What Value Can A Board Actually Deliver?

Directors who have the courage to challenge management and ask tough questions can make the difference between the company's success and failure.

I was at a dinner party the other evening. Two of the guests were CEOs of very well-known and highly regarded organizations who have served on multiple boards. At one point, the conversation of the evening turned to the topic of corporate governance, and one of the CEOs posed the question: “Can a board actually deliver value?” The question was based on the assumption that the business of most large, global companies is extremely complex and difficult for a part-time board member to understand in sufficient enough depth to provide useful guidance and counsel.

As I pondered this question and reflected on the boards I have worked with on conducting annual evaluations and advising, I was reminded of a director I met at a board conference about 10 years ago. This director shared a compelling story that has stayed with me these many years. A few years prior, in 2006, he had joined the board of a regional financial institution that had significant investments in mortgage-backed securities and credit default swaps. At his first board meeting, the CFO of the organization was making a presentation to the directors on the performance of the portfolio of invested assets. This director recounted how he asked questions to better understand what risk exposure to the enterprise these investments presented, being unfamiliar with these vehicles.

It turned out, several other board members were also unfamiliar with these vehicles and also expressed the desire to better understand these investments. The CFO was tasked with coming back to the board in the following board meeting to more thoroughly describe how these investment vehicles worked. In response to the following discussion and this director’s persistent inquiry, the board decided to exit all of their positions in mortgage-backed securities due to their discomfort with the risk exposure. In 2007 and 2008, when the financial crisis hit and many of this institution’s competitors were decimated, the organization that this director served was spared and it managed through the crisis intact.

This story underscores the value a board—even a single director—can provide by asking difficult questions and challenging management to really dive into opportunities and threats. It also underscores the importance of courage in the boardroom, as it would have been easier and safer for this new director to have stayed silent and not revealed his own ignorance (which apparently his fellow directors had done up to that point).

The question about the value of a board also reminded me of a series of questions that my firm asked directors and senior executives in 67 client companies about what an organization needs its board to contribute. Seeking to tap the insights of these leaders who served organizations from a cross-section of industries in companies ranging from Fortune 100 global companies to start-ups, one question we asked was, “What are the most important things a board needs to pay attention to in order to contribute value to the organization it governs?”

The most common responses were, in order: 1) digging into the performance of the company to understand value creation and value-protection opportunities; 2) succession planning for mission-critical roles and the development of talent; and 3) organizational climate/culture. Having a board paying attention to these things and ensuring that top management is paying attention to these things was viewed as the greatest contribution that a board can make.

So as you think about the boards you serve on and work with, think about how the board is digging into these three areas: the levers that are driving performance, mission-critical talent development and succession, and organizational culture. If these three things are getting the proper attention from a board, and as a result, from senior management—with the courage of board members to ask provocative questions—a company’s prospects can be significantly enhanced, and the board is doing its job in delivering value.