If you feel like your board of directors is performing really
well right now, make sure to celebrate the moment. It’s not
likely to last forever. Everything is changing all the time, and
the best organizations are flexible enough to welcome and benefit
from that change, while continually looking at areas for
improvement.
Your organization needs to understand and adopt innovations in
your field. Does your leadership team have the right expertise to
do so? New risks may arise related to your data, your regulatory
compliance, or your competitive advantage. Do you have directors
who specialize in those risks? Board members or executives may
experience life changes that shift the dynamics of the company. Is
your succession plan viable?
Regular reflection on your board’s work together can help
prepare you to embrace these changes and others, being proactive
rather than reacting in fear and haste. Start with these four
areas.
1. Start by assessing your board’s effectiveness –
and do it often
A recent survey reported in the Harvard Law School Forum for
Corporate Governance placed conducting board evaluations at the
bottom of a list of processes where boards have become more
effective, with many boards saying they have become less effective
in this area in recent years. How often do you seriously assess
your performance as a board?
According to the principles set by The Business Roundtable,
directors are responsible for approving strategies that build
long-term sustainable value, selecting the CEO and overseeing them
and the executives operating the business, and setting the tone at
the top for ethical conduct. Effective boards don’t just check
the boxes on these responsibilities – they use directors’
time and talents efficiently to give management the appropriate
guidance.
Best practices suggest an annual review of effectiveness.
Don’t just review whether directors are meeting their
commitments of attendance and participation; seek to fill gaps in
knowledge that will be essential in the next several years.
The ideal board assessment has three parts: self-assessment
using a customized questionnaire, peer assessment with a similar
tool, and individual conversations with each director reflecting
the data you’ve gathered. It’s best to engage outside
advisers in this process, to avoid personal bias and gain objective
insights.
2. Add training to every board meeting.
As a result of the assessment, you’ll have a starting list
for training. Consider incorporating a 15-minute learning session
into each board meeting. Board members should take the opportunity
to ask many questions during these learning sessions, and
management should not be present.
Some of these sessions may be taught by board members with
specific expertise, sharing the high-level knowledge every director
should have. For example, everyone needs to understand the
cybersecurity risks your organization faces, not just the security
expert director you added to the board. Other topics will best be
addressed by outside advisors. Training topics will vary depending
on your organization’s industry, structure, and even geography.
They might include:
- New regulatory risks
- Stakeholder activism
- Trends in workforce strategies
- Impacts of climate change on supply chain
- New trends in board operations
- Risks and opportunities related to innovation and
technology
3. Diversify your directors.
When all directors share the same background, your board may
feel comfortable and aligned. That comfort will likely limit your
effectiveness. The perspectives that come from difference
aren’t only based on race or age or gender; they can include
differences in functional expertise or prior experience. For
example, imagine considering a decision about a merger, and
benefiting from the perspective of a fellow director who has been
through a failed merger and knows the pitfalls.
Kathleen Crandall, founder of Know My Impact, works
extensively with directors to help them achieve greater impact. She
notes, “Private companies will be best served with board
members who represent a broad base of experience both in their
functional roles, but also in the industry expertise and size of
organizations. The most successful boards are not comprised of
solely CEO or other C-level leaders from large corporations but
include a blend of experts who bring relevant experience and
results that mirror the company vision and one- to five-year
goals.”
But how can you decide who to recruit? Begin by identifying
risks and opportunities facing the organization in the next five
years. Cybersecurity and artificial intelligence will surely be on
your list. What about generational shifts in buyer behavior, or
global supply chain challenges? Look around the boardroom: do you
see directors who can advise management on each of these risks and
opportunities?
“Most companies are facing challenges because the board is
too one-dimensional or solely focused on one specific
industry,” Crandall advises. “Some of the most impactful
boards feature leaders who think differently and have more
innovative solutions based on unique perspectives. Technology and
specifically AI and Generative AI will make a significant impact in
most businesses,” she predicts, “and those who do not
have a solid perspective from technology innovators will fail
within 2 to 3 years without shifting perspectives.”
4. Plan for CEO succession
The CEO’s profile and reputation are key to public
perceptions of the company, and often drive investor decisions. If
the role is suddenly vacant, or the successor hastily chosen,
company performance can suffer.
More than 1,700 chief executives left their roles in 2023,
according to research by Challenger Gray &
Christmas. And even if your CEO is the company founder and
solidly entrenched, this should be addressed early, regularly, and
not superficially. What will happen if the CEO suddenly takes ill,
dies, or needs to leave the position due to a family emergency?
The nominating committee must lead the conversation and create
an action plan. Include the current CEO as a key player. The
committee should develop a solid, forward-thinking profile for the
future CEO. What qualities will the next CEO need to successfully
achieve the five-year vision? They may need different strengths
than the incumbent.
Considerations include:
- Does the CEO have a specific successor in mind? Is this the
best person for the role, or are there red flags? If it’s a
family member, is there consensus on the choice? Where are their
gaps? - Is there a pipeline of internal candidates? Who’s on that
list, and what development plans are in place to get them ready?
The committee should have visibility into the development plans and
their progress, and directors should get to know these candidates
in the context of their current roles. - What qualities are missing in the internal candidate set which
might be found in external candidates? Review the long-term goals
and identify new skill sets or experience that could lead to
increased success. Consider benchmarking external options by
talking with a search firm.
Assess, learn, diversify and plan for your future. Finding areas
that need improvement is good news – you’ll know how to
make your board better.
Read the full article on Private Company Director.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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