My experience as chair of three governing bodies and a member of four others has convinced me that many boards could benefit from clarifying their role and differentiating it from that of executive leadership. The systematic application of these three simple tools to make boards work better can greatly improve the contribution of most statutory and advisory boards.
CEOs often experience their board as “meddling”; directors complain that CEOs usurp their prerogatives. The answer to micromanagement by the board or inadequate governance over management is a set of boundary conditions.
Tools to Improve Your Management and Board
Boundary conditions clarify the reserve powers of the board and the arena of discretion for executive leadership. For example, if there is a downstream valuation target or near-term investment opportunity, it is up to directors to, say, sacrifice near term profits in the interest of upper quartile performance in the out-years.
Boundary conditions help ensure the alignment between long-term goals and short-term profitability.
Rules of Engagement describe how the board works together: how decisions get made, how members interact and how difficult conversations are carried out. They can be especially helpful for groups more accustomed to being civil than acting decisively. They are best developed against the backdrop of three basic principles:
- Governance is an extension of ownership…not a branch of management
The director’s presence should be neither ceremonial nor should it compensate for staff deficits. Every organization needs an attorney, a banker, an accountant and other disciplines required to conduct business. If those credentials end up on the board, though, they should never be viewed as extensions of the staff.
- The board speaks with one voice or not at all
Healthy Rules of Engagement create dynamics in which everyone is involved in a candid exploration of ideas, surfacing differences and participating with all the passion of their diverse perspectives. When a board directs, though, it does so as one body. Short-circuiting the development of a single board voice destroys the governance process. It takes time to for a group to find its voice on key issues.
- The board has one employee; the CEO has all the rest
Directors must avoid the temptation to “supervise” staff within their discipline. Doing so as individuals distorts accountability and violates unity of command; doing so through committees creates a kind of “corporate federalism” that makes it nearly impossible to pursue a coherent strategy.
The Context Map
Both boundary conditions and rules of engagement are developed for a particular context. They are intended to ensure alignment among stakeholders and adaptability to the dynamics of the market.
Until the board maps its context and addresses any internal contradictions, though, members can’t separate their preferences and prejudices from their business judgments. The map enables them to see the source of difficulties; the boundary conditions and rules of engagement enable them to talk about them.
As marquee cases both before and since Enron illustrate, even the best boards can’t prevent larcenous behavior, strategic blunders and shareholder losses. Board development is a continuous improvement process. Properly applied, these tools provide the required guidance to control risk and achieve the goals of the organization.
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About the Author
As a CEO, Director and Advisor to CEOs on strategy and governance, Mike has compiled a track record of navigating complexity, refining business models and cultivating leadership. Learn more or contact Mike directly here.
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