Board Development

CEOs can rise and fall on the strength of their boards. How do you identify, recruit, retain, and develop an excellent board?

I interviewed experts Elizabeth Ghaffari of Champion Boards, Tracy E. Houston, M.A. of Board Resource Services, and Laura Hertzog of Cornell University’s School of Industrial Labor Relations.

My first guest was Elizabeth Ghaffari. She is the author of Outstanding in Their Field: How Women Corporate Directors Succeed. As President/CEO of Technology Place Inc. and founder of Champion Boards, a research and advisory service, Elizabeth works with entrepreneurial businesses to tap the power of governance to plan and implement effective growth strategies.

Elizabeth started developing her expertise on boards through her work giving advice to corporate and advisory boards on technology issues. The more time she spent working with boards, and the more research she did, the clearer it became that there was a huge gap between the theory of how boards are supposed to work, and the practice of how they actually work.

When I asked, “How do you identify, recruit, retain, and develop an excellent board?” Elizabeth said “It depends.”

It depends on the type of company, what they are trying to accomplish, and where they are in their lifecycle. The board will be different for a family-owned business vs. a publicly owned one vs. one owned by private investors. The board will be different for a rapidly growing company versus a more stable one. It will be different for one branching out into international markets.

In each case, you’re looking for a different set of skills, experiences and backgrounds.

Let’s pick an example — a $3 million per year, 20 employee professional services firm, in business for 15 years, without any formal board, and controlled by the founder. In setting up a board, it will be very similar to the board of a startup, because in both cases you’re creating a new governance structure, and you are probably gearing up for growth. You want to anticipate the areas into which the firm will be growing — new technologies, new markets — and recruit board members with appropriate expertise.

Elizabeth was insistent that the board have skills relevant to the future needs of the firm, not the current needs alone. This must be driven by the strategic plan.
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Once a board is in place, now the board begins to create and maintain and shape itself. You don’t want a board that is a mere appendage of the CEO. The board is actually there to force the CEO to decide things, to push the CEO outside his comfort zone. A good CEO is recruiting board members who are smarter than he is.

Among the board’s most crucial responsibilities are:

  • to ensure that there is a strategic plan in place,
  • to ensure that the strategic plan is being operationalized and carried out, and
  • to ensure there is a succession plan.

Then, the board must continually ask deep, probing questions — ensuring that but management tells them is going on, is in fact going on. When boards get in trouble, it’s because they stop asking these deep questions.

Increasingly, we are seeing board members expected to put their feet on the ground in the business, to visit stores, to interact with customers, to visit plants, etc. This is to verify what they’re hearing through management channels.

(For example, the members of the board of Salem Hospital in Salem, Oregon are given specific doctors to shadow, specific tasks to learn, and are expected to attend national conferences related to the specialty they have been assigned.)

In May of this year, Elizabeth will be moderating a panel in Century City on women in the boardroom — click here for more details. This will be part of a 19 city tour, sponsored by SHARP UpSwing to educate women on the realities of serving on a board.

Elizabeth’s website, Champion Boards, includes useful links at the bottom of the main page including extensive list of resources and recommended reading.

My second guest was Laura Hertzog PhD, the director of the Equal Employment Opportunity (EEO) and Diversity and Inclusion Management Program of Cornell University’s ILR (Industrial Labor Relations) School in New York City.

Boards are continually approaching her and her people for advice on how to assemble better boards, and why their current boards aren’t working right.

The key element in getting diversity on the board, is to make sure that people are bringing up the right questions. A diversity of membership will bring a diversity of questions. Building the board is not about putting together a nice box of crayons. Color might be interesting, but it’s not the most important part of diversity.

The most important role of the board is to take the CEO outside of his or her comfort zone. Imagine a CEO of a pharmaceutical company, which like every such company faces a risk of patient lawsuits. That person’s board should include scientists and doctors, of course — and should also include a patient advocate. Think of all the people who might get you in trouble later, and get that perspective on your board so you think about their issues earlier, not later.

In addition to using the strategic plan to help build the board, the strategic plan’s SLOT analysis will tell you something as well — anywhere you have an internal limitation (“L”) that lines up with an external threat (“T”) you should have somebody on your board who is sensitive and knowledgeable on those exact issues.

In addition to diversity, you have to have inclusion — that is, the people who are different have to feel safe and comfortable speaking up. They have to feel comfortable making the CEO uncomfortable.

To help the board achieve that level of comfort, Laura will run them through a “board exercise” in which a group is given a list of 22 names from which they will each assemble a board of seven people to help manage a for-profit eldercare business.. Each person works independently, making their own selection of seven. Then there are two more rounds in which additional information is revealed about each of the 22 names on the list. As the group discusses their individual choices, they quickly discover how differently they all think, because we each value different characteristics from that list.

On this imaginary eldercare board, you have the option to select a recovering alcoholic. Some of the group members will say “no, this person is too big a risk.” Others will say, “substance abuse is a big issue in our population, and this person will have lots of insights.”  Among other things, this exercise demonstrates that the CEO should not be selecting the board members alone.

This allows the board to experience what it’s like to disagree in a safe way — the exercise is not connected to their actual business — and is an excellent warm-up to prepare the board to discuss a topic that is part of their business. It simultaneously builds trust, and shows them that they all think differently, and that it’s okay for them to think differently.

My third guest was Tracy Houston, a board advisory consultant based near Denver, Colorado. With a focus on leadership, strategy and risk management, Tracy consults primarily with directors, presidents and senior officers providing input on high level, sensitive and complex issues.

Tracy was invited some years ago to sit on an advisory board for a utility, and from there was recruited to the board of directors. That got her launched into board consulting.

She believes that the big challenge for boards today is to handle the “white water” or turbulence that seems to be the new normal for businesses today — it requires flexibility, agility, and forward thinking.

I asked Tracy: What should I look for when recruiting board members? Up to now I’ve believed I should look for people with expertise in my industry, people who understand my customers or suppliers, and perhaps people with large Rolodexes, who can help me get business contacts and possibly sales. Is that the right mix?

The old advice is similar to that — you want independent people who can be impartial; and you want a few people with financial expertise.

Tracy suggests looking for people with the ability to understand risk and complexity. Have people who can actually discern and capitalize on trends. Is more valuable to have somebody whose experience is relevant, than just to have somebody from a big-name company.

Laura agreed strongly — you want both risk intelligence and diversity of backgrounds and perspectives. There is a risk because people frequently build their boards while looking in the rearview mirror — we’ve just been through a financial crisis and the onset of a recession, and people are still reacting to that. You want to avoid being so cautious, and so safe, that you are unable to seize opportunities.

We often are told that boards are responsible for “governance.” What does that mean?

Among other things, it means both ensuring compliance and steering — steering means asking hard questions, requiring hard decisions to be made, and providing guidance on what those decisions should be. It also means enhancing shareholder value.

What about an advisory board? They may have somewhat different powers, however their roles are very similar — helping with the strategic plan, ensuring the plan is put into action, pushing the CEO out of his or her comfort zone, and so on.

Nonprofit advisory boards often have a fundraising expectation, they often are overseeing an executive who is a greater subject matter expert than any of the board members, and they are generally not compensated.

Every board needs to be asking the hard question — annually or every two years — are we doing a good job as a board, and how can we get better? This should involve a professional board evaluation. (One resource for this is the web site “Evals R Us.”)

Both Tracy and Laura agreed strongly on the need for external expertise in board evaluations. The evaluation must be structured and regular.

The day of the honorary board membership is, or ought to be, over. Boards have an enormous amount of work to do. Their work is strategic and vital. There is no room on a well functioning board for dead weight.

Boards like stock portfolios need periodic re-balancing.  People leave and get added.  Within 10 years you may find your formerly well-balanced board isn’t what it used to be.  As Tracy points out, we’re experiencing the biggest exodus from corporate board members seen in year.  Directors are facing high liability risk.  Smart companies will expand their recruiting vision and look beyond the usual suspects.

Listen to the interview here.

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