Building a Board That Matters

Building a relevant board

If you are an entrepreneur – you will usually become a director of
your company and the first director of your board. Also, if you are a
manager and you stick around long enough – you tend to get to the
director level within your organisation. Building a board is complex and
the question is how to build a better board that matters?

Why do organisations have boards? The basic idea is that the owners
or shareholders are basically investors seeing a return and they appoint
directors to act on their behalf. Boards also have a role to add value
without meddling and to play a role in making CEO’s more effective but
not all powerful. In the non-profit context, a board is a mechanism that
ensures that the public trust that is put in a specific mission is
protected.

Boards must ensure that the shareholders achieve their objectives. To
achieve this requires a well-designed board with clear intentions and
goals. With an increased set of regulation around boards the fiduciary
duties alone often require a lot of focus and effort by directors.
Boards are also only as good as the information that they receive from
management.

To build a better board must, we must answer how can have a board
that provides effective oversight of the company’s strategic direction
and progress within the limits of time and knowledge.

The board is also there to provide advice, industry insight and
experience and to promote the objectives of the company.

Advisory boards are also becoming more popular as there is a growing
distinction between people that give advice and people that are
responsible for the day-to-day operation of the business. As governance
is sometimes very specialists – the legal liability is less palatable
for people and organisations.

So now that we know what Boards are for – the question is what does
the Board of Directors do?

The laundry list of key responsibilities for the Board is outlined
below:

• Providing oversight on the general and specific actions in
  relation to the mission and vision of the business;

• Being effective through establishing relevant structures,
  processes and membership criteria for the board;

• Planning the functioning of the board;

• Planning for key areas in the business;

• Establishing relevant working groups or committees for dealing
  with areas related to the mission of the organisation;

• Living effective culture and behaviours both as a board and
  monitoring the same in the organisation;

• Succession planning for the board, CEO and where applicable
  senior management;

• Providing strategic advice and direction as well as set and get
  involved in the execution of strategy;

• Approval and agreement on general compensation practice as well
  as specifically executive compensation of the CEO, board and senior
  management;

• Ensuring the production of accurate management information
  including audited financial statements including agreement on specific
  application of financial policies;

• Delineating the matters of strategy that is to be addressed by
  the board and by management;

• Addressing the matters of strategy that is within the ambit of
  the board.

Some jurisdictions and countries as well as specific companies have
different expectations from boards – so always please check these
requirements.

David Nadler (Nadler, 2004) outlines that the role of the board is
critical and that is likely that you board is either one of the
following:

Passive Board: The Board’s activity is minimal and at the CEO’s
discretion. The main job is ratifying management’s decisions.

Certifying Board: This type of board focuses on credibility to
shareholders and typically has a significant outside director presence.
The board certifies that the business is managed properly and the CEO
meets the Board’s requirements.

Engaged Board: The board serve’s as the partner of the CEO and
provides insight, advice and support on key decisions. It effectively
oversees the CEO and company performance. The board conducts substantive
discussions of key issues and actively defines it roles and
boundaries.

Intervening Board: This model is common in crisis. The board is
deeply involved in key decisions about the company and holds frequent
intense meetings.

Operating Board: The board makes key decisions and management
implements them.

A Management Board: This is a board in which there is no distinction
between senior management and directors. This is typical of growth
companies where board and management roles have not been
crystalized.

So to become more effective it is important to ask what kind of board
you are putting together and what roles and expertise is required to
make this work. This is the role of the board.

Once the board has the right role, the next task is
to ensure that they do the right work. Through clear
definition of the tasks of the board this should be relatively easy.
Active discussions need to clarify the roles and duties of the board as
opposed to management and this must be captured in action plans and
authority matrices.

Moving on it should go without saying that no board will be
functional without the right people. The real issue is
competence and maturity in the industry that you are in. The correct way
is to analyse the business and recruit the best directors to fulfil
those requirements that will unlock value in the business. Industry
knowledge, understanding of key aspects thereof, independence, business
credibility, education, financial expertise, confidence and teamwork are
key criteria in assembling most boards. On-going board development is a
critical aspect of making such a team effective.

The next aspect of an effective board is an effective
agenda. The agenda must focus on serious questions, troublesome
concerns and authentic debate. Too many times the board meeting is
“stage managed” to achieve specific outcomes. The hallmark of an
effective board is one in which the board requests management to prepare
specific items and where the agenda is influenced or set by the
board.

The last, and arguably the most important, is to ensure effective
follow-through and delivery of agreements. When the board agrees this is
binding on the organisation and building this sense of authenticity and
delivery is critical for a board to be effective.

So why do you want to become a board member?

As a director you will find yourself loved, hated, admired, scorned,
accused of all kinds of things and even sometimes ignored. It’s part of
the job. You will need to set aside personal interest and priorities to
make decisions that are best for the organisation. You will learn how
fiduciary duties can weigh heavily on you and how seemingly small
problems can be the indicators of much larger problems and how action is
more important that words.

The benefit is that you will guide and strengthen an organisation and
ensure that the full potential of a meaningful goal is achieved.

Conclusion

Taking on a board responsibility is not a light task – but one that
can be very fulfilling. In order to do it right it is important to
design the board to function well and to encourage and develop a cadre
of people that can tackle the most complex business issues and guide the
organisation to unlock value.

Reference:

Nadler, D.A (2004) Building Better Boards, Harvard Business
Review, May 2004, p102-p111