News and Views
July 23, 2018
Posted in: WATSON Views
Governance doesn’t stop when the boardroom door closes after the meeting ends. While decisions cannot be made, nor courses altered, without engaging the whole board, there is much that can be accomplished outside of the boardroom. Only a rare group of directors can achieve all aspects of the board’s work in the smattering of meetings sprinkled throughout the year. For the many directors who lament the limited time to really get to know the organization before weighing in on important strategic priorities, the time between is the perfect antidote.
The governance reality is that board work is increasingly becoming more of a job. On average, corporate directors spend 10 hours on board-related work for every hour in the boardroom. Multiply this by two or three for the Board Chair. When not on the phone with the CEO, checking in with committee chairs, directors and stakeholders or networking with potential future directors, the Chair is thinking about the board and organization. This between meeting involvement isn’t restricted to the Chair; committee chairs also take an active role liaising with committee members and their management counterparts. The increasing awareness of this high level of engagement and activity is reflected in proxy firm recommendations to limit the number of boards individuals can sit on.
Hey WATSON, “10 hours on board-related work for every hour in the boardroom” … really?!
Add it up: say 35 hours in the boardroom (4 quarterly meetings and a budget meeting of 7 hours each). Three hours of preparation for every hour in the boardroom = 105 hours. Committee meetings and preparation = 40 hours (10 hrs./Q). Liaising with management = 100 hours (25 hrs./Q); studying about the industry = 60 hours (15 hrs./Q); strategic planning session = 15 hours; site tour(s) = 30 hours. That all adds up to 350 hours a year!
Have a governance question?
Intentional boards recognize that fostering strong director-management relationships is different than letting directors meddle into operations. This grey line is reason to raise the yellow governance caution flag. Before setting directors loose, boards should develop clearly articulated protocols. Without a rulebook, boards run the risk of well-intentioned directors overstepping their boundaries, causing more damage than good to board/management dynamics. You may think you’re “just a regular Jane or Joe” during a site visit, but the staff will look to you as their bosses’ bosses’ boss. Management teams’ top criticisms of directors gone wild include acting like quasi-bosses, undermining the CEO and playing favourites.
Governance Yellow Flag
Set the rules before you set directors up for possible failure. Determine what directors can and cannot do outside of the boardroom. If informal mentoring is going to happen (one-off lunches or meetings), build a protocol around it. For example, directors should let the Chair know of upcoming meetings with management counterparts, what the purpose is, and after the meeting, share an update. The CEO should establish similar protocols with the management team and expect a similar heads up from her executives. It is then the mutual responsibility of the Chair and CEO to ensure they are talking to each other. However, if the Chair or CEO is uncomfortable with the process, do not do it.
The CEO also has a role to play by creating an engaging environment for directors to learn more about the company for which they are ultimately responsible. In the spirit of creating a learning board culture, consider:
- Making executives available between board meetings
- Setting up lunch and learns
- Letting directors know of conferences and external learning opportunities
- Setting up a director education fund
However, the CEO also has to remember to keep it real – the old joke about the Queen smelling fresh paint everywhere she goes because it’s been touched up just for her isn’t that funny when it comes to showing directors what’s really going on in the trenches.
For most boards, it isn’t the norm for directors to mentor and advise executives one-on-one, but directors are expected to share their experiences with the leadership team. Context often influences the role directors may play outside of the boardroom. For example, in a public company you may want to take advantage of directors’ knowledge, experience and networks, particularly if you have a sitting CEO on the board. High performing boards harness the talent of the board. If you have done your recruitment job well, your board will have a diverse, skilled and experienced set of directors who can provide valuable insights to the organization’s leadership. Let’s face it, a CEO cannot be expected to be an expert in every area of the organization, particularly when you consider first-time strategic endeavors, such as M&As, international expansions or product diversification.
Four Ways for Directors to Get More Involved Outside of the Boardroom
- Site Visits – Coordinate site visits to different locations. Don’t restrict this process to early onboarding. Develop annual opportunities for directors to observe and learn firsthand about unique aspects of the company. Transparency is key. Never show up unannounced and communicate any feedback through the proper channels. Management should welcome, not fear, director site visits.
- Industry Conferences – Immerse yourself into the industry issues facing the organization by attending conferences. This non-company perspective can shed light on trends and risks the board should be paying attention to.
- Input Into Key Hires – You wouldn’t hire the CFO without the Audit Chair’s input, so why stop there? Committees and directors with deep expertise in specific fields can add valuable insight during the recruitment process. But make sure directors are very clear on their role in the process – consulted, yes, decision making, no. Final authority resides with the CEO.
- Ad Hoc Task Forces – At times, it may make sense for directors to take a more active role in very defined projects; a common practice is engaging directors on a major acquisition or capital project. Typically, directors should not be engaged as a talent gap replacement, but more in an oversight and risk management capacity.
If you’re new to the board and unsure if it’s appropriate for you to engage with executives, talk to the Chair and CEO to learn more about board norms and expectations of directors both inside and outside the boardroom.
The time between meetings is a brilliant way to bring directors and management closer, but it comes with some inherent risks. In order to set directors up for success, set the rules of engagement and always respect the CEO’s authority and leadership. The days outside of the boardroom are an opportune time for directors to learn, connect and immerse themselves in specific aspects of the company. Over time, your board’s collective expertise and knowledge will rise, in concert with thriving board-management dynamics.