Many CEOs consider a board to be a necessary evil once their company reaches a certain threshold or aims for an IPO. Boards aren’t necessarily evil. They get that way when poorly constituted and managed. Here are seven signs of a feral board and simple tips on how to remedy the situation.
Start by defining the problem. What exactly is going wrong?
1) Is your whole board feral or is it just one director? If you have a misbehaving director identify the cause of that misbehaviour. Most directors have never been educated on how to be a director; they came to the role because they were good managers, business developers, financial advisors, investors, etc. It is very hard to do a job well if you don’t know what the job is or how it should be done. Sometimes a simple workshop will be the catalyst for vast improvements in behaviour. If your whole board is feral, are there situations in which they individually behave well? Can you appeal to them to bring that behaviour to your boardroom? Ultimately if your board persists in behaving badly you need to offer one last chance, with appropriate training and support, and then call an EGM to vote directors off and replace them.
2) Is your board an unbearable burden because they request ever greater detail in reporting and provide no return on the investment in preparing reports? You are not alone. Research in Australia demonstrates that more than 70% of senior executives spend over 20% of their time on working for the board and 41% see no positive return on that effort. Most boards report limited or no awareness of the cost of that time or the value it could create if invested on other work. Improving board understanding of their impost on the business is a simple but effective way to improve behaviour. Left unchecked a feral board’s requests for more and more information will eat into your assets like a plague of rabbits into a carrot plantation.
3) Does your board understand the business model and add value by guiding the executives to reach better decisions? Recent high profile failures such as Dick Smith – where the board apparently did not understand the impact of rebates on their financial reporting or inventory levels – and 7 Eleven – where the board apparently did not understand the cost structures that encouraged managers to flout workplace regulations in order to cut costs – suggest that boardrooms as not as well appraised of activity within the business as they could and should be. Directors are human and will become anxious and aggressive if they feel threatened by the situation they are in; designing a program of structured briefings to get your whole board up to speed will remove many of the causes of feral behaviours.
4) Does your board operate at a strategic level or do they get into operational detail or, worse, interfere with management decision-making? Directors are, usually, non-executives. That means that everything they do should be appropriately passed through the CEO to the chain of management. Even if, like many professional service firms, your board is comprised entirely of senior executives who work in the business there are benefits from making clear distinctions between board meetings and decisions and management meetings and decisions. Making sure that directors understand which role they are playing, and how to play it, is fundamental if roles are to be played well.
5) Does your board act in the best interests of the company or is it plagued by self or vested interest? Australian legislation makes it clear that directors owe their duty to the company as a separate legal entity. ASIC regularly prosecutes, and penalises, directors who contravene their duty. Educating boards on what constitutes a conflict of interest and how to safely manage it is a good way to avoid being found guilty of acting when conflicted and suffering the cost and embarrassment of a prosecution. In the six months from July to December 2015, ASIC laid 42 criminal charges, charged six persons in criminal proceedings, issued 20 infringement notices, commenced 105 investigations, and completed 86 investigations. Implementing good processes is the best safeguard. Ignorance is no excuse.
6) Do you engage your directors in developing the strategy through a well-designed process, or is it an ad hoc and unsatisfactory attempt that usually fails? We all know the old cliché about failing to plan and planning fail. It is a cliché because it is true. Developing sound process, such as workshops, reviews, and education or development activities will help to engage the board when the executive team need their input. If the board are frustrated because they want to contribute but don’t know how then you can expect feral behaviour.
7) Is your board even aware of how they are performing? What gets measured gets done but, because boards sit at the apex of the organisation, they are often exempt from scrutiny. A well designed performance review followed by an agreed and implemented plan of improvement should be a regular event for every board. You can do this yourself or bring in specialist assistance. But, if your board is showing even the first signs of poor behaviour, you should do it. Don’t let feral behaviour continue; survey it, report it and then fix it.
A well run and skilled board is a great asset for any business. If you board is not adding value, or worse still, is actively eroding value, then you need to act.
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