How To Build an Effective Board
Anu Parthasarathy
Global Executive Search Leader - Focused exclusively on recruiting Transformational Leadership in US, Europe & Asia
In this newsletter edition, I'd like to get everyone thinking about what it takes to create an effective Board. Maybe even spark some meaningful discussion about this in the comments? What experiences can you add to the conversation?
Boards play a critical role as the eyes and ears of investors, public and private in businesses that are getting more and more complex. It sounds like a tough job and entails a lot of hard work, right? But look around and you’ll see a different picture.
Board membership is often seen as a return for success, offering status, money, and even stocks in a potential unicorn. There is little active engagement with the company at any level, making most board meetings high profile get-togethers. Good food and great places to meet!
Take the case of Uber. Wells Fargo. GE. Enron. Lehman Brothers. AIG, VW. And of course, more recently, Theranos. These aren’t just a failure of leadership or regulation, but a complete failure of corporate governance.
Every debacle raises major questions – didn’t the board suspect anything? Why didn’t they demand answers about where the company was headed and its health?
While it is the board’s responsibility to monitor the company’s health and provide overall direction and strategy, too often, the board appears to be passive or oblivious to what goes on around them – a perfect recipe for scandal and bad behavior. This is why we need to take board member hiring as seriously as bringing a new CEO on-board.
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Rigorous planning is essential. A board member’s qualities to succeed in the job must be carefully evaluated. Nothing good can comes from getting the wrong person on-board. The lack of oversight, as we have seen, can be devastating.
That brings us to the next major question – what makes a good board member?
A good board member helps make the right decision on company strategy, hiring, financial and legal issues, and more. To be able to do this, he/she must have the experience, intelligence and relevance. By relevance, I mean credibility in some form in your industry, business model, and the stage your business is in.
It is paramount that your board consists of people who understand your company, have access to information that will help set the future course and direction, and provide early warning signs of problems and developments. Above all, they need to be ready to get into the details.
Being a good board member begins with being actively involved and engaged – ask the right questions, do your own research to validate what the management is telling everyone by talking to employees, customers, competitors and vendors to get a first-hand perspective. The extra pair of eyes and ears should act as the alarm signal for the management going off well before anything fatal happens to the company.
This is clearly not a “retirement” or “trophy” job, is it?
Over to you, what are your thoughts and observations on how to build an effective board?
Great atricle! Anu Parthasarathy
Corporate Governance / Private Equity / Entrepreneurship
2 周Great article and agree with the thrust of what you are saying. Boards bot need to be setup to be useful (i.e. not a "trophy" and also managed in a way that maintains their independence (e.g. access to information, real discussion on issues, etc.). Most of the boards that I have seen fail on at least one of the above, but when you get it right the results can be amazing. I would also note that the needs of Boards change dramatically as they move through Series A, B, to IPO. I also think a trap we all fall into is believing that once a Board is in place that it won;t change. The best Boards are the ones that adapt themselves. Good read. Keep them coming!
Thanks for posting this.?A strong and engaged board is imperative to enterprise health and growth. If you’re curious about how your board stacks up in areas like vision, leadership, and engagement, here’s a link to a trusted site offering free, research-based, confidential, online assessments for boards of private companies, family-owned businesses and non-profit organizations.?It’s a simple (just 12 questions) yet powerful tool to identify strengths and opportunities for growth that can help you decide if you want to move your board from meeting expectations to exceeding them, from oversight to strategic asset.?(No personal contact information is required and no one will contact you unless you request it.) https://sagencytalent.com/dynamic-board-development/
I am talking from Indian public listed company perspective. There are two kind of Board Members- Independent, those who do not have any stake ( shares) in the company and are appointed per statutory provision . They are supposed to protect minority shareholder's interest as well as of other stakeholders who are not represented in the Board. However, by the basic design of statute, they are overall in minority in the full board . The only consolation is that they can not be arbitrarily removed and their dissent carry weight with government authorities. However, promoters / majority shareholder packs the board with his nominees and ensure his majority. In the process, promoters ensure that their writ is largely carried out . Often , Independent board members also look up and suck up to the promoters. Thus , Board , in 99.99 % cases does the bidding of the promoters. I am yet to come across a truly professional Board