It is one thing to state something simple — and quite another thing to achieve it. Famed Prussian military strategist Carl von Clausewitz, for one, has recognized this phenomenon: “Everything in strategy is very simple, but that does not mean that everything is very easy.”
This notion has never been more true than when dealing with the challenge of creating a high performing and enjoyable board. Defining the goals and objectives of any board is reasonably straightforward. Formulating a realistic action plan for success is more difficult. The techniques, practices, tactics, and tools used to achieve success are not so simple.
The list below captures several areas where it can be simple to state what reality should be — but it is a reality that is difficult to achieve in real life. As is true in golf, baseball, football, tennis and many other sports, the challenge is to follow through to a degree that at first sounds too extreme.
In order to most accurately explain how a board performs and what improvements it makes over time, you must consider the following:
• Design of the Board
— directors' experience
— directors' behavioral attributes
• Feedback to and from the Board
— Group input
— Individual input
• Operation of the Board
— Setting and maintaining priorities (a “dashboard” for operation)
— Annual agendas
Designing the board
In corporations large and small all over the country, selecting a new board member involves the same basic set of criteria, such as:
• What qualities does an ideal board possess? What personal experience and relationships will be most valuable for successfully driving toward the board's objectives?
While these questions should always be an integral part of developing a board, the real-life answers tend to be highly incremental.
A more extreme “follow through” on the notion of designing a board exceptionally useful for a particular company would be to literally start with a blank page (as in Exhibit 1) and rigorously ask and answer the open-ended question: “What would a great board look like for this company?” From there, pose more detailed questions stemming back to that key question, such as:
• What are the key drivers of differentiated success over the next five years? How much value is the current board poised to add to management's efforts in those key areas, beyond their wonderful generic wisdom, expertise, and networks?
This “blank page” approach is one simple tool that helps elevate a board's thinking into a more fundamental revisiting of how far its current board membership may be from an “ideal” group.
Interestingly, many boards have gone through minimal changes over the years, while the companies they oversee and those companies' realities and strategies have been radically transformed. Many of these “old school” boards were assembled at a time when companies' CEOs had disproportionate influence over the way their companies were run. As times have radically changed, many boards have stayed largely the same.
An often overlooked but important consideration for board selection is the personality of a prospective director. This aspect should be weighted equally with experience and relationships. Boards should be considered a team sport. The wrong chemistry or behaviors among directors can negate the value of what may look like a “dream team” of experience and connectedness on paper. While many corporate boards profess to place emphasis on this, their actual processes do not explicitly advance the notion of thoughtfully probing and evaluating candidates in this way.
There are many personality attributes to consider when vetting someone, and the following can serve as a good starting point in judging the fit of a candidate:
— Listening skills
— Adaptability
— Intellectual independence
— Personal security and a reasonably managed ego
— Conciseness
Using an evaluation grid for each candidate and listing these traits as categories, along with more conventional filters (such as past experience, external relationships, etc.), can be effective for mapping and discussing key characteristics for board candidates.
Providing and receiving feedback
Virtually all boards are now required to provide feedback on their performance, by various established processes. However, how much insight and value is actually provided by these processes? Typically, boards will grade themselves reasonably well on most measures — but how many do you think evaluate their own performance in board activities with the same rigor with which they evaluate senior executives'? Yet it takes two to tango, and the board has as much impact on the value created in board activities as management does. It is my observation that the board evaluation process must be carefully designed to get real improvements.
With regard to evaluations of the overall board as a group, one idea is to ask the board to take a few minutes and submit in writing their one or two top ideas for increasing the board's value to shareholders and other key constituencies. These ideas could then be circulated among all directors, with each asked to select the ideas that they deem to have the most merit, and then to briefly elaborate on each. Finally, the board chairperson could facilitate an in-person discussion with the directors wherein the ideas generating the most enthusiasm would be discussed and modified.
I am not advocating for this specific set of steps; variations would work as well. Rather, the point of the exercise is to add something proactive and integrative to the standard survey where each question receives a numeric score and a brief comment.
The subject of evaluations for individual directors is more controversial and less developed, because so few boards do it.
The typical objection to these individual evaluations is that discussions could become contentious. Some of the criticisms could be inaccurate or inflammatory, and reactions could be defensive or explosive, even when criticisms are legitimate. (Note: This ties back to the importance of closely reviewing personality attributes when choosing board directors.) My response is that if either of these situations is likely to occur, it means your board needs to undertake this process all the more.
From my experience, however, a well-facilitated process is actually a gift to each director. Many board members have gone years without significant feedback. They are oblivious to the fact that they have developed some bad habits. For one director, the issue may be that their speaking style has become highly redundant; for another, it could be that they consistently interrupt other people; for a third, the issue might be that they are overly combative when that is not required.
The typical reaction, when they get that feedback in a quiet and constructive manner (and which only they and the facilitator see), is that they are a bit embarrassed and quite grateful.
Note that “well facilitated” is the key phrase for these evaluation sessions. Not all data gathered from directors should be shared, unless you believe your board is ready for that. The session facilitator must be determined by a strong majority of the board to be fair, knowledgeable, skilled at mediating, and well intentioned. The boards that I have been a part of that have done this have typically picked a director who has the trust and respect of the group. Guidance to the board should include a reasonable and clear reminder about the importance of constructiveness and the concept of continuous improvement for all. Exhibit 2 is an example of one form we have used during these facilitated board sessions.
If, in fact, you expose some explosive or highly critical material, it means that is in fact a reality of your board. The lead director and/or facilitator must make a customized decision about how to handle it, as opposed to feeling constrained by any black and white procedures. But the powerful good news is that reality is being dealt with, not just swept under the board table.
A couple years ago we went even further on one board on which I served: We conducted a “New Year's Resolution” go-round. Each director had previously received performance scores and comments from their fellow board directors — with some very slight editing when word choice would have been deemed overly aggressive. Each director was then asked to address the rest of the board and cite one area in which he or she hoped to be more effective (in other words, a “resolution”) in the year ahead. It was a commanding and positive exercise. Every director, when given total flexibility to choose his or her own resolution, actually chose to speak about the subject on which they had received the most requests for change.
Can all boards do this constructively? No. Can a lot more boards do it and benefit from it? Yes. It is a powerful device for creating a more open, fluid, and engaged board. Why settle for less?
Operating the board
Yet another simple truth is that board members are typically busy professionals, and it is important to always be judicious with their time. If you have an effective board, it is a waste not to maximize their value and potential by utilizing them appropriately.
First, the board needs to regularly step back and re-examine itself, from a macro view. Exhibit 3 showcases a tool that is often used by management teams but rarely by boards — the “dashboard.” There is no magic to this construct. The important thing is to have a tool that you use and to look at it regularly, to ensure that the most precious resource — namely, board time — is being allocated strategically.
Second, where in the heavens is it written that you can only employ the standard, required committees for your board? The basic concept of a board committee is that some topics are both (1) extremely important, and (2) require sustained extra time by a subset of the directors. This concept may apply to the core committees used for all companies, but it does not follow that it should only apply to these areas for all companies.
For example, in 2000 we established three additional focused committees for our board: compliance, clinical performance, and public policy. As best we know, we were the only healthcare services company to do this at the time, and believe we still are. We created these committees because they are extremely important to us and required sustained time and attention by our board. Since their creation, these committees have added great value to our shareholders and other constituencies, and have given great comfort to our other directors.
Third, it must be determined how the board will address quarterly performance. It is my view that a board should only discuss a quarter's performance if there is something about it that raises large issues that have not been adequately addressed before. Otherwise, quarterly performance discussions can dilute and confuse analysis of the most important topics.
This can be avoided by establishing an annual agenda, which ensures that each meeting has one or two important topics that are subjected to a deep dive, instead of each meeting having many important topics dealt with superficially. At the DaVita board, this includes one entire meeting per year dedicated to succession planning and enhancing organizational capability, true leading indicators of performance in a world where many boards end up spending most of their time on lagging indicators like financial performance.
This brings me to the fourth simple board “operating idea” — the airtime metric. From my experience, most directors come to board meetings with two sincere objectives: (1) to add value, and (2) to not be bored. Unfortunately, in one of life's great ironies, management often comes to the board meetings with two relatively contradictory objectives, namely: (1) to demonstrate that they have already thought of everything, and (2) to demonstrate how much that is.
Therefore, I coach new CEOs to demonstrate their self-confidence by going to the edge of business issues, openly bringing up the unanswered questions, and letting the board opine. If at least 40% of the total board time is not a general and engaged discussion, as opposed to directors listening to presentations, you are at serious risk of getting far less value because the directors go numb in their chairs.
Around the table, one last time
Finally, I will end with one of the “simplest” and most self-evident ideas you could imagine. I only wish someone had brought it up to me years earlier, as I have been struck by its power. By way of context, every single board I have sat on had a subset of the members who did most of the talking. Furthermore, on many issues, a couple directors would do most of the talking, someone would venture forth with a conclusion, some heads would nod (or at least not object), and the discussion would move on.
Therefore, I began the following practice: A couple of times at a board meeting, after there has been some give and take on an important issue, I will ask for us to go around the room and have every director speak, sometimes each executive as well — even if it seems like there is a directional consensus. The consistent result is that we get some of the most insightful comments of the entire meeting. These are comments that would otherwise have never been made, because people did not want to fight for airtime, or they were worried it would prolong the conversation forever, or because while it was a value-added comment it would not directionally challenge the answer — all sensible reasons to hold back from throwing in another comment.
But for an important topic, these synthetic closing thoughts, provoked by the extensive conversation that preceded them, are often the most valuable. Since each director knows they will get their turn, there is no need to rush — quite the contrary, they know the whole point is to reflect on the entirety of the issue. Some will link our direction to other big issues, some will tie it to history, some will point out organizational issues it raises, some will point to capital market or implementation issues, while others point out optical issues. Whatever it may be, the aggregate result is every director becomes engaged by providing thoughtful closing comments on an important issue, with the rest of the board as their undivided audience.
So, I conclude with the quote with which I started: “Everything in strategy is very simple, but that does not mean that everything is very easy.”
Everything I have covered here is simple. The fact that many boards do not do these things is in part because they are not easy in real life, with the time pressures, competing egos, time between meetings, and other realities that surround board life and functionalities. Yet thoughtfully implementing some combination of these deceptively simple tasks can dramatically improve the performance of the typically amazingly talented and well-intentioned human beings that constitute a board. â–
The author can be contacted at kent.thiry@davita.com.