Experienced Board Directors have typically been exposed to a variety of Board operating styles: from hands-on to very hands-off. Which style is best? The answer, of course, depends on the nature of the organization and the objectives of the Board. But even more important than style is a more basic issue: how Board members see their role.
The most important distinction among Board members is whether their Board service is full time or occasional. Issues related to this distinction can quickly escalate and produce counter-productive results.
European Company Style
Many corporations use the European style Board model and have several executive directors. Some have a full time “day job” with the company and serve alongside a smattering of independent directors. Meetings are frequent and often serve as both reporting and planning sessions. The executive directors will report on their areas of business and bring problems and opportunities to the attention of the board. The discussion often produces agreement on a course of action that the responsible executives will carry out without specific direction or Board resolutions. Other issues may be raised where there is a significant decision to be taken. After discussion, a resolution is framed to certify the decision. The executive directors must be hands-on. The part time independents must be hands-off. These boards can be very effective.
American Public Company Model
The typical, larger American public company board model is quite different. Nearly all members are part time. It is common to find only one full time executive, the CEO. These Boards only have the bandwidth to get reports from executive management and then exercise approval authority on significant decisions. This is not really a “working Board.” It is an “approval Board.” It serves a fiduciary responsibility, not a real management responsibility. If things are not well in the organization, often the only remedy is to remove the CEO and hope that a replacement will do better.
A Board should have active committees that interface with executive management beyond the CEO on issues like Finance, Audit, Governance and Compensation. On these committees, there is opportunity for a bit more interaction and imparting of the Board members’ experience to the management team. But the main role of the committees should be guidance and reporting up to the full Board for approval. The key is for members of an “approval Board” to recognize the limits of their role.
In the second part of this article, I will discuss what can happen when Board members lose sight of the difference between their role and management’s.
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Peter has extensive experience as a senior executive and advisor, responsible for issues like corporate restructuring, debt management, cost management and all forms of public and private debt and equity securities and fund raising. Learn more about Peter Rugg here.
