The Care & Feeding of an Effective Board
By Ram Charan

Getting the most out of your directors.

The right support makes a huge difference in a board’s ability to govern well.

Directors are extremely busy people who are often under mental stress. The dread of an activist shareholder, or a cybersecurity attack, or demands for accountability from institutional investors is ever present.

Then there is the physical stress. Travel delays, cancelled flights, traffic jams on the way to the airport and unhealthy snacks in the boardroom all take their toll.

Here are five items to help directors use their time and energy more productively and reduce the physical hassles.

1. Make information easy to digest. Great directors are masters of cutting through the clutter. They get to the point with amazing speed and pinpoint laser- sharp insights. They ask simple questions that open people’s eyes.

They need pithy, extremely well-organized, and coherent information packages and presentations. And they need the package one week ahead of the meeting to do justice to dialogue in the boardroom.

In one case a superb director coached the CFO to redo his presentation from 50 pages to just seven. The issue was whether to cut the dividend in 2010 in the depth of recession. The revised presentation helped directors get to the heart of the issue very quickly:

Slide 1: Statement of the question whether to cut the dividend or not and if yes, by what amount and when, along with the recommendation to keep the dividend as is.

Slide 2: Why? Cash flow forecasts under three mutually exclusive sets of assumptions regarding capital markets, industry demand and competitive moves. A footnote steered directors to the appendix for detailed data and analysis.

Slides 3 and 4: External trends and data from Goldman Sachs.

Slide 5: Management’s view of the moves by peers.

Slide 6: Explicit description of consequences of a dividend cut on the stock price.

Slide 7: A repeat of slide 1, stating the question and the recommendation.

The CFO’s presentation was done in 15 minutes and was followed by a 30-minute discussion of the pros and cons. Directors had received the deck one week ahead and had time to study the appendix. The meeting was over in 45 minutes.

2. Create a 12-month agenda. Directors’ total face time as a full board varies from some 40 to 60 hours. So much to do. So many external pressures.

Pick the highest value items for the board to focus on over the next 12 months. Block out the quality time required to get the best output. In a year, four to five topics will require three to four hours of total immersion each.

As an example, in 2019 topics for a domestic automotive company might include: a deep dive into the capability and talent needed for the new automotive landscape, building and sustaining an ecosystem for differentiation, funds allocation between the existing core and the new initiatives, and learning in every board meeting about the fast changing external landscape — competitive moves of disruptors, and the like.

3. Keep dialogue in the boardroom on track. The board chair, lead director, or CEO must summarize the three to five takeaways for follow-through before the meeting adjourns. Inform the board about the execution of takeaways as needed.

A lot of time is wasted and stress is created by a lack of focus and dialogue that wanders without insight or closure.

4. Facilitate direct contact with upcoming talent. Seat two directors with two or three succession candidates or key people at breakfast, so they can socialize informally. Arrange for directors to visit leaders on site, one or two directors at a time.

The payoff is tremendous.

On one such visit a director of Coca-Cola saw potential in the person who eventually became Muhtar Kent’s successor. The director’s observations of James Quincey reinforced Kent’s, and Quincey’s development was accelerated.

5. Pay attention to physical needs. The hosts must get to know each and every director’s unique needs and causes of physical stress.

Their admins are a good source. Travel and dietary needs should be met flawlessly. I’ve seen staff members guide directors to their respective cars at the end of the meeting, saving steps and giving directors one less thing to think about.

Long boardroom tables can strain hearing, and no one wants to have to repeat a point. Also, having some 30 people in the room inhibits discussion. The space where the board takes breaks sometimes has impossibly uncomfortable chairs, not helpful for people whose ages skew older.

Attentive waiters and small assists — any little thing the company can do to reduce the friction of board service — can really change the mood and help directors focus on the things that matter most and affect so many people’s lives. 

Ram Charan is a business advisor, author and speaker who has spent the past 35 years working with many top companies, CEOs and boards.


2018 Third Quarter

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