Chief Executive Officer & Board of Directors
The pivotal position of lead director offers a middle way between boards ruled by a CEO chairman and boards chaired by a non-management director.
Since General Motors instituted the role of lead director in 1994, the trend as accelerated. A study conducted by Heidrick & Struggles and the Center for Effective Organizations at the University of Southern California’s Marshall School of Business shows that 75 percent of boards now have an independent director who serves as lead or presiding director. That represents a dramatic increase from 48 percent in 2003 and 32 percent in 2001.
Independence does not mean adversarial. Far from being an above-the-fray figure, today’s lead director occupies a unique middle ground rather like the mythological character Janus, the god of doorways often depicted with two faces looking in opposite directions
The dual nature of the role and the unique dynamics of boards require a great measure of subtlety and tact, as opposed to the assertiveness and visionary daring often associated with strong leaders. It appears that if there is a dominant characteristic of successful lead directors it is the ability to maintain a fine balance between conflicting objectives and requirements.
Here are the key areas in which the lead director must exercise that sense of balance — and their conflicting requirements.
Subject matter expertise
The lead director should know the company’s industry and business as no other director does. And that expertise should include both strategic knowledge and depth regarding day-to-day operations. But where the lead director lacks some knowledge, he or she must be willing to depend on other board members who have that knowledge.
In the quest to add genuine value, the entire board is often stressed far more in matters of strategy than in operational issues. And not every CEO has strong strategy skills.
There can also be powerful internal and external forces pushing for major strategic redirection — mergers, acquisitions, outsourcing, new product/ market entry — that requires more than “group think.”
The push recently for greater board independence has had the unintended result of boards adding directors with little or no depth of knowledge or experience in a company’s specific business. So the lead director must be particularly vigilant regarding long-term strategic plans and actions
The lead director runs the risk of becoming overly intrusive, and must add value in a comprehensive way without providing too much help.
The claims of fiduciary responsibility may be irreducible — and more stringent than ever — but the manner in which they are fulfilled need not be purely a matter of oversight or direction. As with oversight generally, the lead director must find the balance between monitoring and mentoring.
The lead director is uniquely responsible for seeing that the board exercises “due care” in its deliberations, though the goal is not simply to act as sheriff but to help make sure that the proper controls and procedures and an atmosphere of openness and disclosure are in place to ensure compliance. The lead director will also aim not merely to avoid liability but to genuinely add value in today’s reporting, compliance, and disclosure environment.
The lead director must have one of the most subtle and most misunderstood leadership skills — the ability to achieve alignment, whether on board fundamentals or a particular issue. A truly effective lead director not only will be able to get them all moving in the same direction but also will know how to take them beyond consensus to genuine acceptance.
Such leadership requires a low-key but forceful style of communication — again, a fine balance. And the lead director should over-communicate so other independent directors are not left behind, and do not feel left out of the lead director-CEO circle.
When governance and collaboration meet
On many boards no particular committee chairperson has the authority to act when there is a policy or process disagreement between the outside directors and management — a role that has been filled by the lead director. Again, the magic combination of firmness and coaching provides the ideal approach.
In times of crisis someone with the authority and ability to mobilize the independent directors to act can be invaluable. But a weak or insufficiently independent lead director can compound the disaster
This is the one area in which there is distinct imbalance. The average number of hours individual directors spend on board matters has increased steadily and substantially in the past five years. The average today is likely to be as many as 300 hours or more a year.
As with crisis management, the time commitment required of a lead director is not for the faint of heart. If there is a question of balance here, it lies in weighing a potential lead director’s commitment to the company against time commitments outside the company.