Some of you have gotten along forever without a board of directors, or used your spouse as the “other” board member from the start. But there are some very good reasons to build a great board composed of some outside members. And good board members can add real value to you and the company.
Where to learn more…
In other posts (and in our book, “Building Great Boards” – available on Amazon and other booksellers) we cover legal responsibilities of a board, how to pay board members, the limits of their responsibilities, dealing with under-performing or “noisy” board members, and more. Today, we cover an ideal board’s collective mindset.
If you are responsible for forming a board, managing it, or evaluating its collective performance, consider these three important modes of engagement as you guide…
Generative thinking: Do you have board members who often ask “why?” or “What if…” Or “What are the alternatives?” Or the important one: “Is this idea on mission?” These are generative thinking questions. Hmm. Generative. Now there’s a word perhaps you have never heard, and should be added to your corporate toolset and vocabulary.
[Email readers, continue here…] Generative thinkers are relentless in asking questions that get to the core of an idea, often making the originator think more deeply about the effects over a longer period of time. Some ideas sound unbelievably creative – and may be that. But sometimes there is a barrier, an impossibly high cost not considered, a social backlash never thought of, or competition already covering the idea that is unknown to the originator. Which leads us to the second class of creative board thinking…
Strategic thinking: Board members who ask: “What is the competitive landscape?” or “How about the public relations impact?” or “Does this idea move us toward our goals?” or “Is this just too little value for too much money?” – are adding to the dialogue in valuable ways and should be encouraged, not just tolerated.
Most of us in management have too little time for strategic thinking. “Ah ha” moments are too few when there are lists of urgent things to do that never seem to be completed. Good board meetings allow time, and the chairman encourages members to ask strategic questions to help focus the board on its best use of that time.
Fiduciary thinking: Most board members, especially those composed of members from larger businesses, are good at the fiduciary questions. “Is this legal?” “Is it feasible (financially, with our resources, with our capabilities?)” “Can we afford to do this?” “Is this idea sustainable?” These are typical fiduciary questions. Importantly, these also help a board to cover the legal “duty of care” for the health of the company. But that, too, is the subject for another time.
The punch line:
Investing in the creation of a governance board is not enough. We must encourage a constant use of generative, strategic and fiduciary thinking from board members, encouraging this most appropriate mindset. And we must present our ideas in board meetings or documents in such a clear manner that such questions will be asked, and discussion allowed.
Most importantly, we must leave enough time in a board meeting for these discussions. Which means reducing the time spent in routine reporting, delivering materials well in advance when possible, and encouraging participation from all board members. This is not easy. But the potential for great results leads to the board giving “macro governance” and not delving into the micro details that management deals with on a daily basis. A better company is the goal. And what CEO or board wouldn’t want that?
Never heard so explicitly what a board does. This is wonderful information. I bet DeRycke would be figuring how to include you in lectures in the Econ/Business Department at Oxy.
Jim, thanks. I did guest lecture annually for Woody Studemund until his retirement last year. No-one teaches board governance! – Dave
The ideal Board makeup depends upon the stage and needs of the company. Early stage companies need Board members that can help raise capital and make connections, to motivate the entrepreneur when s/he’s down, and talk with potential investors when needed. Once a company has moved past the “are we going to make it” stage, Board members are needed to ensure financial, security, regulatory, and compensation controls are in place so the entrepreneur doesn’t get into trouble about things s/he doesn’t know. After a company is public, the Board is there to protect the interest of the shareholders, which includes some of the above, and also to ask the “generative” and strategic questions you mentioned in the article based upon their deep business experience. Such Boards help leadership “see around corners”, getting the CEOs mind from being “in the business” to being “on the business.”
Thanks, Dave. Many of these same principles apply to nonprofit boards. I look forward to further articles that get into more detail about some of the areas you did not cover in this initial post.
Governance? What’s that? So many leaders in both the private and nonprofit sectors seem to want rubber-stamp boards as opposed to those who will actually engage in governance…