For over 15 years, I have sat in meetings with board directors for companies great and small, public and private, for profit, nonprofit and, too often, not enough profit. Each of these directors described the challenges their board were facing, but to paraphrase Tolstoy’s Anna Karenina, “While all happy boards are alike; each unhappy board is unhappy in its own way.”
When we are approached to advise boards that are dysfunctional, it may revolve around a relatively easily fixed matter such as a lack of information flowing to the board to enable them to make smarter decisions. However, there are sometimes much bigger issues at stake. The common reasons a board is dysfunctional include one or more of the following:
- A failure to address succession planning
- Reluctance to discuss strategy or risk or both
- An inability to deal with disruptive behavior by a director
- Board and committee structure that creates confusion or leaves issues uncovered
- A failure to refresh board composition resulting in investor concerns
The best way to tell if a board has become dysfunctional is to ask those directly involved, namely directors and management that work most closely with the board (CFO, COO, CHRO, GC etc). In other words, the board itself needs to run an effective and rigorous board evaluation that creates meaningful change, rather than a check-the-box compliance activity to meet listing requirements.
While most boards go through the semblance of an evaluation process, the outcomes seldom move the needle in terms of change. Very few boards are bold enough to ask management what they think or invite a third party to take a more objective look. This despite the fact that the largest asset managers and public employee retirement funds are urging boards to conduct a more objective external evaluation every two to three years as is the case in a number of markets like the UK and France.
“Defining clear roles and responsibilities for leaders and a long term board and committee leadership succession plan, with both agreed by the board, is key.”
The fixes for the bigger dysfunction have to match the issues uncovered and could include:
- Succession denial: Overcoming the awkwardness of addressing succession planning for the CEO by agreeing an enterprise wide developmental focus on talent management and succession that goes beyond the C-Suite.
- Strategy (and risk) skipping: Crafting a new approach to strategy development and risk oversight that involves a more iterative set of discussions at every board meeting as well as significant time devoted annually to deeper thinking.
- Disruptive directors: Giving feedback and coaching to a disruptive director and letting them know that they will not be re-nominated at the next annual meeting if nothing changes.
- Committee confusion: Examining the work of each committee to avoid gaps and overlap–and ensuring every director understands the work of each committee–rather than nodding through the charter review year after year.
- Board refreshment: Identifying the skills and experiences needed by the board over the next 3-5 years and starting work on identifying candidates who meet those requirements.
In each example, the independent board leadership needs to be proactive in identifying the issues and fixing them, using outside help if required. Which brings us to the biggest driver of board effectiveness (or board unhappiness): the quality of chairmanship from either the chair or lead director.
In our research, we have identified board leadership as key to high performing board. Just as in the C-Suite itself, there is no work-around in terms of process or structure that can overcome poor leadership in a board or a board committee. If board leadership is not working, the board experience and ability of the board to add value will be sub-optimal.
Defining clear roles and responsibilities for leaders and a long term board and committee leadership succession plan, with both agreed by the board, is key. Furthermore, providing constructive feedback for board leaders is essential. As Tolstoy might have noted: happy boards are all alike in that they have great board leaders.
Read more: Trust Is A Forward-Looking Measure