Here are a few “rules of the road” in constructing and leading your board. Boards are like any other group in that they perform best when they are well led (as contrasted with “managed” — especially managed to death by PowerPoint.)
• Set the Tone: To maximize your board's effectiveness, you need to help them by setting the right tone as CEO. First, you will be well served if you make it a part of your standard cadence to call each board member a week or so before the board meeting. These are brief 10-minute calls just to see what's on their mind as issues or topics. If there is a big concern a member has, you have the opportunity to diffuse it rather than be ambushed in the meeting.
• CEO Letter: One idea I have seen work well is to consider writing a brief one- to two-page letter to the board a few days before the meeting. This helps to focus the board on the key points.
• State of the Union: A best practice I've seen is that the CEO starts each board meeting with a mini-“state of the union” soliloquy. This has the benefit of reinforcing your role as CEO and leader, and focuses the board on the key topics of the board meeting.
• ‘The Board Eats What You Serve Them': Specifically, when you don't identify a topic you are seeking input/guidance on, then the board will just jump in and can take the discussion down tangents that are less productive. Boards are made up of smart, motivated people who want to make a contribution. It's incumbent on you to lead them to the right subjects.
Board members want to participate and contribute. The best way to engage your board and to get value out of their experience is to identify the strategic subjects (1-3) where you specifically seek their input. For example, you might raise a significant topic like, “When and where should we expand to new international geographies?” or “Should we take a fork in a product road map decision?” In each example, you ought to have a management recommendation and seek the board's input.
• Each Director Should Take the Hippocratic Oath of ‘Do No Harm To the Patient': The board's role is oversight, not overstep. New board members sometimes have a learning curve on this. Your chairman or lead independent director should help guide new board members on the correct level of engagement — what's helpful, what's not. You will do well if you give the feedback to your chair or lead director on members who may be drifting from oversight to overstep. Do this early if you experience this.
Just as the board will discuss you, your team, and the company's status in the executive session (see below), you also should share any feedback on the board's performance to your chair/lead director.
A satisfying and productive board meeting will cover two to three big strategic topics. The board packet with last quarter's financial performance and the forward-looking financial targets for the remainder of the year should be sent to the board three days prior to the meeting at a minimum. Expect and assume your board has read these materials and thought about them. You will irritate the board if you waste 25% of the meeting reciting this information. Be prepared to present the key financial insights on growth, costs, profit . . . sharing your analysis about the concerns and conclusions on the numbers.
• Choosing Your Board Members: Building your board is a key and crucial job where you want to be both thoughtful and maybe a bit paranoid. Your board should be a true competitive asset for your company. Standard committee oversight and competence are table stakes. You should plan over time that you may evolve and forward hire (or do board renewal) just as you do with your direct reports.
To enable board renewal, I recommend you put into your governance principles that the role of the lead director or chairman auto-sunsets each year. A typical term for a lead director/chair is often 5-7 years; however, if you were to get sideways and out of alignment with this key board leader you need a mechanism that enables you to remedy this.
Along the lines of being “a little paranoid,” here is an important tip: Your longevity in the role of the CEO directly correlates to your personal engagement in selecting your directors. If you don't ensure that within the first 18 months or so you have had a high level of involvement in selecting at least one-third of your directors, statistically your term will be less than five years.
• Skills Matrix: Sometimes you need a technique to “rotate off” your board members. They might be investors or simply directors you have outgrown. A non-emotional, face-saving method is to create — together with the board — a collective view of the skills/expertise/perspective needed to be an asset for the corporation's coming five years. So, for example, your skills matrix might include: deep domain knowledge; experience in scaling through hypergrowth; global go-to-market involvements; M&A and post-merger integration oversight; financial expert; compensation committee chair experience, etc.
• Diversity of Thought: Diversity of thought is very valuable to board discussions. Sometimes people characterize this as gender or race diversity. While this is part of the concept, I would posit that bringing together directors from different geographies, or maybe a customer perspective or an adjacent industry perspective, enriches discussion and constructively helps in stress-testing logic and ideas.
• Beware and Be Aware: Additionally, a horrifying statistic is that 25% of terminated CEOs are replaced by board members. There was no succession plan. What's most disturbing is that anecdotally, after serving on some 25 public boards, I believe maybe half of those 25% terminations were coup d'états — assassinations. Don't invite Machiavelli into your boardroom. (See my article, “Machiavelli in the Boardroom,” Directors & Boards, Second Quarter 2014.)
• Ask for Help: During your board meetings directors often offer introductions/help leveraging their networks (as they should). These offers are almost never followed up on. Ask your lead director or chair to capture these offers for follow up/follow through. Additionally, often there is an important request by a director to get further information on a subject or for a follow-up discussion on a question raised. Create a mechanism in your board meetings to capture these requests or you will frustrate and annoy your board and seem
unresponsive.
• Executive Session: The executive session is a standard best practice prescribed by both the SEC and ISS. Executive sessions are the time when the directors meet without the CEO, led by the chairman or the lead director. Every board meeting should have an executive session. The directors typically will review the board meeting that's just concluded and discuss their impressions of the CEO and leadership team as well as the company's performance. They tend to focus on areas of opportunity, challenge, or concern. They serve to keep the directors aligned. It's key the chair/lead director be a good facilitator to capture each member's views and, importantly, help head off any runaway tangents.
A good chair/lead director will solicit and capture views from each director, then do a roll-up summary with the board. The next step is the ‘read out' to the CEO.
Many approaches work: the CEO can join the directors and receive the summary with all directors present; or, more often, the chair/lead director alone or with one other director present (often a committee chair) will meet with the CEO to share the read out of the executive session. The CEO may want to take notes here and be sure that all the feedback is captured and identified for follow up. This should always be a constructive and helpful session.
In conclusion, your board is there to perform its fiduciary duty as stewards for the shareholders, but more importantly to help coach, mentor and maximize the CEO and the company's potential for the long term. Select your board wisely and run your meetings well and they will be an accelerant for your business. â–
The author can be contacted at betsy@bajacorp.com.