The Company Board - a valuable hidden resource

When a company fails, was the board caught sleeping? Post-mortem examination frequently reveals the answer to be a resounding “yes“.

The annals of business history are replete with case studies of highly regarded companies that have gone down in failure due to a passive board of directors, lack of commitment by directors, or inexperienced directors.

The time to consider the real role of the board, of course, is while the company is a going concern. In far too many companies, the management potential of the board of directors is underused to an astonishing degree - or even not used at all. Many directors fail to understand what they are supposed to do or what they are really accountable for.

When directors serve on as many as ten or twenty boards, as is often the case, problems are bound to arise. The result: spotty attendance at meetings, limited familiarity with the companies, and an inability to commit except in time of crisis. Many boards are also far too large and unwieldy.

The board’s prime concern should be the long-term perspective and vision for the future, not the nitty-gritty details of daily management. The most rational way to give board members a renewed sense of purpose and independence is to strengthen the role and position of the board by drawing a clear distinction between board and management in terms of both function and membership.

A vigorous and independent-minded group of board members with extensive experience in a broad range of activities in both the public and private sectors can serve as an early warning system, helping to avert potential problems before they assume disastrous proportions.

With the active encouragement of the chairman, most members of the board can play a personal role in public affairs, bringing to board deliberations a sensitive awareness of external influences that is all too often absent.

The Abilitas Boardroom Challenge Concept

 Articles in the business literature [Sloan Management Review, Harvard Business Review] tend to support the growing trend to empowerment of the board. A recent report by the Institutional Shareholders Committee noted that “There has been a growing awareness of the value of audit committees and the importance of non-executive directors has become evident, particularly in matters concerning top management and in circumstances where there is potential conflict of interest such as management buy-outs“. As a high-profile executive quoted in a Wall Street Journal article headlined Shareholders Campaign to Dilute Power of Chief Executives by Splitting Top Jobs put it, how can one person who serves as both chairperson and CEO/president evaluate his or her own performance?

As a matter of sound business practice, there is increasing recognition that non-executive directors should be sufficient in number and caliber for their views to carry significant weight in the work of the board - particularly if one person fills the double role of chairperson and CEO. Clearly, the recruitment of board members should be given as much importance as the recruitment of a CEO.

Based on the recognition that managing the mature modern corporation in a complex and rapidly changing world is a task beyond the capacity of any single mortal, no matter how capable, we have developed what we call our ABC - the Abilitas Boardroom Challenge concept. The ABC is the principal tool used by the Abilitas Group of Advisors, which pools the know-how of advisors for board assignments and provides coaching for novice board members.  Abilitas is a Finnish-American joint venture.

The Abilitas Business Management Philosophy, Personnel Management Creed, Operating Principles, and Code of Professional Ethics guide Abilitas advisors; all of, which provide an effective framework for helping board members, make a more productive contribution to their respective companies.

Of course, every company has its own unique needs, and there can be no one-size-fits-all dividing line to segment the respective responsibilities of board and management. In our experience, however, several broad principles do apply:

  • Board and management should share a common vision for the future of the company.
  • The company’s core values should be clearly defined and shared.
  • The board should have the means to control operations.

Some points that may seem obvious once stated are frequently overlooked, for example:

  • The need for reports that presents facts the board needs to know.
  • The need for auditors reports to be distributed to the board, along with a statement of managements reactions.
  • The need to hold a meeting at least once a year at which the board and top management have an opportunity to mingle informally to discuss the company and its future.

This would also give board members a chance to evaluate the potential of senior managers.

While management - executive officers and senior managers - should be the initiators in matters directly related to running the business [subject to review and audit by the board], board members are the appropriate initiators when it comes to broad-based policies and programs that serve to direct and orient operations. Once this is clearly understood by all concerned, the energies of both management and board members can be appropriately directed.