Why do you have a board?
Most organisations above a certain size do indeed have a board of directors. But why?
For all the wrong reasons, usually. Let’s take a short tour.
Most have a board simply because it’s a legal requirement. And so their boards are largely ceremonial, and often fictitious. They pretend to direct, but those who did the real directing before the board came into existence continue to do it anyway. The board is merely another rubber stamp, just like the one bearing the organization’s name and address is. It is used to give legal recognition to important decisions and documents.
Many have boards in order to give the illusion of diversity in ownership, balanced decision-making, or independent scrutiny of the organization’s affairs. The board here is a nice photo opportunity, easy on the PR optics and for placating the regulator, but with no other real purpose.
Some have boards just to gather trophies. Not the trophies you display in a cabinet, but the ones you place around a large, shining board table. These boards are there simply for public consumption, a collection of VIPs that lends credibility and useful brand associations to the organization.
Directors on these boards know why they sit there, and make little attempt to engage meaningfully. They are on several such VIP boards, after all, and can’t be expected to have the time to think deeply about details.
A few have boards so as to reflect a desired ethnic or gender composition. Directors here are appointed not on merit or experience, but on political considerations. Indeed, many are appointed directly by politicians. These boards are usually large and unwieldy, and will usually insist on meeting many, many times in the year. The director’s main activity is to collect meeting allowances and per diems, after all.
Those are most of the bad reasons for having boards, and unfortunately they are not uncommon. Admit it, you wriggled a little in your seat while reading the list. It should come as no surprise, then, that so many boards in the world add so little value to the organizations that they purport to direct and supervise.
That does not mean the idea of a board is a bad one. It’s just an idea that’s being done badly.
A board is a pivot between the owners and managers of an organization. It is the fulcrum on which power and responsibility is balanced between those who provide capital, and those who use that capital to create a result. Boards are necessary because, as organizations grow and have an increasingly wider base of ownership and funding, professional managers have to be brought in to run affairs properly. The board is the link between the hired hands and the owners. A good board has two key duties: to monitor and supervise the running of the firm on behalf of those who fund it; and to provide wise counsel and guidance to those who run it.
Noble aims, badly effected. As one CEO wag put it decades ago: “A really good board is one that only reduces the efficiency of the company by 20 per cent.”
Boards are run badly because they come into existence for the wrong reasons. If we formulate boards just to be legally or politically compliant, or to merely give the illusion of good governance, it should come as no surprise that we structure them to be ineffective. That’s part of the plan, as the real power and real decision-making lie elsewhere.
This is such a shame. A good board should be a very powerful instrument. It should provide proper checks and balances on the operations of the organization, in the interests not just of shareholders but of society at large; it should also be an active and enthusiastic participant in guiding the future of the organization.
Which type of board are you on: ceremonial or progressive? It’s easy to tell. Consider your average board meeting. How long is it? Long enough just to get essential matters signed off? Or long enough to cater for all the long-winded huffing and puffing of all the worthies in the room?
Look around the table. Do you see an impressive array of seasoned thinkers, each bringing a unique perspective and sharp angle to every discussion? Or many empty seats (with apologies) and too many faces distracted by their mobile devices?
What do you usually discuss? Detailed audits of the previous year’s performance, in mind-numbing detail? Lots and lots of agenda items, most of them operational and in the past tense, too many to consider in any real depth? How often do you postpone a decision simply because you don’t have enough time or information to decide on the matter at hand?
Is the meeting agenda tightly scripted, with little time for lateral thought? Do you spend more time listening to PowerPoint presentations rather than having meaningful discussions? Do you get the feeling few people have read their board papers? Is everyone in a hurry to be somewhere else?
If you weren’t wriggling before, I trust you are now.
We can all do much better with this thing called the board of directors. Sitting on a board should be a pleasurable and stimulating activity, not an onerous chore. Boards should be populated with enthusiastic individuals with great passion for the organization’s work and products. Board meetings should be lively, engaging events that you look forward to attending. The responsibility to provide stewardship and live up to your fiduciary duty as a director should make you more than a little nervous.
The first step in moving towards a better board is to realize that yours might not be good enough. Bad boards eventually come unstuck, and burn value as well as ruin reputations. A bad board is not good for anyone – not the shareholders, not the management, and not those who sit on it. If you’re on a bad board, get off – or make a meaningful effort to change it for the better.
Good boards have good fundamentals: a clear charter of responsibilities; a transparent selection process that brings the right faces to the table, not the correct ones; intelligent work processes that make the most of the collective intelligence assembled; and structures that are designed to deliver results rather than pass the time.
Good boards have these things. Yours can, too. Then, as a director, you’ll have a board that you’re proud to be associated with, and results that you can point to with satisfaction.
Sunny Bindra is a corporate strategy and governance expert who has advised many leading boards in East Africa and beyond. He designed and leads Strathmore Business School’s flagship director programs: The Effective Director and Leading The Board.