A board’s three biggest responsibilities require true engagement, hard and productive work, and clear accountability. Those responsibilities are ensuring the right CEO for leading the business, committing to a clear and investable strategic direction and plan, and oversight of execution performance results and risk. This is “the what,” but “the how” also matters greatly in building the business. How does your board provide oversight, engage in the future of the business and maintain a “hands off” environment for management?
Board engagement has many dimensions, often including individual effort, genuine passion for the business and specific governance processes. There is strong evidence that a truly engaged and value-added board can make a real difference in the success of the enterprise. There is also quite a wide body of actions and tactics for a more engaged board. But have you ever thought about the personality of your board? It may prove foundational to recognize what your board engagement personality is and how it may need to change to create a better board.
As I look back on the boards that I have both served on and supported via conversations with directors of other companies, my experiences can be broadly grouped into three different board engagement personalities when I joined. During the board interview process, I often asked what the board’s personality was, how satisfied the board was and what they wanted it to be. These boards all evolved to be better, more fully engaged and more effective despite their different initial personalities. Of note is the importance of how management teams evolved along with a more engaged board, including an improved working relationship and better results.
The following are the three board engagement personality types:
Rubber stampers. This board personality is characterized by management presenting or “selling” what it intends to do, as well as its actual performance. Information asymmetry is more acute than normal and data that is shared can be somewhat biased in the selling process. The board is largely listening (with the occasional inquiry), offering little in terms of objective, probing discussion. They generally approve or “rubber-stamp” management’s plans and actions. The board has little real influence, is viewed as a “necessary” function and is not perceived as value-added. Up to 75% of board time is spent listening to presentations from management and focusing on historical performance and compliance, with very little time on open, explorative discussion. This is often the path of least resistance, seen as the organization’s historical cultural norm. Usually, this path is consistent with a dominating CEO and less than optimal returns.
Command and control. At the other end of the board engagement personality spectrum is this extreme. This is the most challenging personality from management’s point of view and is characterized by pressure on speed of results, a deep-dive analytical bent and a dominant board influence, such as a founder “who knows it all” or a major outside investor. This board “knows best,” pushes beyond limits in pursuit of aggressive returns and demands execution results. Management has a say, but the balance of sway and authority is clearly with the board. Strategic direction and big initiatives are decided and led by the board, and management has the duty of getting the details right and executing quickly. Up to 75% of board time is spent on drilling down on business performance and management is responding, not initiating. This board personality can also be summarized by the Golden Rule: “He who has the gold rules.” Unfortunately, this board personality is often associated with challenged businesses and less than desirable business results, adding to the one-sidedness of the relationship and intense assessment of the business.
Business building collaborators. This board engagement personality is the aspirational standard in business building, especially for privately held, non-outside-investor businesses, also known as the family business. Both the board and management understand each other’s roles, see each other as critical collaborators on business building, and have key engagement processes that leverage board insight, experience and resources for business opportunity. Boards are and expect to be involved early in the formation of strategic direction. They challenge and support critical business and market assumptions, debate the investment thesis and alternatives, and expect management to deliver against jointly developed plans that are adequately resourced. Full transparency in performance results is the norm. Information is shared readily so time can be devoted to insights and actions. Board time is much more appropriately distributed between current performance oversight and future-thinking insight and direction, often with a 50/50 balance. The business is thriving, as is the management team and the board.
Which one of these engagement personalities best describes your board? The journey toward being the best, productively engaged board for your unique situation is quite rewarding, but it will take a committed joint effort between the board and management to achieve the desired payoff. Take the time in your next board executive session to discuss your personality type and how you believe it impacts the business. You may find that the conversation is the first step toward better board engagement.