What is a Board of Directors?
For C-suite leaders in public companies and some private and non-profit organizations, a key stakeholder is the board of directors. A board of directors is the governing body of an organization, weighing in on and making key decisions in the areas of significant investments, mergers and acquisitions, strategic direction, dividend allocation (public companies), setting compensation and hiring and firing of senior executives. If directors are going to perform these duties effectively, they must build a strong foundation of knowledge on the industry and the organization’s business. Unfortunately, this is rarely the case. Research with more than 1,500 directors of boards found that only 10 percent of board members felt that they had a comprehensive understanding of the industry and market dynamics and only 20 percent believed they fully understood the company’s strategy.
Strategic Thinking and the Board of Directors
Directors are often appointed to boards because they bring new and different perspectives, which means in many cases they come from different industries. These new and different perspectives can be valuable if they are quickly complemented by a thorough understanding of the company’s business and the industry in which it operates. However, if a company’s senior executives are continuously having to educate directors on fundamental business dynamics and spend time in board meetings answering questions about basic principles of the business, then changes need to be made. If these issues ring true, several approaches to these changes should be considered.
If a director has been onboarded with the appropriate background information on industry dynamics, and fundamentals of the business, and has been on the board for at least a year, then it’s fair to test their knowledge. Have each director take an industry and company business assessment on an annual basis to ensure that they possess a baseline level of knowledge. Directors that don’t pass the test should be removed.
Directors should also be evaluated annually on their overall contribution to the board by their peer directors. One technique is to have each director write down the names of five other directors whom she or he believes adds considerable value and should remain on the board. If a director is does not appear on anyone’s list, they should be removed. Richard Parsons, former chairman of Citigroup and CEO of Time Warner, cites a Fortune 50 CEO when he writes, “It impacts other directors if you tolerate a weak board member. It’s hard, but you have to step up to the plate.”
Strategic Planning and the Board of Directors
A survey of more than 1,000 corporate directors showed that the number one reason for the success or failure of CEO appointments was alignment on strategic direction between the board of directors and the CEO. Therefore, a key consideration for many C-suite leaders is how to engage with their boards on strategy. Are you engaging the board of directors in unscripted conversations fueled by provocative questions that are generating insights based on their experience and expertise? Or are you and your team spending hundreds of hours a year preparing scripted presentations that are robotically rubber-stamped by the board for approval? David Pyott, CEO of Allergan, said, “Boards need to have strategy discussions with management and the CEO all year long. It can’t be a ‘once and done’ event—strategy needs to be discussed at literally every meeting.”
Board of Directors Off-Site Strategic Planning Meeting
A powerful forum for executive team and board of director interaction is to conduct a bi-yearly offsite meeting on the key challenges facing the organization in the next three years. It’s important to prepare 3-5 thought-provoking questions as pre-meeting work so that participants have an opportunity to think deeply and descend below the surface of the business to the core issues. An external facilitator can add value to these sessions because of their neutrality, which enables all of the executive leadership team members and board of directors to share their full perspectives without having to appear impartial to the outcome. A board of directors can be an invaluable source of insights and guidance for the executive team, or they can be a never-ending sinkhole of wasted time and energy. Choose wisely.
Making sure your directors are fully strategic is a great way to set them up for success. The Strategic Fitness System is an on-demand executive development platform where leaders practice how to think, plan, and act strategically.
