Characteristics of a High Performing Board

We recently received a question from Bill, a Leading To Win reader and industry professional.

Hi AG - I hope you had a terrific weekend. I have a question for you:

You have seen it all. What makes a for-profit board work, from your perspective? And what are the typical pitfalls? What’s the #1 thing a CEO needs from effective board members? When do boards actually inhibit progress?

With thanks in advance for sharing some of your wisdom,

Bill

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I certainly have not seen it all!

I have, however, served on a lot of boards… at Fortune 50 mega caps, small, medium and large public companies, at private companies including several start ups, and at a number of nonprofits (read my bio, if you’re curious).

That’s why I love getting this question. I believe great leaders are made, not born and that anyone can learn to become a better business leader or strategist (sometimes, all you need to do is ask). In my opinion, the best leaders are lifetime learners who continue to search for concepts and principles, best practices and processes that make them, their team and their company better.

In my experience, there are four characteristics of a high performing board:

The best directors I’ve worked with play their position and do their job — effectively and efficiently.

1. They understand their unique, important and focused role.
   They understand the entirety of their fiduciary and governance responsibilities. They know they have oversight responsibility for business strategy and enterprise risk management. And, they take their most important responsibilities seriously…selecting a CEO and helping her/him grow, develop and perform to the best of her/his abilities.

2. They’ve built a strong board team.
   The best boards have a robust process for identifying, thoroughly vetting and hiring new directors that are a good fit with the company and the board team, and that bring significant value added to the company with their capability, experience and expertise.

3. They’ve created a constructive board culture.
   The best boards create a strong culture… one that encourages collaboration and courage.  In many ways, a board is a social entity. Common values, mutual respect, trust and a shared commitment to the company bond directors together.  When differences arise, or a hard decision must be made, they turn to inquiry before advocacy with the goal of achieving consensus in an often better third way. Individual directors are comfortable speaking up and speaking out with candor.  In a well functioning board room, directors know they can speak freely and openly, and share their best judgements because they know what they say matters…and that what they say will stay in the board room. 

4. They function effectively as a board and with the CEO and executive leadership team.
   Finally, great boards understand the importance of functioning effectively — not only as a board — but also with the CEO and with the management team. Directors are willing, ready and able to go a step beyond for the company, the CEO, and the management. They should step forward when asked to represent the company, to get to know the business, and to help guide the internal management teams.

As to pitfalls, the biggest mistakes I’ve seen are:

1. Selecting and hiring the wrong CEO. 
   Depending on how long it takes to realize the mistake, a fair amount of damage can be done to the company, the organization and its investors by the wrong CEO choice. But know — it’s okay to make a CEO selection mistake. It’s not okay to not fix it fast with the right choice the next time. 

2. Selecting and hiring the wrong Director. 
   Ironically, making the mistake of hiring the wrong Director can take a lot longer to fix than hiring the wrong CEO.  For a whole host of reasons, Boards are very reluctant to get rid of non-contributing, under performing, ill-fitting or even disruptive directors.  Permissive term limits and the rolling back of retirement ages have not helped create a sense of urgency or decisiveness by reluctant boards. 

3. Screwing up the company‘s business strategy or model.
   It takes a meddling and wrongheaded board to push leadership away from a business strategy that’s clearly working.  It takes an impatient and shortsighted directors to not stick with a promising strategy and give it enough time to work.  It’s relatively easy to abandon a business strategy that’s clearly not delivering expected results. It’s difficult to see around corners and anticipate when a change in strategy is needed to  prepare for the future.

4. Failed mergers and acquisitions.
   As the Economist reports annually, the vast majority of mergers and acquisitions fail and do not even return the cost of capital, and way too many destroy significant shareholder value. It takes two to tango, a CEO and the board of directors…to go ahead with an acquisition that doesn’t make strategic sense, and is a long shot to deliver an acceptable financial return.   

Hope this helps, Bill.  Thanks for your question.