Wednesday, April 7, 2010

Your board is not a congress!

It's somewhat fitting that the honor of our 100th post in The Board Room since we launched it in early November goes to ZweigWhite President and CEO Ian Rusk. After hearing from several attendees at the first Principals Academy session about the increasing politicization of boards of directors, he talks about why your firm probably needs to be more selective in who it lets join the board:
"Congress [n. kong’ gres]: a formal meeting or assembly of the representatives of different nations, constituent states, independent organizations or other groups.

"Board of Directors: A body of elected or appointed members who jointly oversee the activities of a company or organization. In a stock corporation, the board is elected by the stockholders and is the highest authority in the management of the corporation. Typical duties of boards of directors include:
· governing the organization by establishing broad policies and objectives;
· selecting, appointing, supporting and reviewing the performance of the chief executive;
· ensuring the availability of adequate financial resources;
· approving annual budgets;
· accounting to the stakeholders for the organization's performance.

[source: Wikipedia]

"In today’s political climate, I probably could not draw a more unflattering comparison, but I’m afraid to say that many firms operate their boards of directors as if they were congresses. This is a mistake and leads to board meetings that look like something you might watch on CSPAN. Note the following key difference in the above definitions: A congress consists of representatives of various groups or constituents. A board of directors consists of individuals elected by the shareholders to govern the corporation and be accountable to those same shareholders.

"In so many cases I see firms make the mistake of electing directors to “represent” offices, or disciplines, or some other operational constituent. I’ve even seen firms elect directors to represent demographic groups within the company. This has the potential to set the stage for the type of dysfunction we see in government bodies.

"Don’t get me wrong: a diversity of backgrounds and experience on your board is a very good thing, but it must be clear to all directors that their role is to represent the interests of ALL shareholders, NOT the interests of the Boise office, or the other 'junior' shareholders, or the MEP engineers.

"Invariably, a privately held firm’s board will be made up mostly, if not exclusively by members of the management team, and most of those will be on the operations side, so it can be hard for these directors to take off their Boise office manager hat and put on their shareholder representative hat.

"My strongest recommendation to firms facing this corporate governance challenge is to add one or more outside directors to their board. This should be someone that brings unique experience or perspective to the table--perhaps a retired executive from another A/E firm (ideally one larger and/or more successful than your own) or even a client organization. An attorney or financial professional might offer useful insight and perspective. Maybe a business professor from a nearby university would be a good addition to your board (just watch out for the pure academics with no real-world business experience). In all cases, you need to be careful of conflicts of interest.

"I’ve seen how board meeting dynamics change with the addition of such outside directors. Outside directors are often the people to point out the elephants in the room or confront issues that inside directors might be reluctant to. Their very presence often puts a damper on the personal squabbling and bickering that so frequently derails private company board meetings. And as you’re usually paying for their time, it provides a strong incentive to have an efficient and productive meeting."

So, what do you think? Have you lived through all-day board meetings that could have been a lot shorter if there weren't so many "special interests" involved? How does your board of directors election work?

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