Getting The Most Value From Your Board

| Published by Mark Akerley under Sigma Resource Group Articles |

Most organizations succeed or fail not because of the brilliance or deficiencies of their senior managers, but usually because top management has identified and debated a few key questions (or not), and made a few tough decisions. This insight into managing typically comes from experience, and can be a real competitive edge for an organization.

One way to increase the amount of management insight in an organization is to tap the wisdom and intellectual power of the Board. However, most boards function in ways that prevent them from fulfilling this valuable role. As a result, some CEO’s are now reaching out to their Boards to ask, perhaps even insist, that they take more accountability and responsibility for their roles as Directors. Not an easy task, but here are a few topics and issues most Boards can address to improve their effectiveness.

Major Responsibilities

This need not be a long or lofty treatise that goes on about the importance of the Board. Rather, it should be a relatively short and to the point document, or “charter”, that clearly states the purpose and major roles of the Board. For example, the major roles of most Boards are:

1. Strategy (ensuring a process) & strategy monitoring
2. Ensuring a high caliber CEO & Executive Team
3. Controls (ensuring they are in place)
4. Preventing & Managing Crises

There may be more or there may be less, but the number of roles should be kept to a “critical few”. Most importantly, the Board and the CEO should agree on what those critical few roles are, and what specifically is involved in performing them.

Board Structure

Structure is often overlooked as an opportunity to improve Board performance. Structural elements can include such issues as…

  • Size – what is the ideal size of the Board for your organization (e.g. most groups seem to be most effective in the 5-10 participant range).
  • Composition – how many outsiders to insiders, which insiders, advisory versus governing members, CEO / Chairman function
  • Terms – limiting versus non-limiting, what are reasonable terms
  • Diversity – age, race, gender, ethnic considerations, can a mix improve the effectiveness of your Board?
  • Business practices, industry trends, as well as society in general, are changing rapidly. How should the Board be structured to best meet the challenges associated with change?

Corporate Dynamic

All organizations operate within a set of parameters and interactive practices and processes. This is known as the corporate dynamic. Although every organization is different, each should consider what are commonly accepted “best” practices for Boards, and what may be unique for their particular group. An excellent method to begin assessing the corporate dynamic is to first identify the principals of the dynamic (typically the CEO, the Board, the Chairman, etc) and then determine what each principal expects from each other in order to fulfill the obligations of the Board. Although this appears straightforward and simple, it’s not unusual for a few sparks to fly during such an assessment. If so, the heightened level of participation and intensity is usually very good for the organization, and can lead to positive change. Examples of expectations that can improve Board processes might be – Engage in dialogue on substantive issues to add value – Maintain independent judgement at all times about current issues and management – Keep abreast of key industry issues – Take initiative to counsel CEO and other Board members as appropriate, etc.

The Ideal Director

The reason Boards have multiple directors is that it is virtually impossible to have one person with the perfect set of skills and talent to advise and guide the organization. However, even large Boards can also lack the needed skills to be most effective. Occasionally, every Board should prepare a profile identifying the traits and characteristics required for effective Board members. These requirements should consider both “hard” and “soft” characteristics such as – technical / management skills, knowledge, experience, perspective, leadership, communication, personal style / fit, etc. Additionally, there are individual commitments each Board member must make regardless of his or her skills. These too should be identified by the Board as a whole, and then agreed upon by each Board member. Such commitments might be time, honesty, candor, a questioning attitude, an understanding and acceptance of current realities, willingness to give opinions, etc. “Profiling” the ideal director can be a valuable tool for determining current Board needs, and for assisting in the search and appointment of new directors.

Evaluation & Review

Of the many topics and issues that Boards must address, one of the most important is that of evaluation and review, for both the CEO and the Board. For the CEO, the evaluation criteria are often quite simple, e.g. “bottom line”, or year end results. Although no one will argue with results as a measure of CEO effectiveness, expanding the criteria somewhat can give the Board and the CEO an opportunity to focus on the future as well as the past. Defining such criteria should be a joint exercise between the Board and the CEO, including identifying measures and standards of performance. To assist with the process the Board and CEO may want to examine management models such as the Malcolm Baldrige Award Criteria for Performance Excellence (i.e. Leadership, Strategic Planning, Customer and Market Focus, Information and Analysis, Human Resource Development, Process Management, Business Results) or perhaps Peter Drucker’s Key Results Areas. Using these or similar management models as a guide to CEO performance review should lead to a comprehensive evaluation. However, the usefulness of a CEO evaluation often depends on the efficiency and effectiveness of the overall evaluation process. When designing such a process be sure to consider – Are the right measures being used – Are both the CEO and the Board comfortable with the process – Will the process be periodically reviewed for effectiveness? Board evaluation should be much easier than CEO evaluation, but seldom is. Most Boards simply have no experience in this area, or find such a process very uncomfortable. If a Board has clearly stated its purpose and major duties and responsibilities, it can have a discussion once a year around that purpose statement and simply ask (and openly discuss) “How are we doing in these areas?” Beyond that a Board can also develop a set of more incisive questions, to ask periodically, that address the value added of the Board. For example – Do Board members understand the changing nature of the industry – Are Board members clear about the strategic direction of the company – Does the Board have a process for shaping and approving strategy – Is the composition of the Board appropriate for guiding the company into the next year, decade, century, etc?

Conclusion

Getting the most value from the Board is extremely important in today’s highly competitive and rapidly changing industry. Organizations should expect their Boards to be critical and leading edge thinkers, as well as sources of stability and wisdom. To do so, Boards must periodically assess who and what they are; and ask how are they doing, and how can they be more effective. Most importantly, like organizations, Boards must be willing to change.

© 2004 Sigma Resource Group, Inc. You are encouraged to share the contents with others with appropriate attribution. Mark Akerley is President of Sigma Resource Group, a strategic growth and executive development firm assisting business owners, entrepreneurs and executive teams achieve their goals contact Mark Akerley.


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