Managing Director Performance

"The biggest challenge boards face"

I was speaking to a former colleague who has spent her entire career working with boards here and around the world. We were discussing the challenges boards face and while things like deciding how much to get involved in business decisions and managing the relationship with the CEO were right up there, in her view, the biggest challenge boards face is in managing director performance. In particular, she meant managing poor performance, which could require anything from providing some much-needed feedback to removal.

Objectively, we readily accept that every group conforms to some version of the normal distribution: a few stars, the majority somewhere in the middle, and a few who contribute less. But in practice, we like to think that the distribution of our group is skewed toward the high end, so no one is a poor performer. That holds true for some boards but not all. If there was a way to do a completely objective assessment, some directors on some boards would be found wanting on one or more important dimensions.

My colleague wasn’t suggesting that all boards have a bad egg or two; only that when there is a bad egg, the board usually knows it but chooses for the most part to ignore it. Why would that be, especially when the responsibility of the board to fulfill its fiduciary and governance duties is so great? You might cut a poor performer on a sales force some slack in the hope that they could improve given time, but a board is a very small group and every voice and every decision matters. When a voice on the board is out of tune because the person didn’t do their preparation thoroughly, behaves in ways that are annoying or disruptive, or simply doesn’t know what they are talking about, it’s a problem.

To dig more deeply into this, we have to start at the beginning with how directors are chosen. For the most part, the days of the CEO choosing their buddies to be on the board are over. There are exceptions, but ever since the Enron scandal that led to new rules and regulations, boards have been reluctant to rubber stamp candidates. Instead, recruiters are asked to search for multiple candidates who are qualified to serve and hold the specific expertise and attitudes that the board is seeking. Candidates are thoroughly screened by a committee and then introduced to the entire board before a selection decision is made.

Nevertheless, boards are sometimes lulled into complacency by a candidate who has rock star status in their field of expertise or fulfills a specialized niche that has been difficult to source. It’s like going to the car dealership and driving out with a sportscar when you intended to purchase a minivan. You love it for a moment until you discover how difficult it is to load the kids or groceries in the back. By then you are stuck with it; it would be too embarrassing to go back to the dealership and trade it in. No matter how well candidates interview or how fortunate it seems at first that your board is able to attract them, you never really know if the person will be a good fit with your board until you test drive them for a few hundred miles. If your board doesn’t set term limits for directors, there’s no easy way out. Some board members might later say, “I could see that coming a mile away,” but where was their voice when it was needed? The pressure to get along with other members is real and if everyone else seems to love the candidate, dissenters are likely to remain quiet. Given the importance of making good board appointments, it’s not a bad idea to incorporate a round of anonymous votes or statements before selection decisions are finalized.

If an occasional bad egg slips past the selection process, the board has a choice about managing their performance or leaving things alone. This is what my colleague was referring to when she said that managing director performance may be the biggest challenge boards face. Why? Truth be told, not many people enjoy having difficult conversations with their peers about their performance. People fear that the exchange won’t go well, leaving a permanent wound in the relationship that could be reopened at some point in the future. They doubt that the person can change, making the conversation both risky and pointless. They assume that the discussion could cause great embarrassment and wouldn’t want to be in the other person’s shoes. They talk themselves into putting up with the situation by convincing themselves the cure would be worse than the disease.

But we all know this. It’s performance management 101. Boards and the people who compose them are supposed to be more experienced, more capable and more courageous than other mere mortals. Surely, directors have had to fire a person sometime over the course of their careers. It’s never easy but when it’s necessary, it has to be done.

There are a lot of reasons that directors underperform and each case is unique. The director who has “aged out” and isn’t as sharp as they once were is different than one who is still capable but doesn’t apply themselves. The director who hangs on after their expertise is no longer needed is not the same as someone who is so full of themself that others can barely stand to be around them. Still, these directors have something in common; they need to either improve their performance or go. The seat they hold needs to be filled by a fully contributing member who strengthens the board rather than impairing it.

What causes boards to hold back, beyond the challenges everyone faces in performance management 101?

Serving on a board is not only a nod to a person’s capability, but also honorific. Very few people are accorded this honor and taking the honor away is like reclaiming a war hero’s medal. Short of removal from the board, just knowing that other directors find their behavior problematic is enough to make the person in question sink into deep depression or boil over with anger. While we can all benefit from receiving feedback to improve our performance, unless the board has worked very hard at creating a container of psychological safety, even helpful advice won’t be well received. To create this kind of container, the board would need to agree that receiving regular constructive feedback is a requirement for serving on the board and if one isn’t willing to hear what they could do to improve, they should consider serving elsewhere. Very few boards have this agreement, since one of the last vestiges of boards being “clubs” in days gone by is that other members are supposed to be treated with unconditional positive regard. If this rule is broken for one member, it can be broken for all, and that means having to walk on eggshells rather than retaining the freedom to say whatever you have on your mind for fear that you might be next. Once boards take away the freedom to be oneself, they lose the comfort to work together in a way that leverages the best that each member brings.

There is no easy resolution to this dilemma, which is why performance management remains such a challenge even for the best of boards. No matter how much we might wish for boards to be perfect teams, the reality is that boards are made up of people who are just as flawed as you and me. While that can sometimes be a problem, it’s also what can make a board great.