A CEO's Guide to a Much Under-Used Asset: The Board
There are a lot of guides for directors on how to do a better job. But Beverly Behan has written an excellent and very practical book for CEOs about how to get the most from their boards. Most companies knock themselves out to bring on the most accomplished and knowledgeable board members they can find -- and then throw a lot of briefing materials, presentations, and compliance check-lists at them instead of getting the benefit of their expertise on trends and strategy.
Great Companies Deserve Great Boards: A CEO's Guide to the Boardroom will be out on June 7. Behan gave me a sneak peek into some of her ideas about what CEOs can do to make better use of their boards.
Q: Do most CEOs fail to get the most from their boards? What are they missing?
A: Absolutely. Boards are one of the most underutilized assets in corporate America and there are many issues that need to be addressed to get more value from our corporate boards.
Sometimes, the make-up of the board, itself, is the issue. Most nominating and governance Committee charters frame that committee's responsibility in mechanical terms: To recruit and/or ce-nominate directors. But in my view, the true mandate of a nominating and governance committee is to provide company shareholders with the optimal slate of directors they can find to govern this company -- essentially to put the best possible governance team on the field.
Held up against that standard, many wouldn't fare too well. Last year, Women Corporate Directors, Heidrick & Struggles and the Harvard Business School conducted a survey of roughly 400 board members in which more than 30% said there were skills and experience clearly lacking from the boards they served on. Yet often, rather than going out to fill those gaps, nominating committees continue to re-nominate incumbent directors until someone reaches the mandatory retirement age.
And composition is only one issue. I often ask CEOs about the balance of presentation time vs. discussion time is in their board meetings. Often, they'll tell me that it varies, but roughly 75-80% of the board meeting consists of PowerPoint presentations and 20-25% involves questions and dialogue with the board.
If that's the case, the CEO is using the board primarily as an audience to listen to management reports rather than a thought-partner to have meaningful discussion about complex issues the company is grappling with. So you can solve the board composition problem and get outstanding board talent at your table, yet vastly under-utilize your directors by failing to draw on their experience in a meaningful way.
Next: Scrap the surveys and let boards be boards»
Q: How do board evaluations play into this? Can they be more meaningful?
A: Board evaluations -- when they're done right -- are the most powerful tool I've ever found for taking a board from good to great. However, most board evaluations are not done in a meaningful way and many are a waste of time. There are three things you need to do in order to get real value from a board evaluation:
First, scrap the surveys and conduct a series of interviews (45-60 minutes each) with every member of the board and those senior executives who regularly interface with the board. Ask them in some detail about every one of the eight components that goes into a board's operational effectiveness: Board composition, information, agendas/meetings, leadership, committees, board dynamics, the board/management relationship and board processes (which includes how the board engages on strategy, risk, succession etc.)
Don't ask closed-ended questions like: Do we have the right board composition? Ask open-ended questions that generate good ideas, like: If we were going to add one new director to our board, what skills or experience would you find valuable to bring to our board table?
Summarize the key themes -- and when I do these types of reports, they are typically in excess of 25 pages, not some little scorecard -- and circulate this prior to the meeting so that everybody walks in on the same page. If you've done this right and got people engaged, you'll typically generate at least 3-5 worthwhile issues to tackle in the meeting, itself. Set aside 90 minutes or more for this purpose -- and make sure to bring in some data and alternatives to this board discussion.
For example: If risk oversight is one of your themes, you might provide some data about the prevalence of risk committees among the S&P 1500 boards, or a sample risk committee mandate, examples of how other companies have tackled risk issues without forming a risk committee, such as an annual risk review, etc.
- Once the board has discussed each priority issue and determined how best to approach it, put together an action plan for each item. The action plan gives the board a road map that they can use over the next 12-18 months to ensure that there is follow-through.
Next: How CEOs can best use time spent on board matters»
Q: How much time do most CEOs spend working with their boards?
The only study I've ever seen on that topic is one that came out last year sponsored by Bill Johnson, the Chairman and CEO of H.J. Heinz Company. Researchers Leslie Braksick and James Hillgren, who interviewed roughly two dozen CEOs in their research, found that CEOs were spending up to 25% of their time working with their boards and board members, both collectively and individually.
Personally, I think that one-quarter of a CEO's time spent on board/director matters is probably too high a proportion of time, unless the CEO is new to the job and in the process of building a working relationship with them.
Q: Is this enough? Too much? How can they use this time more effectively?
A: I always tell new CEOs to spend some time at the outset to talk to their board members about how they want to want together. What do directors expect from the CEO and what does the CEO expect from them? What do they respectively see as the priorities for the company and for the board? Can they identify ways in which the board can be more effective?
It's amazing how many CEOs spend time talking to their directors but never actually discuss their working relationship. When they do -- and often when a list of expectations is compiled from these conversations and discussed with the full board -- it often makes a big difference in how the CEO and the board spend their time. This can include expectations about how much time the CEO expects a director to devote to board affairs: Among U.S. public companies this number averages around 225 hours/year. However, if this is a company with a lot of issues, the time expectation might be higher and this should be spelled out.
Similarly, they might want to define a reasonable amount of proportion of time that the CEO should be spending on board interaction. There are enormous benefits to be derived for the CEO in engaging the board members in discussions about how the board works - yet it is something that rarely happens.
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