Board meetings are the central device for the supervision of companies. Do they work? I suspect they are the least bad system, but they are far from perfect.
Very large boards tend to be dysfunctional. Generally, everyone feels they have to contribute to justify having turned up.
I used to serve on the board of one organization where more than 20 people sat round the table. You could hardly hear the speaker at the other end — and it was often difficult to remember who they were.
Understandably, with such a large cast, many members feel disengaged. On overcrowded boards, the actual business ends up getting done at small committees, leading to an apartheid system.
Similarly, overlong board meetings do not work. People get bored and distracted at the all-day marathons favored by some companies. I used to serve on the board of a U.S. corporation where the combination of audit committee and board meeting, held consecutively, would last for six hours or more. Often, I would attend by phone; paying attention throughout was almost impossible. The effectiveness of such gatherings flags noticeably after a couple of hours.
I prefer short but more frequent meetings. If you adopt this philosophy, it is vital to prevent a series of monologues and presentations from dominating proceedings. The bulk of the time must be given over to debate and cross-examination. It is through such genuine interaction that you obtain the best from directors.
And discussion of the finances must not be allowed to crowd out other matters. Operations, products, personnel, markets, and all the other components of the enterprise must receive consideration; perhaps not on every occasion, but on a regular basis. The money is paramount, but board members must understand a lot more than financial statements if they are to do a sound job.
An ongoing dilemma is the role of nonexecutives, and the balance of numbers between them and full-time executives. Nonexecutives are only worth having if they participate properly, and gain the respect of the managers who run things. The best nonexecutives don't just meet once a month at the board; they visit facilities and get to know some of the executives who are not board members.
Many U.S. boards have just one or two officers as corporation executives. This policy is dangerous — it risks the communication of only a narrow and perhaps distorted perspective at meetings. There must be wide input from those at the coal face. As a nonexec, you need to hear directly from the sales or production teams.
A productive board meeting has a fairly short agenda with a handful of major topics. That way, each item can be dealt with in depth rather than superficially. The papers should be sent to attendees at least a few working days in advance, so that they have had a chance to study them properly. The management accounts should be clear. I know some boards where they run to 50 pages or more: This is overkill, and an unnecessary burden all round.
My interest in this is not a corporate governance fetish. What matters is not how many boxes the corporation ticks, or whether it adheres to some politically correct formula, but whether the organization is efficient and well controlled. I want to know what works best: how best to motivate managers, how best to maintain pragmatic checks and balances and how to come up with the right answers for the business.
Each board has its particular dynamics and culture. Unfortunately, few sets of managers and nonexecutives are outstanding — and all too many are not well directed. As a consequence, enterprises revert to the mean, and a landscape of relatively low standards. This leads to weak performance for society as whole — covering everything from new technology developments to job opportunities.
If one could discover the best mechanisms for stewarding capital and manpower, then we would all be richer on many levels. I am sure there is no simple solution, but I keep looking. â–
The author can be contacted at lukej@riskcapitalpartners.co.uk.