Good communication at the board level has always been important, but when the pressure heats up, both at the micro and macro levels, clarity and understanding in the boardroom becomes critical, says Stephen Kasnet, CEO of Calypso Management and a director at Two Harbors Investment.
Where do you see the biggest challenges for boards this year and what areas are your boards focusing on?
I’m in a little bit of a unique situation because of the two companies I’m currently serving, we’ve both had some major changes in the last year or two, and so we’ve been wrestling with that. But I think it’s pretty clear that as a board, there are a couple of major issues that regardless of where you’ve been, you’ve gotta deal with. One is ensuring that the relationship between the board and the executive team, and really, the entire company, is one that works smoothly, is respectful and is communicating better than it ever has. Boards get tested in changing times, and this has been a period of testing these last couple of years. It’s been critical, I’ve found, to spend a lot more time and energy just simply communicating and making sure that all board members understand what each other is thinking and how they’d like to get to the common goal.
Is that communication more of a challenge now than it has been in prior years?
Oh, it is. It’s just the background of, I’ll call it the macro environment, but frankly, I think the combination of pressures in this country—just the overriding financial issues, and the larger hand government plays these days in the big picture—requires a lot more effort to ensure that the team and the company, meaning both the board and the executives, are very open to communicating problems as they occur and potential solutions and supporting them.
What happens when those channels are not open or as clear?
There are two answers to that. From day one of every new board member joining, it’s really important that the culture of the business be made clear. The way we’ve operated is if someone has something to say, we encourage them to be very open about it and make sure that it’s not a one-on-one, but everyone on the board understands issues that are being raised. To me, that’s something that many times, those discussions don’t get as broad as they ought to, simply because there’s an initial reluctance to deal with an issue. That goes doubly with the company when there’s a message going either way, it’s important that the messages are broadly shared, both amongst the executive team and the board members. Every board has situations where there may not be a unanimous agreement on the best solution, but once one is agreed on, it’s critical that there’s unanimity in supporting it. And at times, those decisions can fail or not be clear just simply because of offline discussions or attitudes.
Yes, we’ve heard many directors say that back channels conversations can be really counterproductive. But with so much on the agenda, it seems like it’s even more challenging to make sure all issues get brought up for discussion in the boardroom.
That’s exactly right. And frankly, you deal with that one successfully if the nature of the board and the culture of the board has been open from day one. We’ve always encouraged all the board members to have totally open relationships with the executive team. What’s come out of that, because of the cohesion that that introduces is there are open discussions, but there are no ‘backdoor discussions.’ There’s a message or a culture amongst the board members to get a job done. And at least in our experience, we’ve been able to arrive at a decision that makes the most sense and pursue it, and speak with one voice. That’s not always a smooth exercise. From time to time, you lose board members over that sort of thing, but that’s almost a detail.
There is constant pressure amongst the board to make sure that decisions and frankly, just attitudes are worked on constantly, and everyone is involved. It’s never healthy in any environment—and particularly now—to have either a person who doesn’t feel that they’re participating, or have ideas that aren’t thoroughly vetted. So I think board members spend a whole lot more time these days than they would’ve five years ago on virtually every subject. And, frankly, they should.