What makes a high-performing board? What are the critical success factors that will set our private company boards apart from the pack? What is going to enable better and more efficient decision-making and, as a result, better performance for our businesses?
It is equally important to understand what leads to a dysfunctional board. What are the conditions that predispose our boards to deliver suboptimal results that will adversely impact our companies or even have them fail? The following are nine specific challenges private company boards commonly experience and some strategies to address these issues if they do exist in your board.
No board at all. This one may be obvious, but, for starters, not having a professional board is dysfunctional. While many say they have a board and therefore are in compliance with their basic corporate requirements, meeting once a year simply to capture your meeting minutes for compliance reasons isn’t the same as having a functional board. It’s also not the same to have your directors vote through unanimous written consent without ever meeting or even discussing the company’s strategic matters. High-performing boards have regular meetings at least once per quarter if not every month to review the company’s performance and discuss their strategic intentions moving forward. If you aren’t doing this, start by simply reviewing your basic board governance practices.
Family board. It’s quite common for the shareholders of family-owned businesses to constitute their own board. In fact, it’s the most common first step in the evolution of a private company board to create a “family board.” While it may be an effective strategy initially, not having independent directors serve on the board is not high-performing. It might not be a recipe for disaster with some enterprising families, but engaging independent directors brings industry insights and complementary capabilities that enable those same families to scale their businesses. For example, your fourth-generation family business may have grown organically over the past 100 years, so you may need to engage directors with significant M&A experience or perhaps a private equity background moving forward if those aren’t areas of expertise for your existing family directors.
No designated chair. Assuming you have the right board membership, the next critical step for success is to designate a competent chair. Many private company boards leave this key function to a dominant shareholder or a strong CEO, but, very often, these are not the best people to organize the board’s meetings and keep everyone on track. In addition, the chair often serves as the “grown up in the room” to referee any heated discussions and manage any challenging interpersonal dynamics that might exist between board members. Without such a strategic leader in place, many boards become dysfunctional.
Chair who lacks respect or authority. Simply naming a chair isn’t enough to create a high-performing board though. An effective chair is respected by the other board members and capable of controlling the room. This requires a chair with the professional demeanor and acumen to be unbiased and to maintain a neutral position, inviting and listening to different perspectives while also focusing on what is best for the business. This can be a difficult role for some shareholders, especially if they are representatives of a specific family branch or generation or if they are perhaps looking for a significant personal exit that is not in line with the strategic direction of the business.
Senior executive as chair. To be fair, there are times when CEOs and other senior executives make great chairs. It just sets the board up for several potential issues because of:
- The potential conflict that can exist between management and ownership
- The increased demands and heavy lifting the CEO and other executive leaders must manage between board meetings, simply to keep the business going.
For these reasons, it is often more effective to separate the chair and senior executives’ responsibilities. An effective chair is someone who has the time to dedicate to the board as well as the ability to focus on the board’s efforts and objectives specifically.
Wrong participants. In family businesses, it’s not uncommon for married-in partners, rising Gen children and other family members to attend and observe board meetings. Although this regularly happens with larger shareholder groups when boards align their meetings with other shareholder gatherings, it should be avoided. Private company boards also extend regular invitations to their executives to participate in their meetings. This is an effective strategy if the CEO or CFO, for example, have focused updates to share; however, they should not remain to observe the entire meeting. Additionally, boards that hold executive sessions as a regular part of every meeting such that the CEO and other guests must leave benefit tremendously by creating a safe and confidential space to discuss sensitive matters, like the CEO’s performance and related compensation. Board meetings are exactly that — board meetings. So, invited guests should be limited and must honor their role to observe — not contribute to or otherwise impact — the conversation.
Wrong conversations. In private family businesses, it’s also quite common for “the family” to show up in the boardroom. Either through direct conversations or more passive-aggressive behaviors, individuals often explicitly talk about or inadvertently raise nonbusiness, family-related matters in the boardroom. Whether it’s between siblings who grew up together and never respected one another, cousins who have different wants and needs when it comes to the business and their individual distributions, or parents and children who have diverging near- and long-term objectives, this can be a huge distraction from the board’s important work. That is why it’s so important to have independent directors and a designated chair to help diffuse any family drama that might exist between family business leaders. Family board members need to leave any family baggage outside of their board meetings and focus on the strategic conversations at hand.
Lacking meeting management principles. Boards that successfully navigate the previous people-related challenges can still be quite dysfunctional when it comes to process. A high-performing board needs to organize and then execute effective board meetings. This requires creating thoughtful agendas and distributing standard board packages with appropriate financial information and strategic updates to all board members at least a few days, if not a full week, before each meeting. This also requires each board member to be prepared and review those materials before each meeting. High-performing boards, presumably by designating a board secretary, take meaningful notes throughout each meeting, capturing any group decisions and especially any board votes. Even better is to then distribute those notes, highlighting any individual or group action items, soon after each meeting.
No listening. Ultimately, some of the most dysfunctional boards simply don’t listen to each other. Whether it’s due to years of built-up tension and family trauma between family directors or perhaps because an independent director simply isn’t a good fit for the board’s culture, it’s critical to institute a process for engaging everyone in the conversation and listening to a diverse set of perspectives and points of view. If that isn’t the purpose of your board, then just disband it. You may be wasting time and precious resources on a process that will never succeed. A strong executive can make solo decisions all day long. A great executive will engage other talented and experienced professionals in any strategic decision-making process to make even better decisions.
High-performing boards don’t just happen overnight. It takes time — many years in some cases — for a foundational board to become more functional and high-performing. To accelerate the process though, you can look for signs of board dysfunction, thus avoiding some common pitfalls and putting your board on a better path to success.