By Jas Singh
I’ve worked on quite a lot of board level searches in the past 12 months, and finding out about the relationship that exists between operating executives and non-executives (aka advisor’s) has been eye opening.
The opinions of boards fall into two distinct categories.
According to my experience, approximately 2 out of 5 of executives are really happy with the relationships they have with their board. They value their input and believe they add value.
On the other hand the rest definitely believe that their board add’s little or no value with at least half of these claiming that often boards hinder the executive team to perform fully. Sometimes, this even results in outright resentment.
So why are such a high number of executive teams dissatisfied with their boards?
Here’s a few reasons why:
1) Little (or no) knowledge of the business
By far the biggest criticisms of boards by their executive teams is that they have a limited understanding of the business they are supposed to be governing.
Often these board members can be “big names” in business, with experience managing large companies or building revolutionary businesses. But their experience in the particular industry the company involved in can be pitifully limited.
From experience, most executives – even CEO’s – first and for most want people they can ask for guidance. Someone who has been there before and faced similar situations. A 20 years veteran at Wal-Mart is not necessarily the first person the next budding Mark Zuckerberg wants to turn to.
Shareholders should ensure that a good proportion of the board they put together has strong experience in similar industries. Although it happens very rarely the best shareholders even work with executive teams to see which types of backgrounds may be of interest.
2) Short term view
Board’s are put together by shareholders. And as we often know, most shareholders are concerned first and foremost by profit.
This can often create the impression to executives that the board member is driven purely by short term profits or “other agendas” – which is often the case.
This is a tricky situation and often difficult to address.
One way I have found some boards overcome this problem is by paying their board members a fixed rate but with no stock or profit based remuneration. In effect they are more like an “external advisor” rather than investor in the company.
This reassures the executive team that board members have no financial interest in the company and all advice and governance is in the best interest of the business.
3) Emphasis on authority
Most executives see board members as someone they report to once a quarter. Someone that “checks up on them” and makes sure they are doing a good job.
Often board members are appointed directly by major shareholders or even work for shareholding companies themselves – investors making sure their investments are doing OK.
Although governance is essential, emphasis on authority is not. This “us” and “them” approach can never result in a truly committed partnership.
Lack of transparency is the main cause of this. Shareholders and board members should ensure they try and fully disclose the strategy as much as possible – even if it something that executive teams may not fully support. For example, many board members are asked to prepare privately owned companies to become ready for sale. As a result they are asked to tighten costs, re-organise management and even cut future growth plans. It’s part of the natural life cycle for most private companies.
Yet rarely do these plans become fully disclosed. By doing so, management teams become alienated and performance drops anyway.
Top boards engage and don’t dictate.
4) Limited commitment
Imagine working 60 hours a week, for 3 full months. Imagine sacrificing your family, health and social life to do the best job possible. Imagine knowing you have tried your hardest and done the best possible job.
And then imagine someone coming in for 1 hour once a quarter, and telling you what you should have done.
Sound frustrating? Often it’s exactly what happens at board meetings.
Maybe the easiest thing board members can do to become more engaged with management teams is just to be there more often. A couple calls a week. A daily email to discuss something that is important. Sending over an interesting article once in a while.
To gain credibility and trust you have to give. Give as much as you can, as often as possible.
Board members should commit as often as possible rather than sticking to official meetings.
Governance is essential. Yet it is also often poorly done.
Shareholders need to ensure that they appoint the right board members who take the right approach.
Otherwise a board is more of a nuisance than an asset.
Are you bored of your board?
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