Is Your Board Adding Value?
And what to do if it isn't
What value do boards add in general and specifically, what value does your board add for your organization? These questions deserve some thought on your part and perhaps a place on an upcoming board agenda.
Let’s begin by reviewing what the board is supposed to do. If the minimums aren’t being met, some remedial work is definitely in order. Beyond that, you will never know what more your board can do if you don’t ask.
First, the board exists to provide fiduciary oversight, making certain on behalf of shareholders that everything is above board and no funny reporting is going on. There have been a few stories of the big auditing firms overlooking things that they shouldn’t have overlooked, so a good board has at least one member with deep financial expertise on the audit committee. The value added by the board in the area of fiduciary oversight is to provide a second line of defense beyond trustworthy management in protecting shareholder interests.
Second, boards are expected to help mitigate risk by discussing actions that could expose the company to financial or reputational risk. It’s leadership’s responsibility to consider potential risks and present them to the board for appraisal. There shouldn’t be any surprises. The value added by the board in this instance is to demand a thoughtful review and to keep the risks within an acceptable range. Organizations have to take some risks, but the board’s job is to make certain they are not excessive.
Third, the board selects the CEO and determines CEO compensation. While being chosen as CEO is value-added in the eyes of the person selected, from a shareholder point of view the value added by the board is in selecting and retaining the best person for the job. As a part of that, the board’s work in determining CEO compensation adds value by making sure the CEO is neither overpaid or underpaid.
Fourth, the board is expected to provide strategic guidance. In a good board, a number of board members are selected based upon their ability to provide useful input to the CEO and executive team as important strategic choices are being made. The greater the relevant expertise on the board, the more value the board should be able to add.
Fifth, members of the board are expected to represent the company’s interests to external stakeholder groups and even on occasion use their personal connections to create business opportunities or gain needed cooperation. In good boards, members have access to people who can materially influence the company’s fortunes.
The first question to ask is, “Is your board delivering the value it should in these basic duties?” The second question is, “In the ideal, what additional value could the board offer?” Answers to either question may lead to a desire to rethink the membership, focus or processes used by the board to accomplish its work. Let’s look at each of these.
Given the rate of change affecting organizations today, particularly in the areas of technology, globalization, policy and AI, a board may not possess the expertise it needs to assess emergent threats and opportunities. During my time at the Center for Creative Leadership, the president added a board member from Silicon Valley who brought technical expertise and immediately influenced the focus and depth of conversations in this area, leading to investments in technical applications that almost certainly wouldn’t have been considered previously.
As this example demonstrates, adding new members to a board can be a fast and simple way to improve the board’s knowledge on a topic of critical importance. If new members can’t be added immediately, expertise can be imported by bringing in external authorities who can educate the board, or the board can undertake learning expeditions to visit organizations that are already experimenting with new ways of working. Regardless of how it is accomplished, the important thing is to identify dangerous gaps in the board’s knowledge and plug the holes. In my experience, board members are deeply appreciative of these efforts as they address the vulnerability board members may feel regarding their ability to oversee investments in areas with which they are not familiar.
If expertise is the board’s most critical asset, time is a close second. Even with some activity between board meetings, the amount of time boards are together is seldom more than a few days a year. This isn’t much given that a significant portion of the board’s time must be devoted to committee work to accomplish its basic duties. The time left over for the board to learn, advise, and work together as a team is precious. Therefore, focusing that time on the most important issues is key. Preparation for meetings is key to the board focusing on the right issues and coming to meetings ready for a truly meaningful discussion. Board books are already too full as they are made up “required updates” that could be more efficiently summarized rather than material that is of strategic importance. As a result, critical areas of concern are introduced at one board meeting but decisions about them are not made until the next. The goal should be to prepare the board to move quickly on decisions that matter rather than acting as a brake slowing things down.
Many boards have adopted a yearly cadence of topics to be covered that corresponds to the annual business cycle that starts with strategic planning and ends with reviews of talent and outcomes. This cadence is good from the perspective of the board knowing what to expect but it may push aside agendas that need urgent board attention. More work on deciding the most important areas of current focus for the board, followed by better board preparation, can help increase the value added of board meetings.
Finally, as an example of improving board processes, the majority of board members are often underutilized between meetings. If the right people are on the board, they will have connections that are useful and contributions they can make that are immensely valuable. Often, they need only to be asked to engage in such work between meetings. Of course, this means that they will need to have partners among executives to guide their efforts and that will demand some executive time. The added benefits, beyond the value of the work itself, are that board members get to know their executive partners better and the spirit of cooperation between the board and leadership increases. What other board processes might be improved?
Putting a discussion of what more the board can contribute on a future board agenda can open up possibilities that may not have been considered before, lead to important changes in board composition or functioning, and usher in a new era of leadership-board cooperation. That sounds like it could be value added to me.