Final Thoughts on Any Director’s Imperative: Be Better than Parsley on the Fish! (9/10)

In summary, I just want to say that I believe deeply that a board — whether it’s a sounding board, an advisory board or a fiduciary board — can add ongoing value to your business. There are two fundamental reasons for that. 

First, a board is going to give you some valuable perspectives outside of your own.

Second, a board is going to force you to be more reflective of yourself and your own activities.

The combination of those two gives you every opportunity to get value out of your board.

McKinsey’s latest book “The Mindsets and Practices of Excellent CEOs” summarises the CEO’s responsibilities for governance quite decisively: the job of the CEO is “to help the Directors help the business.” 

But getting value from a board is not easy. In an earlier post, I used the phrase “careful craftsmanship”; I’d say as you evolve from an advisory board, either into a joint venture board or into a fiduciary board, that you should do so with great care and great caution. I do believe you can get value from any of these structures, but you’re not going to get any value if you rush into things without careful consideration as to who’s on that board, how they work together, how the skills fit, and how you work them. 

I have a simple model with the chair at the centre, as you might expect, of a compass. There’s a north, south, east and west dimension. 

On the north, the chair is deeply responsible — especially if the chair is the entrepreneur/founder — for the skill sets around that table. And those are the hard skills. Do we need somebody who’s been in China before and understands that market? Do we need somebody who’s done a software-as-a-service platform before? Somebody else who’s “seen our movie”? These are the hard skills, you have to work on those and you have to work on them over time. 

And when you find the hard skills, you then have to worry about the soft skills. Is this person effective in a boardroom setting, where EQ and listening is really as important as speaking? Does this person have well considered business judgment? Does this person have a diversity of views? Does this person primarily use their mouth (which closes!) or their two ears (which are both open all the time)? 

So, for the northern part of the compass, the chair is responsible for the people around the boardroom table. If there’s a dissident director or somebody is taking up too much airtime, it is the chair´s job to help that person do a better job or depart.

On the right-hand side of the compass, pointing east, is the agenda. The Board’s agenda is a huge investment decision. Do not let it go by just by happenstance. 

Facing south, we have board briefing papers. After reviewing over 200 board evaluations, I can tell you that the single most effective means of improving board performance and adding value has been to improve the business papers coming to the board. 

Think about that Grand Canyon metaphor again — on one side is the board, not knowing that much about the details of the business and spending limited time; on the other side is the management team, completely involved. 

It’s both sides’ responsibility that the communication across that chasm is such that it gives the board a chance to opine in a meaningful way on the real problems of the business. 

Managers need to help directors help the business. This is exactly the conclusion of McKinsey’s recent book on “The Mindsets and Practices of Excellent CEOs”. Excellent CEOs work with their Boards of Directors to help the boards help the Management teams.

I would say to every chair, please evaluate the quality of the briefing papers prior to every Board meeting. Briefing papers are a huge improvement opportunity in most cases. That’s the southern extension. And I look to the chair to lead that process. 

The western point of the compass is the easiest to understand. It’s just the Board structures. Do we have an Audit Committee? Do we have an HR Committee? Do we have a Governance Committee? Those three would be the most common in the publicly traded world.

If you’re in the financial services industry, maybe you need a Risk Committee. Maybe you need a High-tech Committee, like Walmart’s. Maybe our structures need some other committees. 

To recap: the chair is at the centre of the compass. The north axis covers who’s on the board and howe they relate together; the east axis covers the agenda; the southern axis  the briefing papers and the western axis covers structure.

We did a survey of 200 directors, and we found that 85% of them rated themselves as “highly effective” or “effective.” We then went to the 20 CEOs, and we said to them how many of your directors are “effective” or “highly effective.” The answer came back — it was 15%. So, it’s pretty typical to find that boards and management teams do not communicate in a way that enables them both to gain value added from the investment they make in the time together.

I’ll leave this post with a quote from Irving Olds, who was the CEO of US Steel in the 1940s. At that time, US Steel was one of the most important companies in the world because it was making steel for the war effort. It also had one of the largest market caps among companies on the New York Stock Exchange. And Mr. Olds was asked about his board. 

“Ah,” he said, “directors are parsley on the fish — decorative but not useful.” 

Make sure you do better. 

David Beatty is an adjunct professor and Conway chair of the Clarkson Centre for Business Ethics and Board Effectiveness at the Rotman School of Management. Over his career, he has served on more than 39 boards of directors and been chair of nine publicly traded companies. He was the founding managing director of the Canadian Coalition for Good Governance (2003 to 2008). A version of this article will also appear in the Winter 2017 edition of Rotman Management, published by the University of Toronto’s Rotman School of Management.