Corporate Boards
Part 1

In previous blogs, I considered generic responsibilities and challenges for governing boards for corporations, nonprofit organizations, and universities. Now, we consider specific responsibilities and challenges facing corporate boards. Whether board members are elected or appointed, corporate directors have responsibilities and face challenges. In this and subsequent blogs, I consider selecting the board chair, succession planning, tough decisions required of corporate directors, the effectiveness of the board, corporate social responsibility, audit committees, compensation committees, and networking.

Selecting the Board Chair. Corporate governing boards use different approaches in determining who’ll chair the board: an executive chair versus a non-executive chair. I’ve functioned on boards of directors with non-executive chairs and with executive chairs; for the latter, I’ve been on boards when the executive chair was the current CEO and when the executive chair was the previous CEO. In each instance, I didn’t think the board’s function was impeded by how the chair and CEO positions were filled. The boards I served on functioned very well because of the levels of trust, experience, and competence among the directors; the board team was focused on its effectiveness in representing stakeholders, not titles.

With Eastman Chemical, Logility, and Russell boards, the CEO also chaired the board. With J. B. Hunt, the chair’s a former CEO. During my years on Motorola’s board, I experienced having different Motorolans serve as chair and as CEO, having a director serve as non-executive chair, and having the CEO be the chair. For a period of time, Motorola had a non-executive chair and two individuals serving as co-CEOs; the latter occurred because of an announced plan to spin-off the cell phone business unit, delayed by the 2008 economic collapse. I was in the minority in believing a co-CEO approach wouldn’t function well; in hindsight, I believe my reservation proved to be accurate. However, it achieved our objective of increasing shareholder value by spinning off the cell phone business, albeit with considerable turmoil and stress for all concerned – members of management, staff, and directors. Adding to the stress level was the role played by an activist investor, Carl Icahn. (Perhaps my feelings are influenced by Icahn’s unsuccessful attempt to take my seat on the board in a proxy fight.) However, the two directors subsequently added to the board to represent Icahn soon became aligned with the strategic direction for the company. Also, both being very professional, objective, and effective directors helped immensely.

Succession Planning. A primary responsibility of governing boards is succession planning.

When I joined a corporate board, one of the first things I did was ask if a succession planning process was in place and functioning. If it wasn’t, I recommended it be established. Not only must a succession plan exist for the CEO, but it must also exist for each member of the CEO’s executive team. For both, the CEO should provide the board or a board committee with names and assessments of candidate successors.

Candidate successors to the CEO need to be identified by the board or a board committee. Typically, candidates will be members of the CEO’s executive team. If none exist, then the board will recognize the vulnerable position it’s in and take steps to remedy the situation. Such steps might include utilizing the services of an executive search firm to identify likely candidates.

Like most planning efforts, succession planning won’t be foolproof. Unexpected things can (and will) happen. However, it’s best for the board to give thought to succession before it must do so unprepared. A mistake many make is attempting to clone the previous successful CEO. Another approach, with mixed results, is letting the current CEO choose his or her successor. Often, CEOs lack objectivity and, perhaps, don’t want to be succeeded by those who will make significant changes or be more successful than they have been.

Strong cases can be made for both approaches: appoint from within and appoint someone from outside. I’ve served on governing boards where we used both approaches and, frankly, we  had mixed results with both approaches.

Timing and secrecy are paramount. Because we did not act quickly enough an obvious internal successor candidate accepted a CEO position at another firm. This set back our planned change of CEOs by a year.

Next Week: Corporate Boards—Part 2