WHY MANY COMPANY BOARDS ARE INEFFECTIVE

Most companies have some form of establishing performance criteria and review of their executives, but too few have any form of structured performance evaluations for the Board of Directors, as though those who have reached these heady heights are beyond review or reproach. Yet many Boards are ineffective and so can have a serious negative impact on an organisation’s success.

Author: Markpruce (own work); via Wikimedia Commons


Some Boards I have worked with have not even had an agreed code of conduct nor had established performance criteria for individual Board members beyond recording their attendance at the requisite number of Board meetings. One Board I served on even had a chairman that believed that this was unnecessary as Board members were senior enough not to have to be told how to behave, and he would not allow discussion of any topic that even hinted at the criticism of another Board member’s actions or behaviour. As a result some Board members would spend time during the Board meeting handling their emails instead of actively participating in the meeting, when the topic was not to their liking.

It is therefore not surprising that many Boards add little real value to the business beyond providing a list of names that are meant to make markets and investors impressed enough to not delve too deeply into whether the Board is actually more than a collection of empty suits.

Author: VirginiaTechAlumni (own work); via Wikimedia Commons


As a minimum, Board members should be measured on whether they turn up to meetings consistently and on time, whether they come to meetings well prepared having reviewed the material and the agenda, that they actively participate in meetings, that they follow meeting protocols and don’t try and dominate the conversation, that they support the organisation’s mission and vision, that they actively support board decisions and do not sabotage board efforts, that they keep board confidentiality and that they maintain a group rather than a personal orientation.

Board members who don’t pass even in these basic areas should be voted off and replaced in the same way that any executive who does not meet minimum requirements would be discarded immediately.

One of the biggest issues that I have come across with Board members is that it is critical that all Board members externally support the decisions that are taken by the Board, and not just those decisions that they agree with. There is no question that the best Board decisions are unanimous ones but this is not always possible, and if a Board member cannot support, and live with, majority decisions taken, then they should resign from the Board. It is not acceptable for a Board member to take a message externally that says “This is what the Board decided, but I did not agree with it”, or even worse to have decisions taken by the Board and then to have individual Board members operationally disregard the decision. One executive Board I served on agreed to impose an immediate hiring freeze for 3 months based on a projected need to manage cash flow. At the end of the headcount freeze period global headcount had gone up by nearly 10% as some key Board members just disregarded the decision that had been taken.

Another critical issue is the need to keep confidential the whole Board decision making process, and in-camera decisions. I am amazed at how many Boards have minimal or no confidentiality. This can result in some disastrous situations, particularly when there are some tough discussions at the Board meeting, for example a discussion about possible redundancies in uncertain times. I am sure that many Boards had discussed and planned for possible redundancies based on our recent economic uncertainties, but which never had to be executed. Had the fact that the Board was discussing redundancies leaked out into the employee base the impact on morale and business confidence could have resulted in making the redundancies a self-fulfilling prophecy.

The key critical element is that Board members must have a focus totally on the group and not on themselves and their individual needs. Board members who do not keep confidentialities and who disregard Board decisions do so because they are putting their individual needs above those of the group. The more senior and older that executives become the harder it is to find those that have not built a strong belief in their own “rightness” and the fact that they know best, after all those are some of the characteristics that enabled them to fight their way to the top in the first place.

To be an effective Board member it is critical that one accepts that decisions will not always go the way that they wish, as that is the nature of the way Boards need to work. Unanimous decisions will not always be possible and trying to always achieve unanimity will mean that little will ever be resolved.

Author: Stuart Yeates; via Wikimedia Commons


It is critical for a Board to be effective that Board members do regular peer reviews of each other to ensure that all Board members are working and acting in a way that is consistent with the role that a Board has to play in the success of an organisation.

Beyond that, it is critical that the Board members, and in particular the chairman, do not tolerate dysfunctional behaviour in individual Board members. The chairman must counsel those who do not function within the Board’s agreed behaviours, and if the dysfunctional behaviours are not modified these Board members need to be voted off the board.

The role of the Board is too critical to the success of an organisation, and Board time is too short and too precious to tolerate ineffective Board members.

Even more importantly, good companies and good people are too precious to deserve and tolerate an ineffective Board.

Advertisements

6 Responses to WHY MANY COMPANY BOARDS ARE INEFFECTIVE

  1. Thx Les

    Agree with ineffectiveness that comes from having the wrong people on the Board.
    Very importantly – it doesn’t seem that Board memebers are chosen as carefully (and with the same selection criteria) as employees are. Whilst we invest significant time into ensuring potntial employees:

    – have the skillset do do a fullfill a required role.
    – will fit in culturally.
    – genuinely want to work for the company.

    ….board member selection often comes down to attracting the highest profile board members!

    Board members are not worth their roles – large public co’s or smaller private smb’s – unless they absolutely believe in what the company is doing, in the culture, in the people and what drives their customers be a customers.

  2. leshayman says:

    Chris … you are 100% right. The board has to be a critical part of the company culture, objectives and DNA, rather than just a superior self-elevated group with a tenuous link to the people,sitting at the top of some isolated peak. Les

  3. AJ says:

    I guess it is more important to ensure that whatever is discussed at the board level percolates down to the foot soldier level so that employees are aware of the direction in which the company is heading. Peer review of Board Members may not serve the purpose as it would amount to comforting each other. Rather a 360 feedback approach makes more sense and this should start right from grassroot managerial positions cascading all the way to the top. No wonder managers fight tooth and nail to ensure that performance evaluations are not made available.
    AJ

  4. leshayman says:

    AJ … what is important is that decisions taken by the board, rather than the discussions, are cascaded through management down to all staff in an appropriate manner.
    Also, it is only weak boards that use peer reviews for comforting each other. To be effective, board members cannot tolerate non-performing board members, as keeping them will put the overall performance of the board at risk.
    I also believe that company management should have input in measuring whether the board is performing as needed and is capable of representing the interests of all the stakeholders.
    Les

  5. Bruce Rankin says:

    Hello Les,

    Belated feedback on this excellent post. There has been a groundshaking federal court decision in Australia as a result of Australian Securities Investment Commission (ASIC)succeeding in prosecution of whole Board of Centro, who failed to determine that A$2 billion in accounts as “Long Term Debt” should have been in Current Liabilities – ie repaid or refinanced within 12 months. Finance Dept had wrongly classified and auditors(!) didn’t pick it up. Full article “Watchdog ruling shakes up boardrooms” in SMH and on web: http://newsstore.smh.com.au/apps/viewDocument.ac?page=1&sy=smh&kw=watchdog+ruling&pb=smh&dt=selectRange&dr=1month&so=relevance&sf=headline&rc=10&rm=200&sp=nrm&clsPage=1&docID=SMH110708PU3L06HIJ7F

    Centro Properties (like Westfield owned many malls) are in receivership as result of GFC. Article well worth reading.

    My own views, from personal experience on a professional organisation Board for 8 years, are very much in accord with yours. I saw much disfunctional behaviour from Presidents who were sometimes there for their own advancement and benefit, versus serving Members and the profession. After I left, the new VP organised himself as Chief Operating Officer, to look after daily opns while President supposedly looked after strategic matters. This in a voluntary organisation of 1,000 members and only $75,000 dues per annum! Bottom line the VP/COO ran the Board! Later he became President, and guess what, still did the COO role. He was a tyrant, ruling with an iron rod and launched formal disputes against several other Board members. Inevitably many resignations followed, as most Board time was spent on disputes and no-one wanted to work as a volunteer in that environment.

    I was approached by an Immediate Past President who sought my advice on how the Board could get rid of the President. Fortunately the President had succeeded in changing the By-laws (over my opposition) that a Board Member could be removed by a 2/3 majority of the Board, instead of the long standing democratic principle that the Board was elected by Members and a Board Member could only be removed for just cause by a Member vote. So I counselled him to get the numbers and propose a motion for his removal. Which they did and then “resigned” him before the motion was put. Hoist by his own petard! Two years later the ramifications of his rule are still being felt.

    Bottom line: there needs to be a constant watch by Board members to ensure disfunctional behaviour does not occur and if it does, to take swift action to stop it.

    Bruce

  6. Alta says:

    This web site definitely has all the info I wanted about this
    subject and didn’t know who to ask.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: