While compliance and management succession are the two primary responsibilities of corporate directors, two other important duties include managing conflict and creating consensus on important decisions.
John Thompson, vice chairman of executive search firm Heidrick & Struggles, says he has observed at least two of what he calls “soft factors” that strangle a board’s effectiveness–allowing a board to be ruled by emotion rather than logic and not proactively managing conflict. “In some instances, where you have a longstanding or founding CEO or if the CEO is a significant shareholder, I see boards asking the CEO what he wants: Do you want to step up to chair? Do you want to exit the board? Too often I see the board following the CEO, and the CEO is making a decision on an emotional basis rather and shareholders are not being served.”
Leading a recent Directorship Roundtable at the Nasdaq OMX Market Site in New York on “Building Better Boards,” Thompson said that the litmus test for effective boards is how they manage conflict; ineffective ones fail to do so while effective boards work to manage agreement. In fact, “it’s something that seems counter intuitive,” Thompson said. “Boards often may not know whether they are in agreement on a topic because some directors refuse to speak up,” he said. “In many boardrooms, there is a lack of direct communication or straight talk. I’m not talking about being abrasive or disruptive, but often when there is a very dominant lead director or CEO, people don’t want to tangle with what the boss wants.”
“On a personal basis it is surprising how many times I hear directors say, ‘Gee, I can’t believe that we are thinking about doing this,’” said Thompson. “And it strikes me: why haven’t they spoken up about it?” People may not speak up for a variety of reasons, even on issues that are extraordinarily serious such as succession, or hiring a new CEO or board member. Look at some of the issues around stock-options backdating. Sometimes board members just don’t have the time or fear raising a question will result in endless debate. Newer board members may think they don’t know enough or have enough historical data to speak out. And that’s too bad because they can often bring a framework or a point of view that might propel the board to work more effectively.”
“On a personal basis it is surprising how many times I hear directors say, ‘Gee, I can’t believe that we are thinking about doing this. And it strikes me: why haven’t they spoken up about it?” –John Thompson, Heidrick & Struggles
“Having been a new board member, I do think we have to speak up. There are no stupid questions,” said Pamela J. Sheiffer, a director for New York & Co. “I do think that at times we are rushing off to catch planes, or there is a board member who perhaps sits on too many boards and doesn’t have the time to commit, so that person thinks ‘I’m not going to bring this up because it’s getting towards the end of the meeting and I don’t want to be holding people up.’”
The introduction of a new director can be the perfect time to conduct a full board review. “When you have a new board member that is a great time to review,” sad Thomas J. Clarke Jr., chairman and CEO of TheStreet.com, who was recently appointed to a board where an issue cropped up that resulted in a change of the CEO and chairman.. “I think it was because I wasn’t afraid to ask the questions that needed to be asked,” he said.
Dissonance and Dissidence
Roundtable participants John A. Ward III, chairman MAP Alternative Asset Management, and Raymond S. Troubh, a director who serves on such boards as Gentiva Health Services and Triarc Companies, have at different points in their board service careers been brought into companies in need of drastic change. Success can sometimes breed complacency, Ward noted, and the ability to be a new voice asking critical questions can become a necessary learning experience for the entire board.
Both dissonance and dissidence can be constructive, Troubh suggested. “As you get older and stronger you can speak out more as a brand new director. CEOs shouldn’t always have their way. And directors should have large personal stakes in the company, so when they’re talking about shareholders they’re talking about themselves,” he said. “With respect to succession planning, the chairman can’t pick his own successor. It’s the board that will continue under the new leader who should make that determination. This permeates my view of the independence of the nominating committees as one of the great new developments and will assure that tougher, smarter, more able, more objective people will serve on boards.”
Management of ego is also a key factor in building a constructive board. “The leadership sets the tone for all whether it’s in the boardroom, a surgical room, or on a sports field,” Thompson said. “I think in the boardroom if you’re able to manage egos—and it’s not consensus you’re aiming for—but leading a group of people in which you want intelligent discussions to arrive at the right decision.”
One tactic that Thompson has seen work to diffuse a dissident board member who may be controlling the tenor of a meeting, is to have the courage to say, “I hear people passionate about position A and I’m still having trouble with this. Can anyone help me?” or “I’m having some difficulty following the logic of this assumption. Can you help me with it?” This simple, direct approach is effective particularly for lead directors or independent committee chairs, Thompson said, “because it totally dismantles the emotions and brings it back to the group.”
Holding regularly scheduled board teleconferences, perhaps weekly, also provides “a consistency and momentum without the CEO being part of the conservation,” said Allan Grafman, president of All Media Ventures. “Week after week you begin to ferret out the issues and by the time you come to the quarterly board meeting, much of the thinking and discussion has taken place.”