We’ve come a long way since then.
To be sure, lousy boards—or at least mediocre ones—still outnumber truly high-performing boards. In the corporate world, critics remain concerned that too many directors have mistakenly tied executive compensation to short-term financial performance, potentially undermining the long-term health of the business. Nonprofit boards often suffer from a lack of rigor and no real insistence on the staff demonstrating meaningful and measurable change. And in the public sector, citizen advisory boards have been knocked for becoming overly bureaucratic and “increasingly reactive.”
Yet, for all of their shortcomings, boards have been steadily evolving over the past two decades. Many have taken criticisms made by Drucker and other disgruntled observers to heart, and the results are increased engagement, increased self-evaluation and increased turnover—in the healthy sense of the word.
Indeed, a host of books and articles by experts on governance have helped to foster these improvements, and any conscientious board member—or executive who deals with a board—should read some of them. (As always, we’ve provided a few of the best below, in “Deeper Dives.”) But there is also much to be said for the insights of directors who are right in the thick of it.
With that in mind, we approached a group of experienced directors to hear what practices they favor. Many of them are best known for their work in the corporate world, but most have served on the boards of nonprofits, as well, and some have worked in government.
Each offers a rule by which they’ve lived—and an explanation of why it matters.
NORM AUGUSTINE: KEEP ASKING UNTIL YOU GET A REAL ANSWER
Having served on all sorts of boards over many years—ConocoPhillips, Black & Decker, Procter & Gamble, the American Red Cross, the National Academy of Engineering, the Defense Science Board—and as the chairman and CEO of Lockheed Martin, Norm Augustine has witnessed all sorts of give-and-take between directors and management.
But he’ll never forget the one that got away.
“We were looking at buying another company that had an incredible reputation with its customers and a market share beyond what anybody would ever hope to have,” Augustine remembers of the episode, which occurred early in his experience as a director. “Being an engineer, I asked how solid their technology was—was it well protected and was it unlikely to be suddenly surpassed?—and whoever was talking gave me a rambling answer, and I didn’t push it. Within six months, there was a breakthrough in the technology, and a year later the company was gone. It was one of the worst decisions of my career.”
Augustine advises that there’s a right way and wrong way to persist with a question. First, let the person you’re asking know why you want to know, so it’s clear that you’re not just trying to score points in the board minutes. Putting people on the defensive does no one any good.
Second, “be sure you’ve defined the question with such bounds that you really deserve an answer to it.” For example, in the case of the acquisition of the company that was gone a year later, Augustine says that the question should have been: “What technological advancements are on the horizon that might have a significant impact on this company?” With that kind of framing, citing the fact that the company had a 91% market share would have been more plainly beside the point.
“Two of the board members were getting after each other,” Parsons recounts, “and then one said, ‘Whoa, time out, I’m going to say something, and I want you to listen to it and, for the purpose of discussion, just assume it’s true. I’m not asking you to accept it, just assume it, and then see if that affects your thinking.’” The result? “It changed the whole dynamic, because it wasn’t about ‘I’m right and you’re wrong.’ So just the way you set up the question and conversation is very important.”
BARBARA HACKMAN FRANKLIN: HAVE THE CEO TAKE A WALK AROUND THE BLOCK
Nobody likes to be told to wait outside. But executive session, during which inside directors and any other top executives are excluded, can help surface crucial early warnings.
Barbara Hackman Franklin, who was the 29th U.S. Secretary of Commerce, has been a board member of public corporations (Aetna, Dow, Westinghouse, Nordstrom), at nonprofits (National Symphony Orchestra and National Association of Corporate Directors) and in government (Consumer Products Safety Commission). Executive session is something she has seen work effectively over and over again.
Recently, she says, an executive session at one company revealed that board members were concerned about CEO succession. In particular, the directors felt as if they weren’t getting well enough acquainted with the internal candidates potentially in line for the job.
“Would that have come out during the structured board agenda? No, not in this way,” Franklin says. “That came out in the executive session.”
When the CEO was invited back in the meeting, he immediately “got the nine yards about what was going on in our collective minds,” Franklin says, and the full board was then able to agree on next steps to address the matter.
“You just can’t expect everything that could be an issue that’s not yet an issue to be on an agenda,” says Franklin. “That’s the value of these executive sessions, and that’s why my rule is don’t give them short shrift, and do it every time, and quite methodically.”
IRV HOCKADAY: DON’T SIMPLY GAZE IN THE REARVIEW MIRROR
“Effective boards, particularly in this day and age, do a really good job of revisiting and refining” how they’re structured, says Irv Hockaday, who was the CEO of Hallmark from 1985 to 2001 and has served on a variety of corporate and civic boards. This helps them to avoid falling into “a comfortable groove of governance and miss things they shouldn’t miss.”
Self-evaluation is especially important in a fast-changing world, Hockaday says, because it may reveal that senior board members should step down sooner than they’d like in order to make room for new directors with more relevant expertise.
For example, when Hockaday was a director at Ford Motor in 2007, the company reintroduced the Taurus. Then-CEO Alan Mulally told the board that there was more software in that vehicle than there had been in the original Space Shuttle. What became apparent was that directors with an IT background would be increasingly important.
“Suddenly, you have a board that has been comfortable dealing with a traditional automotive company now dealing with a company that is increasingly and highly dependent on technology,” Hockaday says. “And so the question becomes: Was the Ford board or any board that has been successful looking in the rearview mirror going to continue to be successful in meeting the director obligations in a dramatically changing environment?”
JODY GREENSTONE MILLER: TAKE AN HONEST LOOK AT EACH OTHER
As Irv Hockaday points out, good boards engage in self-assessment. The best go so far as to have every director hold up a magnifying glass to each of their colleagues.
“Before you’ve gone through it, it can feel a little uncomfortable,” says Jody Greenstone Miller, the chief executive of Business Talent Group, who has served on several corporate (including TRW and Capella Education Co.) and nonprofit boards (including the advisory board of the Drucker Institute). “So you have to be very careful that the process is done thoughtfully and doesn’t threaten the trust that you’ve built up.”
The most cutting-edge companies, Greenstone Miller notes, not only require each director to assess everyone else on the board individually, but they make all of the evaluations available to the entire board.
Yet if that’s too scary, individual evaluations—even without such radical transparency—are a good place to start. And the results may surprise you: Done right, the practice can actually foster respect and collegiality among those on the board because everyone undergoes the same process, and everyone must invest a lot of time in it.
“When you go through this, you may find that some of the things you think you are contributing aren’t the things that people value most,” Greenstone Miller says. “For me, for instance, it turned out that what was valued was my role in helping to crystallize things rather than ideas I brought to the table from my knowledge of a specific field. It’s one of those classic cases of not always knowing how people perceive what you do, what you say and how you say it.”
I remember going through this and finding that some of the things that I thought I was contributing weren’t the things that people valued.
Chief Executive, Business Talent Group
The chairman became so adamant that Macek and four of his colleagues reluctantly decided that they had lost confidence in him. It was time to seek his replacement. This was a risky effort, however. The government officials who’d appointed him did not wish to see him ousted.
“The five of us acted knowing that each of us individually was vulnerable to the government voting us off the board,” Macek explains.
At the same time, when they took themselves out of the picture and thought of the long-term sustainability of the company, the right decision was clear. They had to take a chance and hold their ground—despite government resistance and struggle.
In the end, Macek and his colleagues won out. They retained their board positions, Telstra’s performance improved and, says Macek, the non-purchased media company has since declined in value by 90%. “To fulfill your duty of care,” says Macek, “you must be prepared to put your career on the line.” *
What will you do on Monday that’s different?
REQUIRE THE RIGHT YARDSTICKS
“The first task of a functioning board,” Peter Drucker wrote, “is to insist that … management design adequate yardsticks of performance for itself.” When was the last time your board took a hard look at how management was assessing itself?
TAKE A GOOD LOOK IN THE MIRROR
Make sure your board’s own performance is reviewed annually against preset performance objectives—and if it is, revisit whether they’re the right objectives.
Examine your nominating process, especially if you’re a nonprofit or citizen advisory board. How rigorous is it? Do would-be members have a clear picture of their role and responsibilities? Do they bring needed expertise to match current conditions?