WHY MANY COMPANY BOARDS ARE INEFFECTIVE
July 4, 2011 5 Comments
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.
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.
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.
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.