The Essence Of A Great Director

Great board members have an almost paradoxical ability to be collegial and constructive on the one hand and challenging on the other. The worst directors, on the other hand, are like bulls in the proverbial china shop. Here's how to identify and avoid the latter.

More than any set of abilities you might find on a résumé, the ability to be a good director is a personality trait. It involves qualities of insight, outlook and character. Yes, boards that have deep industry knowledge tend to be more strategic and focus more on the long term. But strategy is a way of thinking, relying on judgment and experience. The directors who come in to reshape a business are often from outside the industry. Transformation is their skill.

Your prerequisite in selecting board members should be breadth of vision and leadership ability; only then should you consider whether a candidate has the background and expertise you want. These attributes have nothing to do with age. Some people at twenty-five have a broader perspective and are more powerful leaders than far older peers.

Great board members have an almost paradoxical ability to be collegial and constructive on the one hand and challenging on the other. Brendan Swords, CEO of Wellington Management, says, “You want humility and courage. The best board members have good listening skills. They’ve got thick skin. They’re willing to speak without fear and ask hard questions. They’re fully prepared. They’re highly engaged. They’re open-minded.” By contrast, the worst board members have poor listening skills. He says, “They’re like bulls in a china shop, and are always pushing their own thesis, their own agenda, to the exclusion of all others.”

You can tell good board members from bad ones by the questions they ask. In any boardroom, it’s easy to distinguish the directors who really try to get inside the company, traveling to different regions and spending time with local staff, from those who just show up at the meetings. For that reason, seek board members who are ready to work hard. Having board members with the time and energy to invest will help eliminate management’s information advantage. To that end, be sure that you know what motivated the director to join the board. Otherwise you may find that their contribution doesn’t live up to their résumé.

Look for board members who have the courage of their convictions. We hope that Boeing has board members who can resist short-term pressures and instead think about long-term issues, and about how to do the right thing for all constituents, not just the shareholders. In thinking of the company’s travails, Mary Erdoes of J. P. Morgan Asset & Wealth Management says, “If you ask what a good board member is, it’s someone who refuses to be handled and knows when they’re being handled, because it’s very easy for a company to do.”

So, beware of management attempts to stock the board with pawns. In his letter to shareholders in the 2019 Berkshire Hathaway annual report, Buffett writes that the CEO of a company searching for board members will almost certainly check with a candidate’s current CEO about whether this person is a “good” director—“good” being a code word meant to avoid pollution by anyone who has challenged the present CEO’s compensation or acquisition schemes. As Buffett puts it, “When seeking directors, CEOs don’t look for pit bulls. It’s the cocker spaniel that gets taken home.”

A genuinely good board member can combine the best traits of a CEO and an investor. Buffett brings both attributes to the boards on which he sits. He says, “I come at boards with a little different perspective in that I operate as an executive with a board. I’ve been in small companies and large companies, and I have seen how boards are a combination of a legal organization and a social organization. How they perform depends, to some extent, on the objectives and personality of the CEO.”

That’s why we like to see two people with CEO experience on every board. Only a CEO knows what the CEO’s job is—an essential insight when selecting a new leader for the company. Often a CEO search led by a non-CEO feels like it’s in the hands of amateurs. You also want CEOs in the boardroom when things go south. They are most likely to make the tough calls and least likely to run for the exits.

But don’t assume that someone will be a good director just because they have a good record as a CEO at another company. Some former CEOs hated what they deemed to be meddlesome behavior by their own boards and may make corresponding accommodations to the CEO somewhere else. Ed Garden of Trian Partners says, “It’s amazing how respected CEOs who have impressive résumés and who generated impressive shareholder return add no value in the boardroom of their new company. It depends on their willingness to learn about the business, to challenge the CEO and the social dynamic in the boardroom, and to be provocative and facilitate debate.” For that reason, he would be leery of appointing a sitting CEO to the board: “They are simply too busy running their own company. I feel that they’re on that board to build gravitas.”

In any case, avoid putting the outgoing CEO of your own company on the board. The presence of the former boss can crimp the style of the new incumbent and complicate matters for the board in its dealings with management. A crucial element in discussions with management is confrontation with reality. Elena Botelho at ghSMART says, “How many boards do you know where there’s really honest dialogue? Where people say, ‘All right, this acquisition didn’t go well. So now let’s make the most out of it. How do we learn from it?’” The uncomfortable questions frequently come from smart, competent people who aren’t former CEOs—the scientist or the technologist who is willing to probe and who doesn’t assume that everything is going to be OK. The presence of the old CEO can inhibit such discussions, with the other directors reluctant to criticize decisions made by their peer.

 

Excerpted from TALENT, STRATEGY, RISK: How Investors and Boards Are Redefining TSR by Bill McNabb, Ram Charan, and Dennis Carey. Copyright 2021 Harvard Business School Publishing Corporation. All rights reserved.