Chief Executive Officer & Board of Directors
A successful board governs its company by continually challenging every significant facet of its operations – business model, strategies and underlying assumptions, operating performance and leadership development.
Far from being management’s rubber stamp, the best-in-class board fosters rigorous, relentless examination. It presses for continuous improvement, setting a tone for senior management that reverberates throughout the organization – to employees, to customers, to shareholders, and to the communities served by the company. There is no better way to achieve sustainable competitive advantage.
A best-in-class board is also much more than a roster of prominent names. Truly exemplary boards are well-balanced teams that harness the diverse experiences, skills and intellects of their directors to pursue the strategic objectives of the companies they serve.
The members of these boards possess a rare talent to see the big picture while knowing when to focus on specifics. They have the fortitude to speak openly and candidly, and the humility to accept that they are not in charge of the company’s day-to-day business. Above all, says Richard Cavanagh, president and CEO of The Conference Board, good directors display a competency that is “not so much a skill as a mindset. It’s a quality of mind that questions rather than accepts, coupled with the courage to ask difficult questions in a constructive way. And that, I think, is the toughest quality to find.”
Objectivity, values, acumen, judgment, capacity and zeal are some of the core traits we look for in board candidates. Such traits are necessary whether our client company is addressing a leadership crisis, a financial squeeze, an adverse economy, rapid growth or wrenching change. But we also look for candidates with wisdom and experience relevant to the unique circumstances of the client company. These candidates need more than intelligence or charisma – indeed, even candidates with distinguished records can contribute little if they are closed to new ideas and approaches, or oriented toward past achievements rather than future challenges.
Board members also need to be independent in more than name only.
In the book Leaders Talk Leadership, Jay Conger writes that best-in-class companies have integrity built into their brands and their books. We would add that integrity is built into their boards, too.
Shareholders have a role to play in ensuring board integrity. After all, shareholders have a vested interest in boards of directors and their governance style and practices, and should examine the boards of companies in which they invest–individual members as well as their collective contributions.
What sort of experience do the directors have? At what stage are they in their professional careers? What relationships, apart from their board memberships, do they have with the company? If a director is a former or current CEO, look at the performance of that director’s company and the attitudes of its customers and employees. Who is on that company’s board, and what is its reputation? Questions like these help shareholders choose the companies that are worthy of their trust and capital.
One strong vehicle for evaluating boards is a formal board review. Most North American companies conduct such reviews, but less than half review individual board members. And companies that conduct reviews often do so only as a prelude to removing a board member. But that’s selling the process short, says Roger Raber, CEO of the National Association of Corporate Directors. “If you have a problem on the board, you can just deal with it. But if your board buys into the review process – and if it’s committed to acting on its findings – good things can come of it, like better meetings and more engaged directors.”
Heidrick & Struggles has an active board review business. A disciplined, rigorous professional assessment and review of a board makes it possible to identify areas where improvement is needed and to find potential problems in their early stages. A review also helps in formulating a governance strategy that complements a corporation’s business strategy – and it helps ensure adherence to both.
The first milestone in any review is an evaluation of the board and, if possible, of its most important committees, particularly the audit and corporate governance and nominating committees. Formal evaluations of individual directors follow close behind. We believe that widespread adoption of these review processes is on the horizon. But even in the absence of a formal review, we believe boards need to be bolder in recognizing when a member needs to step down. Incompetence should not be the sole grounds for removal. There are many capable, committed directors whose talents and experience no longer meet the needs of the company. Their removal is no disgrace – it merely constitutes an acknowledgement that times change.
Companies evolve, and so should the boards that guide them, but boards can become stale and insular without an infusion of new perspectives and skills. A dynamic, engaged board is critical to achieving a viable competitive advantage, and a formal review is a powerful tool for making such a board a reality.