Changing the nature of board engagement
Five tips for
directors and CEOs striving to make the most of their limited time.
“Ask me for anything,” Napoleon Bonaparte once remarked, “but
time.”1Board members today also don’t have that luxury. Directors
remain under pressure from activist investors and other constituents,
regulation is becoming more demanding, and businesses are growing more complex.
McKinsey research suggests that the most effective directors are meeting these
challenges by spending twice as many days a year on board activities as other
directors do.2
As directors and
management teams adapt, they’re bumping into limits—both on the amount of time
directors can be asked to spend before the role is no longer attractive and on
the scope of the activities they can undertake before creating organizational noise
or concerns among top executives about micromanagement. We recently discussed
some of these tensions with board members and executives at Prium, a New
York–based forum for CEOs.3 The ideas that emerged, while far from definitive, provide
constructive lessons for boardrooms. If there’s one overriding theme, it’s that
boosting effectiveness isn’t just about spending more time; it’s also about
changing the nature of the engagement between directors and the executive teams
they work with.
Engaging between meetings.
Maggie Wilderotter,
chairman and CEO of Frontier Communications (and a member of the boards of
P&G and Xerox) stresses that “it’s not just about the meetings. It’s about
being able to touch base in between meetings and staying current.” Such
impromptu discussions strengthen a board’s hand on the company’s pulse. Keeping
board members informed also minimizes the background time that slows up regular
board meetings. And the communication works both ways. “I also want board
members to elevate issues that they’re seeing on the horizon that we should be
thinking about,” explains Wilderotter. “To me, it’s really more of a two-way
street.” Directors and executive teams will need to work out what rhythm and
frequency are right for them. Denise Ramos, president and CEO of ITT, notes
that “conversations with board members every week or every two weeks may be too
much.” For boards seeking to boost their level of engagement between meetings,
experimentation and course correction when things get out of balance are likely
to be necessary.
Engaging with strategy as it’s forming.
Strategy is an area
where the diverse experiences and pattern-recognition skills of experienced
directors enable them to add significant value. But that’s only possible if
they’re participating early in the formation of strategy and stress-testing it
along the way, as opposed to reviewing a strategy that’s fully baked by
executives.4 In the description of Wilderotter, strategy needs to
become “a collaborative process where different opinions can be put on the
table” and “different options can be reviewed and discarded.” This shifts the
board’s attitude from reactive to proactive and can infuse a degree of
radicalism into the boardroom. Effective directors don’t shy away from bold
strategic questions, such as “what businesses should this company own?” and
“what businesses should this company not own?” We were impressed by one board
that even dared ask, “should this company continue to exist?” In fact, that
board concluded that the company should not continue to exist, and effected a
highly successful reorganization separating the firm into several freestanding
enterprises.
Engaging on talent.
Directors have long
assumed responsibility for selecting and replacing CEOs, both in the normal
course of business and in “hit by a bus” scenarios. Many also find it useful to
track succession and promotion—for example, by holding annual reviews of a company’s
top 30 to 50 key executives. But to raise the bar, some boards are moving from
simply observing talent to actively cultivating it. Case in point: directors
who tap their networks to source new hires. Donald Gogel, the chairman and CEO
of Clayton, Dubilier & Rice, explains that “our board members can operate
like a highly effective search firm. There’s nothing like recruiting an
executive who worked for you for a long time, particularly in some functional
areas where you know that he or she is both capable and a great fit.” Other
boards actively mentor high-performing executives, which allows those
executives to draw upon the directors’ experience and enables the board to
evaluate in-house successors more fully.
Engaging the field.
Another way to enhance
board engagement is to assign directors specific operational areas to engage
on. Board members can assume roles in specific company initiatives, such as
cybersecurity, clean technologies, or risk—becoming not only “the board’s eyes
and ears,” notes Eduardo Mestre, senior advisor for Evercore Partners and a
board director of Comcast and Avis Budget, “but really being a very active
participant in the process.” Jack Krol, chairman of Delphi Automotive and
former chairman and CEO of DuPont, requires board members to visit at least one
business site every 12 months. At the same time, directors should be mindful
not to interfere with operational teams or to supplant managers. The goal is to
target specific projects that are particularly appropriate for individual
directors and to encourage participating board members to be, as one director
says, “collaborative, not intrusive.”
Engaging on the tough
questions. We noted above
the value of probing difficult strategic issues, but the importance of asking
uncomfortable questions extends beyond strategy sessions, to a wide range of
issues. “You should have some directors—perhaps 20 percent of the board—who
know the industry and can challenge any operating executive in that company on
industry content,” says Dennis Carey, a Korn Ferry vice chairman who has served
on several boards. “But the problem is not too few people on boards who know
their industries. The problem is too many people who know the
industries, who are looking in the rearview mirror and assuming that what made
money over the past 20 years will make money again.” Michael Campbell, a former
chairman, CEO, and president of Arch Chemicals, builds on this theme by adding
that “every board member does not necessarily need to have industry experience.
But they must have the courage in the boardroom to ask difficult questions.”
Our McKinsey
colleagues have noted in past articles that understanding how a company creates
(and destroys) value makes it much easier to identify critical issues on the
fly.5 In fact, it is worth asking whether everyone in the
boardroom does indeed understand how the company and each of its divisions make
money. Gogel even suggests that “boards should have at least one person who has
the responsibility to think like an activist investor. Many boards are caught
unaware because no director is playing that role.”
As boards raise and grapple with uncomfortable
questions, it’s important to connect the dots between issues—perhaps by tasking
one director with serving in an “integrator” role. “We get into a boardroom,”
Wilderotter remarked, “and everybody’s a peer. But having a specific capacity
to bring disparate points together is critical to keeping a board functional
versus having it be dysfunctional.”
Ultimately, there are no shortcuts to building
and maintaining well-attuned board and executive mechanics. Each of the
measures requires hard work from the board members—and, sometimes, a CEO with
thick skin. But a good director will provide the extra effort, and an effective
CEO will make the most of an engaged board’s limited time.
A version of this article, “How the best board
directors stay involved,” was previously published by Harvard Business Review, on hbr.org.
byBill Huyett and Rodney Zemmel
http://www.mckinsey.com/Insights/Organization/Changing_the_nature_of_board_engagement?cid=other-eml-alt-mkq-mck
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