Maintaining A Highly Effective Board

Friday, September 20, 2013 - 15:56

The Editor interviews Steven R. Walker, General Counsel, Secretary, and Director of Board Advisory Services at the National Association of Corporate Directors (NACD).

Editor: Tell us about your background and your current roles at NACD.

Walker: My career has always been rooted in corporate governance. I initially served as a state securities regulator in Florida followed by a role as attorney-advisor to the U.S. Securities and Exchange Commission, Division of Corporation Finance during the implementation of Sarbanes Oxley. On the corporate side, I’ve served as general counsel to private, public, and nonprofit corporations, and I have served on the Orange Bowl Committee and the boards of the Association for Corporate Counsel-Michigan Chapter, American Cancer Society-Tampa, and Friends of the Gusman Center for the Performing Arts-Miami.

For the past five years, I have been general counsel and corporate secretary for NACD. I also head the in-boardroom services division, where we advise directors and boards ranging from private family-owned corporations to the Fortune 500. NACD’s in-boardroom services division is not only staffed by my team at NACD, but also includes an extensive faculty of seasoned board members and former CEOs. We are engaged internationally to work on governance projects, including delivering core education to and facilitating evaluations of directors.  

Editor: What can be done if a board is composed of strong, experienced directors, but management does not feel the directors are as engaged as they could be and are not bringing all of their skills to the table?

Walker: In our work with boards over the years we have found that no matter how experienced, educated, or sophisticated a director is, there is one thing many directors have in common: they’ve never had basic training on how to be a director. When I’m speaking at an event, I always ask: “How many of you here have had formal education and training on what it means to be a director, including what your role and responsibilities are?” The audience usually laughs. Then I ask: “Outside of any training by NACD, how did you learn?” Osmosis is the typical answer. Most directors add that they believe they have a lot to offer a company, but they often hesitate to jump in unless they fully understand the lay of the land and what it means to be a director.

For this reason, it is critical that directors seek training. The management teams at the companies they serve are hungry for the members of the board to understand the difference between being a C-suite executive and a director. Directors need to have an open dialogue with the management team about their respective roles and responsibilities.

At NACD, we spend a good deal of time — both publicly and in confidential sessions with individual boards — educating directors and senior management about the roles and responsibilities of a highly effective board and how to optimize the board’s relationship with the management team. First, directors need to understand their role. Second, they need to understand how to effectively use the skills they bring to the boardroom and how they can best act as mentors and guides. Directors should be encouraged to offer ideas that the management team simply may not have considered. The board is there to oversee strategy formation and how management drives, develops, and measures the effectiveness of those strategies.

Often we come across management teams that are frustrated. When the board does not truly understand its oversight role, it can get into the weeds and become too focused on operational issues rather than strategic initiatives — which is what an effective board should be focused on.

Editor: How can the board and management team be more effectively aligned?

Walker: The way to get the board and the management team aligned is to open the lines of communication to ensure that you have a constant, open dialogue between the board and senior management. This starts with the tone at the top. The CEO should encourage the board to get to know the management team and to freely ask questions inside and outside of the boardroom. It is critical to get to know each other outside of the four or five formal board meetings each year.

Editor: What about the board dinner or luncheon? Does this less formal setting help to open up the road to better communication?

Walker: The board dinner isn’t about the food — it is about getting to know each other in an informal setting and having conversations with the management team. On that note, some of the most successful and highly effective boards I’ve seen have a system in place where board members, with the knowledge and approval of the CEO, schedule periodic lunches with individual members of the senior executive team. This serves a number of purposes: it builds strong rapport and trust, it helps the board understand the personalities of the senior managers, and it is a great form of informal succession planning. NACD research has found that some of the best candidates for CEO succession come from within the organization.

Editor: What can be done when a company has reached a turning point in its strategy, which has created tension between the board and management?

Walker: When a company has gone from less than a million in revenues to more than a billion — or the nature of its business has radically changed — it becomes quite a different company. There might have been dramatic organic growth or a merger or acquisition. A company may be in a dynamic industry where there is a lot of disruption and changing technology. Or perhaps you have a company that started out making blenders and now they have moved into a completely different industry. These changes bring new challenges and new opportunities, along with a more diverse suite of products and services. Is the board constantly evaluating its composition and individual director skill sets in the light of changes in the business? The board should ask this question on a systematic and periodic basis because a changed company is faced with the question of whether its current board is still the right board for the company.

NACD recommends that a board should systematically develop an ongoing and living document called a skill sets matrix in which it identifies the top 10-15 characteristics its directors need in order to achieve the current and future goals of the corporation. The company should then assess how many of those characteristics each of its current directors has. Sometimes NACD will go a step further and have the directors rate themselves on a scale of 0 to 10 in each category so the company can confidentially evaluate whether there are any gaps in the necessary skill sets. Tension or disruptive alignment can be avoided if the board is continuously assessing its members’ skill sets, having an ongoing and open dialogue about whether the directors have the right skill sets, and actively seeking and identifying potential board candidates to address the strategic needs.

Editor: What can be done when a board faces the thorny issue of boardroom succession planning?

Walker: Once you’ve established the skill sets matrix and are constantly tracking what skills are needed and which board members have those skills, you remove the thorns from succession planning because you have been proactive as a board and have established a constant, open dialogue. This is a team exercise where the board is constantly evaluating whether they have the right members on the board and the right skill sets. While one member may no longer be a good fit for this particular board, he or she may be extremely valuable to another board.

Editor: What can be done when a company is struggling with directors’ extended tenure on the board, which has created a stale environment and an obstacle to fresh thinking?

Walker: You can avoid a stale board if directors ask simple questions in the executive session after every meeting:

  • How did the board meeting go?
  • How did we perform?
  • Did every director participate?
  • Did we follow the agenda?
  • How did the management team perform?

Asking these questions after every board meeting forces the board to be on top of issues and address areas where a director may not be as engaged as he or she could be  - or areas where a director is a little too engaged and needs to pull back. If you are constantly asking yourselves, as a team in executive session, how are we doing and how are we performing, then you tend to avoid the risk of growing stale.  

Additionally, directors need to stay abreast of macro trends and changing technologies to be effective in the boardroom. A commitment to periodic continuing boardroom education is an effective way to help ensure directors are fully prepared to carry out their duties.

Please email the interviewee at steve_walker@nacdonline.org with questions about this interview.