Q – How would you describe an effective Board of Directors?
A – Strong, diverse people, solid business understanding, devoted to committee work, independent and consistent with disclosure practices and not media-hungry. I recently heard Joel Koblentz of Morgan Howard Worldwide speak at the DBM ICEO (International Center for Executive Options), where I’ve been an advisor for a number of years, discuss this topic. I thought as we head into the New Year, it would be a worthwhile interaction in this blog. As Joel’s focus is on recruiting senior executives and Board members, I appreciated his insights.
We talked about strong boards – such as the one at GE – and not so strong ones, such as Home Depot and ChoicePoint. The above characteristics clearly distinguish the two, so let’s go through each and you can decide how your board measures up:
- Strong, diverse people – This has less to do with ethnic background or gender and more with professional background, perspective and experiences. An ideal board is composed of functional expertise, independent perspective and unique experiences, all complementary to the governance process. Select a group of good ol’ Georgia boy bankers and lawyers and expect to hear a “that dawg don’t hunt” now and then, but that’s about it! Add international expertise, management consulting success and a serial entrepreneur and you’ll get more than “out of the box thinking” – you’ll have the box thrown out the window!
- Solid understanding of the business they govern – Joel referred to a recent Big 3 strategy firm survey that found that less than 40% of public Boards truly understand the businesses they govern! How can you possibly make decisions that impact thousands of lives if you don’t understand (or care enough to learn) the business at hand?
- Devoted to committee work – We’re talking about 200-300 hours of work each and every year. If that’s not your cup of tea, you need to be asked NOT to stand for reelection, or the Board’s leadership needs to spearhead an effort to shrink the number of Board seats.
- Truly independent with a consistent element of disclosure – You’d think that your investment in a vendor company may be information your fellow Board members and the investment community would need to know! There is a vast amount of conflict of interest (or time, or commitment) out there, and how often those go undisclosed is amazing! For instance, the actual practice of backdating stock options (a hot topic in the news lately) isn’t illegal at all; what’s illegal is not disclosing it appropriately!
- Not in the public eye – Can you even name a GE Board member? Most people can’t – not because they’re “hanging out and collecting nice fees,” but because they get their work done and go away. They stay off the front page of the WSJ and don’t like attracting attention to themselves. Guess they’ve seen what a distraction a Terrell Owens can be to a team when he’s off the field!
Look at some of the above criteria and do a quick assessment on your Board. Look for competency holes, eliminate what’s not helpful and enhance what is, re-charter to add another seat if you have to…but demand true value of the executives and the Board on behalf of the organization and its shareholders!
If you have specific good or bad Board examples or disagree with any of the above comments, here is your chance to share your thoughts…