Continuing our consideration of challenges governing board members face, in this post we address preparation, accountability, confidentiality, and board size.
Regarding how prepared newly selected or elected individuals are to serve effectively on a governing board, there is good news and bad news. The good news is there are numerous programs available to educate new board members. Because newly elected board members are expected to hit the ground running and, frequently, very little, if any, orientation or training is provided, a newly elected board member depends on word of mouth from the board chair or senior members of the board to learn board nuances and expectations.
As for the bad news, when orientation and training opportunities are available, many new board members don’t participate because they don’t believe they need it. Again, egos trump all else. Having been successful enough to be selected or elected to serve on the governing board, they often believe their experiences and intelligence prepared them for what lies ahead and no further preparation is needed.
CEOs face an issue of accountability with board members. I’m not referring to the accountability of the CEO. Rather, the CEO’s challenge is finding a way to hold board members accountable regarding communication. It can be very difficult when individual board members communicate with the CEO or members of the CEO’s team without informing the board chair. Likewise, it can be challenging when board members bypass the CEO and communicate directly with the CEO’s team members without the CEO’s knowledge. In such situations, mixed messages can be delivered, creating turmoil in the organization. Having clear lines of communication and protocols between board members and the organization they govern is critically important, but adhering to them is even more important.
Yet another challenge related to communication is when a board member has loose lips and discusses confidential matters outside the boardroom. Insider trading examples abound for corporations. A university example is a search for a football coach, when a trustee shares information with ESPN, resulting in a potential candidate withdrawing from the search process. Essentially, the trustee is not to be trusted; because of the necessity to share information with the board, the search process becomes very challenging for the athletics director.
Confidentiality issues also arise with corporate governing boards. Those having an impact on stock price attract the attention of the Securities Exchange Commission and the U.S. Department of Justice. However, issues are not limited to the firm’s financial performance. Trust is essential in governing board interactions with the CEO, especially in succession planning. Governing board members are privy to the CEO’s thoughts regarding his or her successor, as well as likely futures for other members of the executive team; they can only be shared with board members. As for keeping secrets, remember the sage advice of Benjamin Franklin, “Three may keep a secret, if two of them are dead.” Samuel Johnson is credited with “To keep your secret is wisdom; but to expect others to keep it is folly.”
From my board service, I concluded board effectiveness is almost inversely proportional to its size. Large boards are unwieldy; typically, they are large because of an attempt to have every possible interest group represented. Not only is there a desire to have diversity of race/ethnicity, gender, and age, but also a desire to have political and geographical diversity. And, depending on the organization being governed, there may well exist a desire for economic diversity (wealth diversity). The difficulty with having a governing board consisting of designated individuals is they will feel an obligation to serve their constituency group instead of serving all stakeholders.
Views regarding right sizing a governing board have changed in recent years. A decade ago, the view seemed to be the bigger the board the more effective the organization. However, for corporate boards, where many measure the company’s performance monetarily, board size has been reducing. Today, a corporate board having more than 10 members is considered large. However, for academic and nonprofit organizations, where an organization’s performance is measured more qualitatively, the governing board’s size has tended to remain quite large, resulting in challenges for the chair and the CEO in how to manage the board effectively.
Attempts to have your cake and eat it too regarding board size include having an executive committee of the board that serves as a buffer between the CEO and the large board. In this way multiple constituencies can be represented on the board, and the smaller executive committee can ensure that things move along at a reasonable pace.
Next Week: Governing Board Challenges – Part 3