develop trust; because they trust one another, they share difficult information; because they all have the same, reasonably complete information, they can challenge one another’s conclusions coherently; because a spirited give-and-take becomes the norm, they learn to adjust their own interpretations in response to intelligent questions. Other ways to help board members raise their game include inviting renowned experts to board meetings, holding some board meetings in overseas locations where directors can be exposed to relevant new market developments and technologies, and, from time to time, seeking outside advice to get an independent view.5 5.Christian Casal and Christian Caspar, “Building a forward-looking board,” McKinsey Quarterly, February 2014. Brad Blank Board Secretary President/Attorney Brad Blank & Associates, Inc. Ronald L. Book President Ronald L. Book, P.A. Look for experience and talent. The peer review can consider the constructive and less constructive roles individual directors play in discussions, the value and use of various board members’ skill sets, interpersonal styles, individuals’ preparedness and availability, and directors’ initiative and links to critical stakeholders. cookies,, Timid choices and bold forecasts: A cognitive perspective on risk taking, broader questions about technology and IT strategy. Store, edit, share and review important documents securely from any location at any moment. In cahoots with corrupt management teams? Even a single dissenter can make a huge difference on a board. Both he and Marcus describe times when the board disagreed with management about strategic questions—when reformulating the small-store concept, for example, and when revisiting expansion into Latin America. Start to conform and keep your board the highest financial duty under American,. 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