10 Things Every Board Should Do, But Many Don't
I recently wrote a guest commentary for AGENDA, a weekly publication for corporate board directors. I offer the column again here. In these tough economic times, boards must fulfill their crucial job ensuring that a company can survive and compete for the long term.
Opinion: 10 Things Every Board Should Do, But Many Don’t
Carly Fiorina’s List of Ten Things Every Board Should Do-But Many Don’t
Board members that fail to prioritize long-term shareholder value, pose tough questions to management and have constructive dissent, among other deficiencies, undermine the integrity of American corporate governance
1. Long-Term Sustainable Shareholder: A board’s fiduciary duty on behalf of all shareholders is to create long-term sustainable value. This is a difficult task, because there are great pressures on boards and management teams to become short-sighted, or take imprudent risks to chase short-term stock price. Looking back on the dot-com boom and bust, the Enron debacle, and the current Wall Street melt-down, it’s clear that common sense and good judgment were pushed aside as too many people succumbed to the desire to participate in a seemingly never-ending upward spiral of stock price and (frequently illusory) quarterly earnings. Conversely, short-term downward pressure on stock price can motivate a board to step-away from a transformative, strategic move, even when it will demonstrably create sustainable long-term value. This is why too many companies rely too long on existing profit pools and fail to make the moves necessary to build the new franchises and new sources of profit so necessary for long-term success and competitiveness. A board’s job is to ensure that a company can survive and compete in tough times, not just thrive in good times. And this is why any board or CEO who asks Washington, D.C. for a tax-payer funded bail-out should tender their resignations. They have failed in their most basic fiduciary duties.
2. Tough Questions and Transparency: A board’s job is to ask the tough questions of management. Management’s job, specifically the CEO’s, is to provide complete transparency about the operational health and strategic options of the company. There should be clear goals, specific progress metrics and identified accountabilities discussed at every board meeting. Board meetings should not be merely formal “i-dotting” and “t-crossing” sessions. A good board meeting is full of real dialogue and spirited exchange of views.
3. Opinion, Doubt, and Dissent: Every board member must have a relevant, informed opinion on each matter to be discussed by the board. If they don’t have an opinion they shouldn’t be on the board. It’s a board member’s duty to express their opinion – even if, perhaps especially if, it goes counter to the wishes of other board members or management. It is board chair’s job to ensure that every opinion is fully heard and fully understood.
4. Real Debate: All issues which come before the board are substantive and important. All must therefore be thoroughly debated, with each opinion aired. Some decisions are of such magnitude that many debates must be held. It is vital that all the relevant facts and opinions be presented including: the upsides to a proposed course of action, the downsides, the alternatives, the risks, the unknowns, the optimistic plans, the worst-case scenarios and the most-likely outcomes.
5. Diversity: Diversity in the board room creates better dialogue and better debate. When all board members look the same, have shared the same experiences, and all know each other over many years, they tend to think the same way. Boards should actively recruit diverse players of all kinds in order to substantially improve board governance and board decision-making.
6. Decision-Making and Accountability: While there must be time for full debate to improve decision-making, ultimately decisions must be made. A successful business must act quickly and move decisively. When it is decision-time, every board member should vote. The best decisions are made unanimously, because such unanimity reflects that board members have built common ground and have shared views. Each board member should be held accountable for their vote and stand behind it. If a decision must be reached and unanimity isn’t possible, then a majority of the board must act. Board members who vote in the minority can then choose to resign their positions, or support the decision of the majority. They should not second-guess or sabotage the decision once made, because this will undermine successful execution and harm the company, its employees and shareholders.
7. Representation: By the same token, new board members may come to the board elected by a specific constituency – labor, a particular group of shareholders, or debt holders. However, once a board member arrives in the board room, they must accept that their job is to act on behalf of ALL shareholders and represent the best interests of the company as a whole. In this respect, a board member’s job is vitally different from an elected representative’s job. A board member cannot represent a single constituency, although they can certainly be informed and influenced by their constituencies’ concerns.
8. Confidentiality and Transparency: A board’s deliberations must be kept absolutely confidential until those deliberations are concluded. Without confidentiality, honest debate and disagreement are impossible and both are vital to sound decision-making. Unauthorized leaks from the boardroom are unacceptable behavior and board members who engage in them should step down. Once a decision has been made, a board should be absolutely transparent with all constituencies about how the decision was reached, detailing the consequences, upsides and downsides of the decision, and providing the execution plan and timeline.
9. Board Evaluation: A board can function only as well as its board members perform. All boards and all board members should participate in an externally directed performance evaluation process on an annual basis. Board seats are not perks or entitled positions. All board members should be elected annually and evaluated annually. And boards should assess as a group whether they are really performing the work to which shareholders are entitled.
10. Executive Compensation: Executive compensation is one of a board’s most important roles as well as a matter in which shareholders have a growing and vital interest. All aspects of board and CEO pay, perquisites, retirement plans, country club memberships etc., should be fully transparent and put to a shareholder vote on an annual basis. Pay for performance ties should be clear and there should be no “surprises.”
Opinion: 10 Things Every Board Should Do, But Many Don’t
Carly Fiorina’s List of Ten Things Every Board Should Do-But Many Don’t
Board members that fail to prioritize long-term shareholder value, pose tough questions to management and have constructive dissent, among other deficiencies, undermine the integrity of American corporate governance
1. Long-Term Sustainable Shareholder: A board’s fiduciary duty on behalf of all shareholders is to create long-term sustainable value. This is a difficult task, because there are great pressures on boards and management teams to become short-sighted, or take imprudent risks to chase short-term stock price. Looking back on the dot-com boom and bust, the Enron debacle, and the current Wall Street melt-down, it’s clear that common sense and good judgment were pushed aside as too many people succumbed to the desire to participate in a seemingly never-ending upward spiral of stock price and (frequently illusory) quarterly earnings. Conversely, short-term downward pressure on stock price can motivate a board to step-away from a transformative, strategic move, even when it will demonstrably create sustainable long-term value. This is why too many companies rely too long on existing profit pools and fail to make the moves necessary to build the new franchises and new sources of profit so necessary for long-term success and competitiveness. A board’s job is to ensure that a company can survive and compete in tough times, not just thrive in good times. And this is why any board or CEO who asks Washington, D.C. for a tax-payer funded bail-out should tender their resignations. They have failed in their most basic fiduciary duties.
2. Tough Questions and Transparency: A board’s job is to ask the tough questions of management. Management’s job, specifically the CEO’s, is to provide complete transparency about the operational health and strategic options of the company. There should be clear goals, specific progress metrics and identified accountabilities discussed at every board meeting. Board meetings should not be merely formal “i-dotting” and “t-crossing” sessions. A good board meeting is full of real dialogue and spirited exchange of views.
3. Opinion, Doubt, and Dissent: Every board member must have a relevant, informed opinion on each matter to be discussed by the board. If they don’t have an opinion they shouldn’t be on the board. It’s a board member’s duty to express their opinion – even if, perhaps especially if, it goes counter to the wishes of other board members or management. It is board chair’s job to ensure that every opinion is fully heard and fully understood.
4. Real Debate: All issues which come before the board are substantive and important. All must therefore be thoroughly debated, with each opinion aired. Some decisions are of such magnitude that many debates must be held. It is vital that all the relevant facts and opinions be presented including: the upsides to a proposed course of action, the downsides, the alternatives, the risks, the unknowns, the optimistic plans, the worst-case scenarios and the most-likely outcomes.
5. Diversity: Diversity in the board room creates better dialogue and better debate. When all board members look the same, have shared the same experiences, and all know each other over many years, they tend to think the same way. Boards should actively recruit diverse players of all kinds in order to substantially improve board governance and board decision-making.
6. Decision-Making and Accountability: While there must be time for full debate to improve decision-making, ultimately decisions must be made. A successful business must act quickly and move decisively. When it is decision-time, every board member should vote. The best decisions are made unanimously, because such unanimity reflects that board members have built common ground and have shared views. Each board member should be held accountable for their vote and stand behind it. If a decision must be reached and unanimity isn’t possible, then a majority of the board must act. Board members who vote in the minority can then choose to resign their positions, or support the decision of the majority. They should not second-guess or sabotage the decision once made, because this will undermine successful execution and harm the company, its employees and shareholders.
7. Representation: By the same token, new board members may come to the board elected by a specific constituency – labor, a particular group of shareholders, or debt holders. However, once a board member arrives in the board room, they must accept that their job is to act on behalf of ALL shareholders and represent the best interests of the company as a whole. In this respect, a board member’s job is vitally different from an elected representative’s job. A board member cannot represent a single constituency, although they can certainly be informed and influenced by their constituencies’ concerns.
8. Confidentiality and Transparency: A board’s deliberations must be kept absolutely confidential until those deliberations are concluded. Without confidentiality, honest debate and disagreement are impossible and both are vital to sound decision-making. Unauthorized leaks from the boardroom are unacceptable behavior and board members who engage in them should step down. Once a decision has been made, a board should be absolutely transparent with all constituencies about how the decision was reached, detailing the consequences, upsides and downsides of the decision, and providing the execution plan and timeline.
9. Board Evaluation: A board can function only as well as its board members perform. All boards and all board members should participate in an externally directed performance evaluation process on an annual basis. Board seats are not perks or entitled positions. All board members should be elected annually and evaluated annually. And boards should assess as a group whether they are really performing the work to which shareholders are entitled.
10. Executive Compensation: Executive compensation is one of a board’s most important roles as well as a matter in which shareholders have a growing and vital interest. All aspects of board and CEO pay, perquisites, retirement plans, country club memberships etc., should be fully transparent and put to a shareholder vote on an annual basis. Pay for performance ties should be clear and there should be no “surprises.”
Carly Fiorina, CEO Carly Fiorina Enterprises
Comments