Nine keys to success for creating an effective boardroom culture that directors can use for enhancing board performance, growing their organizations, and reaching new levels of success
With the corporate governance crisis at the turn of the century that shattered firms like Enron and WorldCom, academics and consultants turned their attention to enhancing corporate governance. What the 2008 financial crisis revealed is that the post-Enron governance advice has been insufficient in helping develop successful boards of directors: more work is needed to help us understand what makes a board effective or not. Nine factors are the difference between an effective and an ineffective boardroom, which can impact the strategic success of the organization. Readers, including current and prospective directors, will benefit from the shared experiences of nearly 200 of their peers.
The existing corporate governance regime consists largely of checklists, guidelines and so-called best practices. We find, however, four liabilities with the use of these tools and techniques.
Pre-meeting director research and preparation: There are times when the opinions of senior management and the board will be different, which is understandable, given the various demands and interests each are facing. There is also the on-going issue of directors and managers each simply trying to understand what the other is saying or meaning. It is generally understood that senior management will always present the board with only that information – reams of it, in fact, – which supports their preferred outcomes in order to influence their decision-making. To fulfill their legal obligations, however, directors need to carefully scrutinize the information presented to them as well as the recommendations suggested by management with the goal of gaining reasonable assurance that what management is proposing makes sense. What is essential, therefore, is that directors undertake independent pre-meeting research and preparation in advance of board meetings, including gathering information over and above that supplied by management.
Director satisfaction: Satisfied directors contribute more and perform better than ones who are dissatisfied, according to our director participants. Board members who are frustrated or dissatisfied are inclined to either raise their voice or distance themselves from board discussions in a passive-aggressive manner. An effective board chair, therefore, needs to be alert to either of these indicators of director dissatisfaction and take remedies to address them in the moment, if possible, by identifying the problem as it occurs (e.g. “Gee Fred, your body language is telling me you are either upset or withdrawing from this meeting. Am I right and if so, let’s talk about it right now.”). However, it is important to note that boards consisting of directors who are dissatisfied may succeed despite themselves: while boards may exercise their responsibilities adequately in the presence of director dissatisfaction, directors who are more satisfied contribute more to top performing boards.
Reprint from Ivey Business Journal
[© Reprinted and used by permission of the Ivey Business School]