I have spoken with many board members and attended many meetings over the years. I am amazed at how many members literally are not engaged, which reminded me that one of the traits of an effective leader, or Pilot, is being a good team builder. But how can you build a good team if you don’t understand the players? I’m not speaking about understanding their skills. I am talking about knowing their level of engagement, that amorphous concept most ignore.
First, let’s start with the role of the board. As the organization’s ultimate decision-making body, the board of directors plays two critical roles: overseeing management on behalf of shareholders and other constituencies; and advising management, albeit with limited involvement in everyday company operations – eyes open, nose in, hands-off! The board should not attempt to run the operations of the organization; it should oversee how management runs the company.
Boards that routinely infringe upon management duties and responsibilities risk upsetting a structure that is intended to help both of them.
In contrast, members of management are full-time employees whose main responsibility is to operate the organization.
So, what should board members be doing at a minimum?
Devote the time necessary to do the job. Being asked to serve as a director is, of course, an honor, but, unlike awards for good citizenship, it requires a continuing commitment of time. No one should undertake a directorship unless he or she is confident of having sufficient time to do the best job possible. Thus, directors should do their best to attend all board and committee meetings.
Directors should also fully prepare for board or committee meetings. Adequate preparation involves study, reflection, and formulation of any questions concerning the reports, proposals, or other documents to be considered at the meeting. Conscientious directors must also be prepared for unanticipated demands on their time and be willing to set aside other pursuits to deal with emergency situations if and as they arise. If a director has a poor attendance record at board and/or committee meetings, the same will be reported.
Be an active participant. Each director should actively participate in the board’s work and resolve all relevant questions before voting on an issue. Questions should generally be asked as they occur to directors rather than postponed until the meeting. By resolving as many matters as possible beforehand, directors can avoid clogging the flow of the meeting and allow their colleagues to concentrate on the matters of greatest importance.
On the other hand, if directors genuinely feel that an issue has not been resolved to their satisfaction, they should not hesitate to press the point with their colleagues and insist on a satisfactory answer.
Honor the office. Directors must always be conscious of the fact that they have been chosen for a position of special trust and confidence. Serving on a board of directors is a cooperative, collegial endeavor in which the ultimate goal is to advance the collective interest. Individual ego and interests must, therefore, be subordinated to the interests of the board, the shareholders, and, ultimately, the interests of all stakeholders in the corporation. Accordingly, while responsible directors should approach all matters with an open mind and be receptive to the opinions and ideas of others, in the end, they must rely on their own sense of what is fair, equitable, and in the best interests of the corporation.
On-going training: Board member training is often overlooked – board members simply don’t know what they don’t know! Training helps ensure at a minimum that members are current on leading board practices and understand emerging issues, which could enhance overall board member decision-making by helping calibrate a board member’s degree of skepticism when evaluating the reasonableness of the answers received to the questions we ask.
Applying the right amount of skepticism: Serving as a director requires professionalism, which includes applying the right amount of skepticism – trust can and often is a professional hazard, so verify.
Always insist that you receive complete, accurate, and timely information. Understand at a minimum who prepared it, who reviewed it, what data was used and why, and when was it prepared.
So what is the best composition of a board? I’m not that smart to answer; however, I do believe that knowing your board is essential to effectively govern.
Below is a tool (list of categories) that I hope you find useful in determining your level of board engagement as you work towards building an exemplary board.
Participant (High): This board member is sometimes called “Engaged”, and devotes the necessary time to do the job. He or she wants to learn about the business, the space they operate, senior leadership, their shareholders and stakeholders, always comes prepared, is enthusiastic, cooperative, collegial and fully engaged with the process and offer their opinion on strategy, risk, and other topics with the ultimate goal of being advancing the collective interest.
Positive Passenger (Medium-High): This board member might be new and lack the confidence to immerse themselves in the process; (s)he has a tendency to sit back and listen; wants to chime in, but doesn’t always. Positive Passengers in my experience do often become Participants.
Passenger (Medium): This board member is physically present, but that’s all. They are just along for the ride. They have no intention of disrupting any meetings, but neither will they engage or play an active role in governing.
Negative Passenger (Medium-Low): This board member is capable of delivering, however, is either too busy to engage, doesn’t believe in the overall strategy, or has other issues that are not readily apparent or that are being addressed.
Protester or Disruptor (Low): These board members don’t want to be there for a variety of reasons and will let everyone know about it! They often disagree with everything and generally go out of her way to make the experience as unpleasant as possible for everyone. Chances are, they think they know everything and can do it better, when in actuality they don’t and can’t.
When it comes to Prisoners (below), you could classify them as having high, medium, or low engagement.
Prisoner: Similar to the Passenger, these board members resigned to being there but are tired or, like the Protester, feel trapped and are just waiting for their term to expire or want to escape. Unlike the Protester, however, they are not confrontational. These board members can be high-risk when it comes to making decisions that require good or sound judgment because they might just not care.
Positive Prisoner: These board members feel trapped, but aware and prepared to exit once they think they have fulfilled their obligations. They are motivated at times, somewhat focused, and do display confidence – in essence, they are partially engaged, but may not care about the long-term strategy because they know they know they won’t be there.
Negative Prisoner: These board members feel trapped and have gotten themselves in a place where they don’t want to be, but lack of motivation to exit. You don’t get much from them as they are usually not engaged, but they are generally not disruptive. You’re stuck with them!
As the Pilot, you should also be cognizant of some issues that might negatively impact or disrupt board dynamics. Here are the more pervasive ones I have experienced –
- Directors that overstep the boundaries of their oversight role – again eyes open, nose in, hands-off;
- Directors that don’t challenge senior leadership enough or appropriately; and
- The Director’s skills have deteriorated for some reason or another.
What distinguishes exemplary boards is when the members are most engaged and self-aware. Also, there is a virtuous cycle of Respect, Trust, and Candor, or what I have coined as the “RTC Factor”. A successful board usually has a chemistry that can’t be quantified and could possibly include a mix of passengers, participants, and prisoners. Knowing your RTC Factor, in my opinion, increases the chairperson’s odds of being an effective leader, which could be the difference between achieving the objectives or not.
Exemplary Boards get into a virtuous cycle, discussed above, in which one good quality builds on another. Team members develop mutual respect; because they respect one another, they build trust; because they trust one another, they share difficult information; because they all have the same, reasonably complete information, they can challenge one another’s conclusions coherently; because a spirited give-and-take becomes the norm, they learn to adjust their own interpretations in response to intelligent questions.
A virtuous cycle of respect, trust, and candor can be broken at any point. One of the most common breaks occurs when the CEO doesn’t trust the board enough to share information.
To be clear, respect and trust don’t imply endless affability or absence of disagreement. Rather, it means bonds among board members that are strong enough to withstand clashing viewpoints and challenging questions.
As a Pilot or leader, you must know your board members and keep them engaged and try to enhance the dynamic!
Sometimes board turnover is good. It brings new voices and hopefully, new perspectives.
If you’re a board member and reading this, be honest with yourself and keep in mind the risks of not being engaged.
I welcome your thoughts and opinions and remember that no subject as undiscussable!
Jonathan T. Marks, CPA, CFF, CFE