Blog: How to Develop the Board Work and know what is Right for the Company
I’ve sat in many Board rooms where the main owners (capital investors from around the world) have been presented by their appointed Board Directors. In one Board where I’ve been the Chairman, the CEO was the biggest owner of the listed company and the former Chairman of the Board. Another Board consisted of all the owners of the company and I, the Chairman, was the only external member of the Board. The CEO being also the Chairman causes some governance issues. The company’s operational directors and owners being also the Board Directors easily brings the Board to an Executive Board level focusing on operational matters and not the important strategic and development goals. Inviting external Board members in is a smart move in many ways, not only because they should ask the CEO the “stupid” questions that raise the awareness to the often very important but ignored matters.
The investors with their appointed Board members often force the company to change course to a more structured and refined business. Opinions on the right ways may differ but it is always a good thing to have different views from outside of the operational business. Too often the new Board members are chosen from the same industry due to their earlier operational experience in the same business field, but the Board does not run the operational business and it should look the present and the future of the business, not backwards. How else could they develop the business. Diversity, disruption and coming out of the box leads to innovative, assessed and often more balanced solutions that is more ready to face the fast changing business world.
The role of the Board and the Executive team in my opinion is to support the CEO in defining and reaching the company targets in developing the company. The Board should not limit its role to the numbers only but look deeper. It should challenge the CEO in a constructive way by asking enough questions to understand to which way the company should go and what could stand in its way. It should raise the possible risks and bring fresh ideas on the table. It should also be agile in case a change of course is needed.
When developing the company, it is important to make sure that the company processes support the change, including the leadership culture and communication to the employees and other stakeholders. This is relevant already before any decisions are made, to ensure that the expectations of the stakeholders, such as customers, partners and employees, and the goals of the company are understood. Here communication is the key.
When looking beyond the numbers, the Board cannot rely on the CEO reports only while the CEO cannot rely only on Executive Team reports. To really know where the company is going, all decision makers need to keep asking what it is that we want and why, what the proposal really means and what stands on its way. Too often the CEO or Board decisions are based on assumptions that are guided by own mindset on how things are or should be. Board members often invite (and they should invite!) key directors to report in the Board meetings. Board members usually participate in strategy development meetings with key directors. When arriving to Board meetings they often meet employees on the corridors. What a great opportunity to approach the managers and ask what they think and what stands in their way. The answer may be politely positive or diplomatic but a lot can be read from the way the answer is given.
In their roles and as a group the Board may need support, not just from attorneys and consultants but also to function better, to refine the roles and working styles. The capital investors should give room and listen to other views and be ready for changes. Open dialogue that is based on trust between the CEO and the Board, and especially the Chair of the Board as the representative of the Board, between the Board members and between the CEO and its Executive Team is outmost important. A good dialogue involves active listening and accepting different views. It also means acting without unnecessary delay on matters that are communicated and require action.
The owners, Board and Executives should ensure that the business is on a solid base and responsible. The message of the importance of corporate responsibility must come from the top. It builds the trust and credibility that is necessary in today’s business world. But it is also good for the business. Without efficient communication it may be hard to be able to act in advance to ensure this. Corporate responsibility starts from the values of the company that should be well communicated to the employees and other stakeholders and must be integrated into the company processes and actions.