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10 Questions to Determine Whether Your Board Has the Right Dynamics and Behaviors

What fascinates me is what goes on inside boardrooms. Boards can have the structures, the boxes ticked, and the protocols and policies on paper, but if they are not lead properly, if they don’t behave as a team, and if they don’t have proper oversight over the CEO, they won’t be as effective as they can otherwise be.

It’s hard to determine these factors from outside the boardroom. Indeed, a reason researchers can’t find a clear causal relationship between boards and performance – even though directors tell me emphatically that boards do matter – is because what happens inside closed doors is largely invisible to outsiders. But board dynamics – including leadership, teamwork and behavior – matter greatly even if they can’t be measured from the outside.

I am interviewing several leading directors and chairs to obtain their views on boardroom dynamics. I am also observing boards in action. The data from my research is fascinating. Here are ten focal points I am focusing on. They are modified and phrased in questions I use. They represent only a fraction of what I am looking at; however, they are also ‘favorites’ of boards I assess that are leading edge.

10 Board Dynamics Questions

1.     Our Board Chair conducts an effective decision-making process (i.e., ensures that, for crucial decisions, alternatives are generated, a thorough discussion and analysis ensues, relevant perspectives are brought to bear, the best decision is made, and the decision is supported).

→ Here, I am trying to understand how effective the Chair is, particularly in chairing meetings and shaping key decisions. This is a key weakness of ineffective chairs.

2.     Our CEO welcomes the Board’s constructive input into our Organisation’s strategy (i.e., by being sufficiently candid, open and responsive; and encourages the same from direct reports).

→ Here, I look at the behaviour of the CEO. CEOs can easily hold back, block, or try to “manage” a board.

3.     Our Non-executive Chair (or a leading or senior independent Director) has a constructive working relationship with the CEO (i.e., mentoring, supportive and collaborative, open yet independent, candid and professional).

→ Here, I look at the nature of the relationship between the Chair and CEO. I interview both, as well as other directors, trying to get a sense of whether the Chair provides a strong counterpoint or is managed by the CEO.

4.     Boardroom discussions are constructive (i.e., Directors disagree without being disagreeable, assumptions are constructively challenged, views are skillfully explored, differences of opinion are appropriately acknowledged and resolved, and consent is forged).

→ Here, I look at how debate and decisions get made within the boardroom, in real time.

5.     Our Management (including the CEO) do not inappropriately influence meetings (e.g., by filtering or managing the flow of information to predetermine an outcome, not providing independent data, not facilitating access to independent advisors, etc).

→ Here, I look at “undue influence” or the attempt to shape or funnel information, agendas or outcomes. If this happens, the board will miss something.

6.     Our Board displays at all times a culture of diversity of views and open dissent (i.e., Members sufficiently challenge one another, differences of opinion are fully aired and accepted gracefully, no topics are “off-limits” for discussion, and Members feel free to speak out openly and honestly without fear of criticism, even when voicing a minority position or asking a probing question).

→ Here, I look at “constructive dissent” and how (or whether) it happens within the boardroom, including whether “groupthink” happens.

7.     Each regular reporting member of Management has a constructive relationship (i.e., characterized by respect, responsiveness, openness, transparency, candour, professionalism and accountability) with the Board and each Committee of which I am a Member.

→ Here, I look at the interface between committees and reporting management and whether there is blockage or dysfunction. Committees are where the work gets done. If something gets missed, it often happens here.

8.    The Board reacts in an appropriate fashion towards reporting Management (i.e., predictably, constructively, confidentially and deliberatively) in order to build trust on Management’s part to come forward with their real concerns in a candid manner.

→ Here, I look at the board’s behavior in shaping trust and candor with management. Trust is a two-way street and how the board behaves also matters. If the board dominates, leaks or is unpredictable, management simply closes up. Then, something can get missed or the board does not add full strategic value as management is holding back.

9.     Our discussions (Boardroom and at each Committee of which I am a Member) significantly improve the quality of Management decisions (e.g., by engaging of Management in thorough and constructive sessions that stimulate, guide and enhance Management’s thinking and performance, impact outcomes and add value).

→ Here, I look at whether the board adds strategic value. A “360 degree” assessment that incorporates management’s views can bring a reality check to a board that thinks they add value when they may not.

10.    We (Board and Committees) are not overly reliant on (or influenced by) a particular individual (e.g., with the most relevant skills and experience or tenure, or in a particular role or reporting relationship) given the work that we undertake.

→ Here I look for pockets of undue influence. It could be a shareholder, a director or a manager that can influence debates and outcomes, acting out of self interest.

What do you think? Can your board answer an emphatic “yes” to all 10 questions above? (Most boards cannot.)

Whether a board is effective or not, for the most part, comes down to factors inside the boardroom. The above factors are uncomfortable to ask, and data is limited, but they matter. Board dynamics is known mostly by directors themselves. The regulations and guidelines focusing on having a majority of independent directors, a certain size, a separate chair, etc., are important but are inadequate to ensure effectiveness and ultimately performance of the company. For boards to succeed, and for shareholders and other stakeholders to receive returns, more of the above factors should be focused on.

The Board’s Right to Know and Red Flags To Avoid When You Don’t

I was called into the Chairman’s office. I received a message on my voicemail from his assistant saying the meeting was urgent. The company was splashed all over the newspapers because of misstep after misstep. People were saying the board was asleep at the switch.

The Chairman shrugged when I met him and simply said, “We missed it.” (Again.) Part of my job was to interview each director and find out why, and produce a report to the full board and regulator. I had a month to do it. The Chair’s office would book any plane flights I needed.

This scenario – my assessing a board – has repeated itself in situations ranging from fraud, stock option backdating, bribery, property destruction and death. When a board “misses it,” it’s rarely because they were not complying with rules or laws. They were. The reason is what goes wrong inside the boardroom – with relationships and people.

Here are some questions that go beyond the rules and more often than not in problematic boards the answers I receive (and see) is “No,” “I think so,” or “I don’t know.” Ask yourself as you read these questions if you can answer, “Yes” to all of them for the board or boards you are on.

Does bad news rise in your organization?

This is a favorite question to ask a director. It’s simple but powerful. If you are not getting the real goods, sooner rather than later, consider this a red flag, as you may be the last to know.

Do your CEO and CFO have integrity?

Another favorite. If the CEO or CFO holds back, funnels information, manages agendas, is defensive, or plays his or her cards too close to the vest, this is a warning sign.

Do you understand the business and add value?

If you asked the management team whether you as a director understood their business and added value strategically, what would their response be? What if you asked shareholders? You would be surprised at the answers I get. Frequently there is a disconnect.

 

Do you know how fraud occurs in your company and industry?

Depending on your local markets and the business you are in, there are tried and true ways to commit fraud that work and are being practiced by your employees and key suppliers. Do you know what they are?

Do you compensate the right behaviors?

You are at the helm as directors. Whatever you compensate, management will do. Ask yourself whether you are rewarding what you intend to reward.

Do you get disconfirming information?

If you get your information only from management, this is a red flag. Use social media, go on unscripted tours, listen in on analyst calls, move a board meeting to a jurisdiction you need to know, and get industry presentations on your competition.

Do you get exposure to key business lines and assurance functions?

Bring these people into the boardroom, with no PowerPoint slides. See how they think on their feet. It is good for succession planning, and is an excellent source of information.

Do you get good advice and stay current?

Don’t let management pre-select advisors. Bring tailored education into the boardroom and stay on top of emerging developments. Get the information you need to do your job.

Do you meet with shareholders – apart from management?

Ten years ago I had to ask CEOs to leave the room when independent directors met separately. Now I am doing so when directors meet with shareholders. Meet with key shareholders regularly. Listen to them. Don’t let lawyers interfere.

I brought the Chairman of the Hershey Company, James Nevels, into my corporate governance class that I taught at Harvard this past summer. We talked about people and relationships, but what Jim also said was how important the Board chair position is to create the climate and environment for the above questions and practices to occur. Jim has a saying he uses to focus his fellow directors – “We need all hands on deck for this one” – for a key decision, and makes sure each director brings their “A” game all the time. He goes around the table and he speaks last.

You need to bring your skills forward as a director. Every director slot matters now more than ever.


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