In today’s boardroom, complacency is a death sentence. From juggling technology initiatives while simultaneously meeting a growing hoard of cybersecurity risks at the gate to delving deeper into a world increasingly defined by the notorious acronym, BANI (brittle, anxious, nonlinear and incomprehensible), to record-high workloads and expectations placed on today’s directors, board assessment and refreshment has never been more important to maintain. At the same time, it continues to take a backseat to the cornucopia of issues boardrooms are bombarded with in today’s volatile environment. Most boards conduct regular assessments. However, the number of boards that act on the findings of those assessments is far smaller than it should be. Why are many private company boards going through the trouble of doing their homework, but forgetting to turn it in?
Byron Loflin, global head of Nasdaq Board Advisory, author of CEO Ready and co-leader of the Nasdaq Center for Board Excellence, likens board assessment to looking into a makeup mirror, where even the most minute flaws, cracks and wrinkles can be seen loud and clear. Having facilitated upwards of 1,000 board assessments over the past 10 years, Loflin says the assessment process needs to be compelling, first and foremost, and must provoke urgency as well as action. While you can choose to avert your gaze when encountering a makeup mirror, directors have an obligation to look. “For board members, they don’t really have that prerogative because they’ve signed onto a responsibility. They need to look in that mirror closely. You are a board member for a company that needs your oversight and your insight. After an online survey, we quickly schedule a follow-up interview to unpack the nuance of information gleaned from this two-step process and turn it into an actionable report of five to 15 action points, that ‘If you act on this, I can give you 100 CEOs who will tell you that their governance and interactions between the board and management improved. If you don’t act on these, eventually dysfunction will slip in and start to degrade the core of the [business] entity leadership.’”
DeLisa Alexander, board member of Qlik, Sophos, Synechron and Ozarks Coca Cola/Dr. Pepper Bottling Company, says board assessment is a challenge to fully adopt from both a process perspective as well as a belief and urgency perspective. Alexander says that’s where using help from the outside comes in handy. “Wanting to do the right thing by doing the assessment, and then actually getting meaningful, actionable insights from the assessment, is where [private company boards] could use some more outside support. Since the board is the board and they’re in it, they are often quite able to assess and identify areas that could be improved. But if they, as a board, knew how to make adjustments based upon the assessment, they probably would. What I have observed is a sentiment such as, ‘Okay, we see that we’re not great at this, but what do we need to do that’s different?’ It’s about a fresh set of eyes and a fresh look with guidance, support and new thinking.”
Alexander also says benchmarking — actively and constantly holding your organization up in comparison to its competitors — and assessing what works for them compared to what works for you, as well as celebrating victories big and small, is an aspect that could be added to many board assessment approaches. “Those that actually take action [on their board assessments], I see them congratulating themselves on what they’re doing right, where people are aligned. ‘Yes, we feel like we are effective at these particular parts of our responsibilities and we’re doing a great job.’ But then they have to be able to actually take action on items that need to be addressed. Boards need to have a few things that rise to the top as priorities, then do that outside research, do benchmarking, get third-party insights and really think about what’s going to work in the culture of that board to be able to implement. It’s a very thoughtful — not quick — process. At times, the assessment can feel like a calendar-driven activity. ‘This is the quarter for the assessment. Let’s get it done. Check the box.’ Actually creating a plan that results in insights or additional capabilities? That is something that is much more challenging because there can be too many things on the list without prioritization”
Pamela Packard, lead independent director and nom/gov committee chair of Gray & Company Inc. and CEO of Strategic Enterprises LLC, says “Boards that have a strong culture and healthy dynamics are much more likely to have a commitment to continually improve the board’s performance. Clear shared values, behavioral norms, trust, respect and constructive debate provide a psychologically safe environment to address what needs to be changed. These boards have the desire and discipline to implement the necessary process and behavioral improvements.”
When You Don’t Know What You’re Missing
When assessing a private company board, capability gaps are a common target, but how boards prioritize addressing those gaps differs by company, industry, stage of maturity and the current composition of the board, according to Packard. “The most common capability gaps lack sufficient focus on the skills and experiences required to oversee and serve as strategic advisors and thought partners to guide management to achieve the company’s longer-term strategy.”
Packard says priority should be given to addressing the gaps that have the potential, once cured, to provide the most value and biggest impact and would be difficult to resolve solely through external advisors. “However, the easiest to address is continuing education for directors that is specific to the company’s strategy through customized board education sessions, tabletop exercises and external programs,” Packard explains, noting that additional examples of current capability gaps she sees include a lack of experience with business model disruption and business transformation, a lack of understanding of the full range of opportunities AI can provide and the need for AI governance oversight.
According to Alexander, “My experience is that, in private companies, there is a lot of focus from the board on execution of the plan. It’s financial oversight, operational oversight, improving operations and meeting the business objectives. But there’s less focus on strategic longer-term issues. What I’m seeing is a strong competency in understanding the financial models, understanding the current business model and diving really deep into very minute details of those plans. What I think would be helpful is, in addition to detailed financial oversight, to also look longer-term and more strategically into the future. For example, spending time thinking about disruption and what the company needs to be doing from a scenario-planning perspective about the future of the business.”
Loflin says the operative phrase in assessing capability gaps is “cross-utilization for added value purposes.” “[That’s] the board utilizing the relationship between themselves and the management team to get to know the company well — the dynamics of its relationships, products, services and customers.” Cross-utilization also includes stakeholders, who have strong influence upon the company. Loflin continues, “For example, today we’ve got AI, which is burgeoning everywhere. How will AI apply to your company? That’s not a one-and-done question. It is an ongoing question and probably a weekly one now. Utilizing what they have in order to add value to the management team is a key aspect of being better board members.”
Loflin says it’s all about finding that sweet spot — where you’re adding value — and every director should look around the table and ask themselves about how much value they are adding. “Because if you’re not adding value, you’re taking up space.”
The Show Must Go On
Meticulous assessment and refreshment are critical because the board’s effectiveness is directly tied to the directors’ ability to work together on the organization’s long-term success, resilience and value. When things aren’t working out, there are multiple effective, respectful ways to handle the moment when a director is no longer the right fit for the board.
“Communication needs to occur and expectations need to be set long before the determination that a director is no longer the right fit for the board. Ideally, that happens when a director first joins,” Packard says. “A common refrain, paraphrased, is ‘Unlike a Supreme Court appointment, a director appointment is not for life.’ As part of the recruitment process, annual evaluations and skills matrix analyses, the message needs to be ‘As much value as any director provides currently, there will come a time when different expertise and experience will be needed to guide the future direction of the company.’”
Creating this culture by raising the issue early, with consistent communication, sets the stage for directors to expect to be off-boarded at some point, Packard says, noting this design is intentional for removing the stigma of not continuing on the board. “The nominating and governance committee’s reports to the board should reinforce this message by regularly addressing board succession with a focus on prioritizing future needs,” Packard says. “In terms of respectfully informing a specific director, of course the conversation should be private. Start by acknowledging the director’s historical value and contributions. Reiterate the board’s need to be populated with directors best-suited for the next phase of the company’s trajectory. And then state the decision. Subsequently, it is critical to publicly honor and celebrate the departing director. Doing so sends a valuable message to both the departing director and the remaining directors.”
“The responsibility of self-selection” is a term Loflin wishes would proliferate more in private company boardroom culture. “This responsibility to self-select belongs to all high-level professionals. We all have a ‘shelf life’ in the company sense. Someone on a board, for example, may have been a key contributor of regulatory or financial insights, having worked in banking for years. But industries change and board needs change, and at some point fresher insights are needed,” Loflin explains. “‘Why are you essential on this board?’ is a question that every board member should be asking themselves. If they can’t conclusively arrive at how they’re adding value, then they should really consider the future of the board and say, ‘I’ve contributed what I can here. Unless you see something else on which I can contribute beneficially more than someone else, I think it’s time for me to step down.’”
“There can be a range of reasons why someone is no longer the right fit for the board. I think the most important thing that a board can do to prepare itself for those conversations is to, at least annually, if not more, [have] a conversation between the chair of the board and each individual director about how the board is doing overall, but also how that person is feeling about their contributions, how others are feeling about that person’s contributions and what the plan is for that director,” Alexander says. “That way, the individual has some insight as to how they’re being perceived on the board, where they’re doing great and where they could contribute more.”
Creating a culture of refreshment that is established early is important, Alexander says, “so people understand this is a tour of duty. This is not a lifetime role.”
It’s important to impress the fact that, sometimes, board refreshment should center around the capabilities that are most important in the short term. “It’s also expensive to have a board of directors. There are flights and hotel rooms and meals and pay. So, every company has to really think about that set of finite resources that they’re investing in a board and making sure that they are refreshing and getting the most value out of that investment,” Alexander says.
“Plans Are Useless, But Planning Is Indispensable.”
President Dwight D. Eisenhower said it best when referring to the value of planning compared to the reality of how those plans play out. The objective is to stay nimble, ready for anything the market may throw you. Packard says that many companies underestimate the impact macro trends have on their businesses. A true understanding of the potential ramifications of anything from geopolitical risks to the speed of frontier technologies like AI, quantum computing, automation and digital finance’s rising popularity — and foreseeing the challenges and requirements associated with addressing those impacts successfully — is impossible without a comprehensive prospective view. What you can do today, according to Packard, is consider “board succession planning, taking into account a desired skills matrix as one step. Curated education for existing board members is another. Consider cybersecurity as an example, where some boards brought on experts while other boards ensured directors learned what questions to ask and responses to expect without having a subject matter expert on board. The magnitude of the matter’s importance should dictate the approach taken.”
Loflin believes that having people on your board who have endured cashflow challenges and overcome the stresses of not knowing whether the company will make payroll has never been more important amid the massive technological shifts that are taking place today. The value of having strategic thinkers with that kind of experience on the board will continue to increase in the coming years. According to Loflin, there is, however, an important distinction to be made between strategy and logistics. “A lot of people use the word ‘strategy’ and they really mean something logistical. The differentiator is in asking, ‘How are we different from our competitors, and what makes us different?’ You get to understand this better by walking alongside management to analyze that difference. The logistical thinkers’ contributions will focus on how to deliver on our promises. The strategic thinkers will be looking down the road one-to-five years.”
“What I worry about, with regard to five years from now, is that members of the board can be very focused on what’s happening today or the next year versus looking out five years and, in this time with so much technology disruption and so much innovation happening in the macro environment, I think that companies that do not have a chief disruption officer type of capability on the management team or on the board — or as an outside advisor — may end up at a disadvantage as compared to companies that are actively scenario-planning,” Alexander says.
Art, as a creative expression, is deeply based on the individual, both the artist and the consumer of that creation. Similarly, board assessment and refreshment are both deeply based on the individual — both the organization in its uniqueness as well as the individual leaders that comprise the board that leads it. Like the creativity that flows through artistic expression, boards must approach assessment and refreshment as a pursuit of the best possible team to meet the changing needs of today, tomorrow and beyond. That starts with identifying the ideal capabilities those individuals, both on the board and those who have yet to join, must possess to carry the torch into the future.