I had talked to George (my Fortune 500 CEO client) about a building high performance board, which sounded like a good idea. Soon we got into a dialogue that involved: 1) figuring out what kind of board the company had today, 2) creating a vision of a high performance board, and 3) designing the steps to getting there.
I thought it might be very useful to understand what distinguishes a high performance board from other types of board and found a book that was pretty helpful in answering this question. It was called Great Companies Deserve Great Boards: A CEO’s Guide to the Boardroom by Beverly Behan. Ms. Behan characterized four kinds of boards: 1) Independent, 2) Entrenched, 3) Hostile, and 4) High Performance.
Independent Board. In the past, the Chairman/CEO ruled the board in an imperial way. Board members were the CEO’s friends, appointed in an honorific way, and ratified the CEO’s decisions. In a post Enron world, most boards have become much more independent. The new rule states that outside directors lead the nominating, audit, compensation and governance committees. Board members take their job seriously, try to contribute to the company, and tend to be very sensitive to criticism.
Entrenched Board. The entrenched board is the independent board to the extreme. Board members adopt all the Stock Market rules that separate the board from management so they can provide an independent voice. That’s the good news. The bad news is that board members start to think in terms of preserving “their job on the board” more than contributing to the company. Directors become highly complacent and don’t want to support any of the CEO’s initiatives that might rock the boat. Board members tend to suppress dialogue that could bring conflict into the comfortable board room working atmosphere they enjoy, yet also excludes useful perspectives.
Hostile Board. The hostile board is the one that most CEOs dread. It’s characterized by a real schism between the board and management. The CEO is very guarded with the board and shares minimal information. The board on the other hand is distrust of the CEO and management team. The questions board members ask are not coming from inquiry but inquisition. The CEO’s and management team’s proposals to grow the business or do deals are often shot down arbitrarily without any dialogue. This can be a pre-cursor to board members taking steps to fire the CEO.
High Performance Board. One acid test of a high performance board is demonstrated by when you ask the CEO and the executive team what difference the board makes for the company, they can answer right away—enthusiastically. People can usually give at least three example of where board members provided a powerful new perspective that helped management come up with a game changing strategy, or made people aware of previously unseen risks. Another acid test is when you ask board members how the team could work better, they have 2 to 3 ideas, which means they are in a learning mode vs. defensive bode. Boards improve by continuous improvement.