What are the issues that Boards are wrestling with at present? These include: a. Management business decisions that in hindsight seem to have been inappropriate in some industries and companies b. Executive compensation that appears to reward management when shareholders are being punished c. Fraud perpetrated by employees, including senior leaders, which has damaged corporate balance sheets, and in some cases have made the companies insolvent d. Board decision-making processes that in some cases have seemed ineffective at protecting the best interests of the corporation e. Retention (as in the case of AIG).
Much has been written on the reasons for Boards sometimes seeming ineffective, in terms of their being victims of “groupthink”. Much too has been written about Boards’ failure to conduct peer reviews; set annual workplans for the Board; and having appropriate separation of the CEO and Board Chair roles.
The reality is though that most Boards operate without any risk of groupthink, through able and effective leadership and decision-making processes. Most Boards also do have annual work plans; appropriate performance reviews, and appropriate separation of the CEO and Chair roles.
What’s missing then? I’ll suggest two things, and declare a bias upfront, as a former Chief Human Resources Officer (CHRO). The two missing ingredients are:
1. Adequate representation of current and former CHROs on Boards and on Human Resources & Compensation (HRCC) and Governance Committees of the Board.
2. A strategic Board roadmap for providing oversight to management activities and safeguarding the DNA of the corporation, whose Board they are a part of.
Why?
Well, good CHROs (and there are many), possess the knowledge, skills, and experience, to effectively vet and challenge management compensation proposals. They understand the “voodoo magic” of compensation. They understand the psychology of what attracts great talent to and keeps great talent in place in corporations. They have been threatened, cajoled, and in some cases, seen veto power exercised with respect to giving unearned, and non-aligned (with tangible shareholder returns) compensation, and know what works, does not work, and is downright inappropriate.
Good CHROs focus on the big picture when it comes to talent. E.G. What does the Employment Value Proposition (EVP) look like? What are the succession risks and how can these be mitigated? Which are the professionals in the marketplace (e.g. Tier 1 Executive Search firms) to partner with the Board, based on industry expertise and geographic reach. How and when to push back on management and fellow board members in a way that is viewed as constructive and collaborative, while ensuring that the DNA of the corporation is safeguarded. Good CHROs are familiar with taskforces; pilots; self-managed teams; facilitation; performance management; and a host of mechanisms for helping Boards and management work even more effectively and achieve more, while equally helping to mitigate risks associated with same.
Good CHROs (like only the CEO role) are concerned with the well-being of all employees of an organization (vs. Functional heads who concern themselves with the well-being of the employees of that function). Good CHROs communicate with all employees; help to shape and safeguard the culture and practices of the organization and to align these with the vision, mission, and strategic goals of the organization.
And this leads to the second item from above…a strategic Board roadmap for providing oversight to management and safeguarding the DNA of the corporation. Boards must of needs take a longer view of things than does management. Boards have responsibility for safeguarding the corporation over the longer term. Boards must understand and feel a part of the Company’s heritage as well as its future.
As a result, I think that the relationship between Boards and management is something to consider re-writing. Board members should be treated like new employees when they join the Board. They should go through a new hire orientation. They should do walking tours. They should get to know the employees of the organization and vice versa. They should have systems access. They should receive Company communications, and importantly, they should still know and be comfortable with differentiating their role from that of employees, and maintaining a “hands out, nose in” position.
It is difficult to assess and manage risks if you do not know what these are, and greater familiarity with the people and operations of the organization can only help to make Boards better in this area.
Finally, when you look at the solutions that have been proposed to help Boards do a better job of providing effective oversight to corporations, most of these (except those that audit financial and physical assets) centre on people, and are in fact the domain of expertise for CHROs.
Is it time for transformational change at Boards? Perhaps. Is it time though for a re-thinking of Board composition, and some open, honest, brainstorming with respect to how to make Boards more effective? Most definitely.