A board is often a snapshot of the organization: There are a lot of talented individuals, but the real challenge is getting them to work together, for the common good. These professors have developed five principles to enhance the process. The first principle? It starts at the top, with the chairman.
If you scan the lists of corporate board members you cannot help but be impressed with the calibre of directors. Corporations are able to attract such talent not because of their compensation packages (a few well-publicized exceptions aside) but rather because directors derive a variety of social, psychological and intellectual benefits from board service. But too frequently, boards have difficulty delivering value to management that is commensurate with the true capabilities of the board members themselves. Too frequently, boards fall short of their true potential. This is a costly failing in terms of corporate performance and lost opportunities. Establishing a “value adding culture” may be the answer.
In this article, we begin by offering the insights of a panel of broadly-experienced directors into the “ingredients” of a value-adding culture. We follow this with a discussion of what a board can do to develop such an environment.
A value-adding culture
A value adding culture is one in which directors move to a higher level of intellectual engagement according to the challenges confronting the company, and in which the board becomes more than a passive sounding board for management. Directors actively and meaningfully participate in both improving options and bringing to the table ideas not previously considered.
Developing a value adding culture
Many on our panel of over 30 directors are board chairs of major corporations; some are CEOs and many serve on both private and public boards. Some report serving on boards where they felt that their personal contributions and those of the board as a whole were somehow limited. Most, however, have also experienced the satisfaction and feeling of accomplishment of serving on a board with a genuinely value adding culture. From their collective insights and observations we are able to paint a portrait of the value adding board and suggest the directions that should be considered if a board seeks to become full partners with management by developing a value adding culture.
It is difficult to overstate the importance of the board chair in developing a value-adding culture. This key individual has relationships with the CEO, with the board as a whole, and with individual board members. Each relationship is different and must be handled differently. Clearly, the chairperson needs to be able to maintain a strong professional relationship with management, but also one with enough distance to allow him or her make hard decisions. The balancing act the chairperson must perform in working with the CEO and senior management is to add value without being seen to be meddling. In other words, the chair needs a clear understanding of the role of both the board and management.
A second critical relationship skill for a board chair is the ability to bring a diverse and highly talented group of individuals together to consistently add value. The chair has to create that certain atmosphere in which good governance practices prevail and each individual on the board has an opportunity to contribute. To achieve this, the chair must be conscientious in soliciting contributions around the table and ensure that each board member is heard and respected. Consistently, our panel pointed out that the board chair that attempts to dominate is unlikely to create a board that is value adding.
We interviewed one CEO who spoke with considerable enthusiasm for, and anticipation of, board meetings. He commented that his board always left him energized and excited about their thoughts and perspectives. He clearly regarded his board as true partners in the venture and greatly respected and appreciated the value they added. In his case, a carefully selected board, led by a talented chair teamed up with a CEO who expects the board to provide leadership, creates a synergy that is generating valuable results.
The proactive CEO
There is a tradition in many organizations that the CEO, and not the board, brings strategic issues to the table for discussion. If the board is to become truly value-adding however, the CEO must become proactive in challenging the board to provide new ideas. We were told that the CEO has to become more consultative with the board rather than always be “selling” a new scheme or concept. Thus, the onus to become value adding does not rest solely on the board or the chair but also on the CEO. When this occurs, our panel reported, directors become caught up in the drive for corporate success and the board itself becomes a major contributor of new opportunities. Such boards critically enhance management propositions and provide insight as to new directions management has not considered.
Train the directors
Fresh insights are almost invariably a product of the many years of experience board members bring to the table. But our panel indicated that truly astute insights are the result of more than experience. We were told that many directors need training and conditioning to develop value-adding skills. Not only do they need to develop the ability to come up with that “great idea” but also to understand how to package and communicate the concept in a meaningful, compelling fashion. There are often those at the board table whose genius enables them to grasp the strands of expressed thought and spontaneously roll out a compelling vision. For the rest, the process usually occurs over time, if at all, and entails plenty of thought about corporate directions, capabilities, and the uncertainty of the future. Both new and seasoned directors, we were told, require specialized programs that should be available through the professional governance-oriented training institutes in the private sector, universities, and the various board associations.
Encourage social interaction
Several on our panel pointed out that a major obstacle to a board ‘s becoming value adding is the lack of contact between directors outside the formal environment of board meetings. Social interaction enables directors to fill out the personalities of other board members who may sometimes seem one-dimensional and cardboard-like. When topics such as family, travel, sports, intellectual interests and hobbies are the basis for discussion, personal relationships begin to form and that “hard-nosed” personality across the table starts to behave differently. In effect, directors become more confident with their colleagues and less fearful of their adverse reaction to bold initiatives when they know them as human beings with similar interests and concerns.
Creating opportunities for social contact may present a difficult problem when directors live far apart. However, for boards with local members, events such as golfing, barbecues and dinner parties are an easy option. But some on our panel were most enthusiastic regarding the value of a retreat. A rustic setting, isolated from cell phones, fax machines, secretaries, and family distractions is seen to provide the kind of atmosphere in which a genuine value-adding culture may be nurtured – and established. Combining the inherent social opportunities of such an environment with professional facilitators can be the tonic for dramatic improvements.
Meet information needs
But even the most talented group of directors can be run off the track if the working environment of the board is inadequate. For a start, the information needs of the board must be met if directors are to be thoroughly prepared. Binders of tables, charts, diagrams, and analyses can be a genuine barrier and need to be distilled to their core meaning. The agenda must be thoughtfully structured, and items need to be relevant, timely, and supported by facts. In effect, management and board staff need to invest seriously in ensuring the board is adequately informed.
Several on our panel pointed to the recruiting of top-quality directors as one of the most critical factors in building a value-adding board. They spoke of the need for the nominations committee to develop a long-range strategy to recruit individuals with both the right skills and positive personalities. They indicated that nominations committees are often focused on the short-term task of filling impending board vacancies. The process too often involves developing shortlists of particular people who are immediately available, and less focused on the long-range needs of both the company and the board. Nominations committees need to carefully determine whether certain business skills need to be acquired and consider whether a catalyst or particularly energizing personality could help the board “reinvent” itself to meet new challenges.
One highly experienced director attributed a less-than-optimal physical setting for board meetings as an obstacle to becoming value adding. Or to put it positively, comfortable, pleasant, well-lit, and impressive boardrooms can bring out the best in a group. He spoke persuasively about the positive environment that prevailed in a board when such conditions prevailed, and contrasted that with other settings less comfortable or less prestigious, where the enthusiasm level seemed to conform to the rather ordinary setting. This interesting observation suggests that there may be something psychological about the setting in which board meetings are conducted. Perhaps a well-designed, well-appointed boardroom communicates respect for the board and commands greater energy and higher quality discussions than does the boardroom that is mediocre.
Moving toward value adding
From the above, we are able to identify and develop may be referred to as the “5 R’s” of moving toward a greater value adding role: relationships, recruiting, retaining, replacing and retreat. These seem to embrace the underlying problems and conditions revealed in our interviews and provide some immediate focus for boards intent on moving towards a value-adding environment.
The 5 R’s of developing a value-adding culture
1 Relationships, positive ones, that is, need to be created within the board and between the board and management.
2 Recruit to find new directors with the “right stuff.”
3 Retain talent by behaving professionally.
4 Replace problem personalities and underperformers.
5 Retreats engender “new life” on the board.
We have seen that the network of relationships within a board and between the board and management is crucial. This appears to be one of the real keys to establishing the value adding culture. As with a simple interpersonal relationship, making and keeping it healthy requires commitment and a belief in the value of doing so.
A recurring theme in our interviews was that one of the best things you can do to improve a board is to recruit the best people possible. As we have indicated, this means that the nominations committee needs to have a broader vision, one that encompasses more than simply the need to fill an immediate vacancy. The committee may need to find someone who can perhaps add a new dynamic to the board environment. Repeatedly, we were told the importance of recruiting board members with a variety of experiences, and to avoid uniformity of background. Since acquiring effective board members is a critical factor, the patience to find that right person is indeed a virtue.
Our panel indicated that top-quality directors are not retained simply by means of a generous compensation package. Instead, they are attracted and retained by an environment that enables them to associate with other respected business leaders and provides them with an opportunity to make a real contribution. They are retained by a board which has an atmosphere in which directors show respect for the ideas of others and give credit where due. Critical to such an atmosphere is an open-minded chairperson, an independent nominating committee, and a sound member-assessment or appraisal policy. The presence of such factors communicates professionalism in board-related matters and serves to strongly tie people of talent to the board.
We have discussed the need to sometimes replace problem personalities or otherwise under-performing board members. This may be unpleasant of course, but to let matters slide in hopes that time will lead to improvement simply increases the damage and may postpone the inevitable. Removing a director around whom conflict seems to be centered is viewed by our highly experienced panel as potentially one of the single most important steps to improving board effectiveness.
Our pane l stressed the need for more frequent communication between board members outside the formal board environment, and indicated that such communication could be greatly facilitated through organized social events. The most effective of these in the longer-term was seen to be the retreat. If planned carefully by professional organizers and facilitators, a retreat can provide a kick-start to a board and give it new life. Structured activities focusing on long-term issues in which all attendees participate and become involved can result in significantly improved problem-solving approaches. By the same token, unstructured events with a strong social flavor help to reveal dimensions of individual personalities. This in turn serves to lubricate interpersonal exchanges and minimize the friction often involved in difficult problem solving. In general however, whether you employ the retreat device or not, creating social settings in which board members can get to know each other out of the formal board meeting context is very helpful.
Most corporate boards are a concentration of enormous talent, wide experience, invaluable contacts, and considerable energy. A board’s potential to improve corporate performance seems apparent, but realizing this potential may be inhibited by deficiencies or faults within the board itself. With our advantage of relatively easy access to directors, board chairpersons and CEO’s, we are able to develop insights regarding the factors that interact to create individual director effort and higher levels of board performance. Evidence to date suggests that the relationship between the board and management, and the relationships within the board itself, are exceptional assets that if understood and managed carefully can enable a board to realize its full value-adding potential.