Embattled Companies Need the Right Directors
To contribute effectively during economic uncertainty, directors need candor, care, curiosity and humility.
Serving on a board can be a challenge in uncomplicated times, but the task becomes elevated when a company hits a rough patch, such as a drop in the stock price or a general lull in the economy. We spoke with Dr. Charles Zimmerman, director of Univest and Clemens Family Corporation, to get his views on the types of individuals a company needs on its board in times of crisis or trauma and steps boards can take to ensure they have the right people on their board to suit the situations they are going through.
Directors & Boards: What sort of individuals or committees do you think are essential to have on a board during times that are tough, such as a rough economy or when stock prices are down?
Charles Zimmerman: The standard standing committees (executive, audit and governance) enable a board to handle most routine issues and concerns. It is important to remember that all board committees should be working committees. They are accountable to the full board, but the full board should not function as a committee of the whole, revisiting in detail all the work of the committees.
Directors need candor and care. They have the responsibility to speak up, offer credible challenges and share their opinions or perspectives, but that straight talk must come in the context of care for other directors and management. These qualities are necessary all the time but become absolutely essential during difficult times.
Occasionally, during tough times, it may be prudent for a board to establish an ad hoc committee to investigate a particular issue and offer recommendations and proposed initiatives. I have found it helpful at times to populate some of these committees with non-board members: senior management and outside experts, to name a couple. If an ad hoc committee is going to be established, the charge should be clear, the expectations delivered in writing and a date when the committee’s work is due should be established.
DB: Are there individuals that are key to have on the board during difficult stretches, but then become not as useful when things are going well? If so, how do you handle that?
CZ: Critical thinkers immediately come to mind. These people can quickly process data and propose possible ways forward. They usually aren’t just steps ahead of others, but yards ahead. They also tend to be impatient waiting for others to catch up. The problem with critical thinking is that there is a fine line between critical thinking and just being critical, so they often wear out their welcomes.
Humility is an essential quality in tough times. When the going gets tough, most people immediately want to assess blame, and rarely do they blame themselves.
Boards enter and leave seasons, and different seasons may require different personalities and skill sets. If the business is in an aggressive growth phase or is expanding rapidly, directors with entrepreneurial inclinations and experience may be important. If the company is in the midst of, or just coming out of, some corporate, relational or customer trauma, the board may need a season of healing where building and deepening relationships and healing wounds is necessitated. Private businesses that have experienced significant rapid growth need to make sure that their systems are scalable and appropriate to bring consolidation and stability to what may have been chaotic.
Governance committees have the responsibility to assess the board as a whole, as well as the individual directors and their contributions. There are lots of standard evaluations, but I believe whatever instruments are used, they must be contextualized. Just like with employees, directors should know what their responsibilities are and what specific expectations the organization has for each individual director. Quantitative evaluations should be coupled with qualitative evaluations. The expectation should never be that once elected to the board, every director will automatically remain on the board until they retire.
DB: What steps do you think can be taken by boards to ensure that they have the right directors for any particular point in time? Is it a matter of board evaluation? Does management play a role?
CZ: Some characteristics and qualities are concrete and measurable; others are best assessed in relationship with informed intuition.
I am an advocate of developing and utilizing a board skill set matrix, by which the desired qualities, expertise and experiences are quantified and listed along with the boxes checked by the sitting directors. The matrix will show where you have gaps and duplication, which should set the governance committee up for proactive director recruitment and development. Directors, significant shareholders and management should be part of the process of developing and updating the skill set matrix.
Since things are always changing, the skill set matrix should be a working document that is regularly updated. Directors and management certainly should have input into the development and utilization of the board skill set matrix.
In my opinion, the board as a whole should be evaluated annually to ensure that it is performing in a synergistic way. Each director should be evaluated annually as well to ensure they are adding value and being deployed appropriately.
DB: What do you think are the essential roles for boards in our current landscape? What emerging issues need attention from boards?
CZ: It’s been said that we live in a VUCA age (volatility, uncertainty, complexity and ambiguity). Therefore, boards must be learning communities if they are to serve as stewards of the organizations they represent. Directors need to be curious about issues, concerns and topics that may not have anything to do with the business they are governing. We do not know what forces will come together or how they will come together, but we do know that everything affects everything.
Emerging issues include:
- Governance, including board composition, evaluation, development and compensation
- Technical vs. adaptive change
- Litigation and activism
- Succession of the C-suite, independent directors and family-member directors
Learning involves humility — recognizing that you do not know all that you need to know to make a decision and being willing to put in the work and make the effort to acquire new information and listen to others without assuming that you already know the answer.
Independent directors bring an objective perspective to help assess risks that could have significant impact on the organization and then help the company prepare to respond in ways that mitigate the risk or leverage the risk as an opportunity.