The Top 3 Responsibilities of a Highly Effective Board (Part II)

By Phyllis Campbell

In Part I of this 3-part series, I highlighted the critical role and best practices of board leadership. This article highlights the top three responsibilities of a highly effective board as a whole. This series pays particular attention to family-owned businesses, where multiple agendas and increased complexities often come into play in the boardroom.

Responsibility #1: Build a strong board performance culture

Building a strong board performance culture is essential for any effective board. This involves creating an environment where best-in-class board structures, practices, and processes are not just implemented but are also continuously improved upon. In today's business environment, boards are expected to adapt, make difficult decisions on new and often complex issues and capitalize on diverse thinking.

To achieve this level of agility, boards must focus on their culture and conduct. A strong board culture promotes open communication, mutual respect, and a commitment to continuous improvement. It encourages directors to bring their unique perspectives to the table, fostering an environment where diverse ideas can be discussed and debated constructively.

In fact, the 2024 NACD Blue Ribbon Commission Report, titled “Culture as the Foundation,” emphasizes this point: “Best-in-class board structure, practices and processes are now table stakes; i.e., important but not sufficient in an environment where boards are expected to learn more and faster, make difficult decisions on new and often complex issues, capitalize on diverse thinking and swiftly change course when needed.? We believe that this level of board agility can only be achieved if boards focus on their culture and conduct.”

Responsibility #2: Focus the board on strategy (while incorporating shareholder objectives)

Though it is tempting to blur the fine line between shareholder/family interests and business interests, it is important to keep the board primarily focused on the future of the business. A strategic focus ensures that the board can guide the company towards sustainable growth and long-term success.

To maintain that focus, the board should regularly raise the following questions:

·?????? What resources are required for the business to grow? ?Identifying the necessary financial, human, and technological resources is essential for supporting expansion and innovation.

·?????? What is the competitive /economic landscape that can affect the business? Understanding market trends, economic conditions, and competitive dynamics helps the board anticipate challenges and seize opportunities.

·?????? Are there acquisitions/new markets/partnerships that should be explored? Evaluating potential growth avenues, such as mergers, acquisitions, or strategic alliances, can open new revenue streams and enhance the company's market position.

In addition to these questions, the board should consider the following strategic elements:

·?????? Long-Term Vision and Goals: Establishing a clear long-term vision and setting achievable goals are fundamental to strategic planning. The board should ensure that these goals align with the company's mission, culture and shareholder objectives.

·?????? Risk Management: Identifying and mitigating risks is a critical component of strategic oversight. The board should regularly review risk management strategies to protect the company's assets and reputation.

·?????? Innovation and Technology: Staying ahead of technological advancements and fostering a culture of innovation are vital for maintaining a competitive edge. The board should encourage investment in research and development and support initiatives that drive technological progress.

Sustainability and Corporate Responsibility: Incorporating sustainability and corporate social responsibility into the strategic agenda can enhance the company's reputation and ensure long-term viability. The board should promote practices that benefit the environment, society, and the business.

These considerations are part of the core responsibilities of the board. Each meeting should include dedicated time on the agenda for strategic discussion, debate, and resolution.

Responsibility #3: Pay close attention to CEO succession (and other top talent)

In many family-owned businesses, it is generally assumed that family members will occupy the CEO role.? It is not uncommon to groom future generations of family members for leadership positions within the business. However, there are situations where there may not be a “CEO-ready” candidate within the family. No matter the situation, it is the responsibility of the full board to take a leadership role in several areas:

·?????? Emergency succession planning. What if something unforeseen happens to our CEO – who will replace?them?

·?????? What is being done to help family members take leadership roles within the business?? Is there a CEO within the family? What are the necessary steps to get him/her ready?

·?????? If not a logical family successor, when and how would we engage in an outside search?? What are the criteria that would inform the CEO succession?

This third responsibility is one of the very top responsibilities of the board---the selection, evaluation and support of the CEO.? The full board, family and outside board members need to act as a cohesive unit to define and shape the leadership team for the future of the business.

Defining the culture of the board, shaping strategy and paying attention to succession are the three most critical responsibilities of the full board. When all are executed well, the future success of the business will be on solid ground.

?The final part (Part III) of this series will focus on “Best Practices in Board Evaluations.”

Phyllis Campbell is a Senior Advisor at Egon Zehnder and a board member of Remitly and the Air Transport Services Group as well as SanMar’s advisory board. She previously served on the boards of Alaska Air Group as an independent director for 15 years and Nordstrom for seven years while also chairing its audit committee.