In the first part of this article I explained the contrast between a “working” and an “approval” board. A review of the Boards of successful companies, such as those of Exxon, Google, and Nestle, provides an interesting comparison with those of struggling companies such as JC Penny, NYSERTA, or Hewlett Packard.
In the former group, boards have won respect for guiding the company according to the fiduciary oversight role. In the latter group, boards have failed to exercise timely oversight (as in the case of HP’s disastrous acquisition of Autonomy) or have contributed to dysfunction among the top executive team.
Boards of many small companies and non-profits often try to emulate big corporate Boards, with many part time Board members and perhaps only one executive director. It is important for these Boards Members to know their roles and responsibilities well. By doing so, they maximize their chances of influencing the company toward what they know to be best practices. But they must know their limits. In these situations, hands-on Board members can create dire consequences. The hands-on approach can lead to undermining the confidence of the company’s management and render them powerless to do their jobs. Too many directives and requests for excessive data and documentation are clear signs of a hands-on Board member failing to understand the limits of the role.
Problems occur when a Board member is determined to jump into a situation to rectify what he or she thinks is a shortcoming in management’s performance. Often the result is to worsen the situation. Management will go on trying to work around what they see as Board interference. The Board members who think they are trying to fix the operating problem will complain that management is not supporting them and that there isn’t sufficient information to solve the problem. The Board ends up assuming quasi managerial responsibility and then blames management for the failure that the Board created.
One useful approach in situations where Board members have concern about management decisions is to defend management and refer larger issues to committee, where Board members may be able to give more assistance and guidance working with management on specific issues.
Contrast this with the truly collaborative way that the Boards of many small non-profits function. These organizations may have little or no full time management. A small church for example may have one Senior Clergy, and a Board who meet just four times a year. In these cases, the work gets allocated to committees – finance, fund raising, coffee service, ushers and other service aides, nursery school, music, buildings and grounds. Each committee may be supported with volunteers who do the required work from week to week. These committee people are hands-on, part time board members in their specialty area. With no staff to order about, they must do the work them selves, with other volunteers, and take responsibility for reporting, cost management, successor recruiting, etc. when sitting at the infrequent Board meetings.
Some investors like to have a control investment. When a company has a control investor and a large group of continuing minority investors, directors, especially those representing the control investor, must give special consideration to avoiding the reality and appearance of a conflict of interest.
Board service is often a rewarding honor. A good Board member will understand the dynamics and responsibilities of their role. One must know whether to be a guide or a tool. Remember that tools without guidance can do a lot of damage. To serve as an effective guide to management, a hands-off Board member must be alert to problems--but should also be ready to praise and reward management for good execution. When a Board member wants to take a hands-on role, there should be guidelines, such as a Finance Committee Charter, that clearly sets forth roles and responsibilities for both management and committee members.
Board membership can present directors with difficult decisions. Board members who might be tempted to stray into the role of management must be guided, like doctors, by the principle enshrined in the Hippocratic Oath—to “do no harm.”
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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.
