BoardMatters Quarterly, January 2013

Trust and transparency

How boards can provide CEOs with a competitive edge

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When CEOs take full advantage of their relationships with board members, they can turn the knowledge, skills and networks of directors into a competitive edge. That process starts with a strong CEO-board relationship made up of the right people and based on transparency and full disclosure.

“You never play a baseball game with nine pitchers, so don’t do that on your board.”

“The two most important characteristics for a CEO seeking to get the maximum leverage out of the board are trust and transparency,” says Kay Koplovitz, Chairman and CEO of Koplovitz & Co. LLC and founder of USA Networks. CEOs and board members agree that open communication and honesty are the key ingredients to developing a relationship with the highest value for everyone.

CEOs also need to keep the flow of information open — they don’t have to wait for quarterly board meetings to discuss financial results and business results, Koplovitz says.

“Have calls between board meetings and tell them that this is what I’m thinking of doing and I would like some feedback,” she says. “Most board members won’t look at that as a weakness — they should look at it as a strength.”

The board and CEO shouldn’t feel like they’re on different sides of the table. Boards need to feel like they are part of the business and part of a team. CEOs can get the most from their boards by making sure that board members have the necessary information and knowledge.

An engaged board can be a competitive advantage because it allows everyone to use their skills and can lead to innovative ideas, better problem-solving and strategic decision-making.

Building the board
CEOs of public companies rarely get to pick their boards, but CEOs of private companies are more likely to have that opportunity. Whenever possible, CEOs should select board members who will help take the company to the next level.

Boards should be built with diversity of talent in mind. The CEO benefits when different aspects of the business are covered by directors with different skills and experiences. For example, some board members may have financial expertise; some may be experts on good governance; still others may be better versed on technology or marketing.

Having a broad set of capabilities covered by different board members helps the CEO and the company be better prepared to deal with a broad range of issues and challenges when they arise. “You never play a baseball game with nine pitchers, so don’t do that on your board,” explains Lorrie Norrington, a former CEO and current director.

Cultural and gender diversity are also important. Less than 20% of Fortune 500 board directors are women, but companies with a higher percentage of women on their board outperform companies with fewer women in a number of ways.1 “Diversity can open the dialogue in a new way and away from group think,” Koplovitz says.

Length of service
There is growing support for the practice of annual director elections, according to Dennis Wolf, Chief Financial Officer and Executive Vice President of Fusion-io, Inc. Annual director elections can encourage board members “to add value better and faster and get directors to commit once a year” to helping make the company better, he says.

On the issue of term limits, Doug Bowers, President and CEO of Square 1 Bank, says there are very few members or employees who can be in for the long term. “Being a board member is time-consuming and requires dedication. You have to be in the game big or everybody loses,” he says.

Norrington adds that the number one thing is to be objective, and it’s very difficult if you don’t impose some sort of time limit. If you’ve been on the board for 15 years, can you really be objective?

Getting the most from the board
Big benefits can be obtained when CEOs and board members share and use each other’s connections. Norrington says she’s surprised how few people use LinkedIn to tap into this vast network of connections, which can prove very useful in certain situations, such as developing new business or identifying new board members.

CEOs that tap the expertise, talent and networks of board members help move their companies forward and achieve business goals. And everyone gains a competitive edge by capitalizing on the knowledge and connections of others.

 Questions for the board to consider

Questions for the board to consider

  • Do the board and CEO have an open and transparent flow of communication, including between board meetings?
  • Is there a plan or strategy in place to create a more diverse board and one that reflects the company’s customer base?
  • How often does the board discuss succession planning for directors and CEOs? Are multiple candidates on the list depending on the circumstances and timing of the need?
  • If annual elections are not already in place, how do board members feel about them? Should they be considered?
  • Are the members of the board and the CEO sharing their contacts or using networks such as LinkedIn to do so?
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Editor’s note: The preceding article is based in part on a panel discussion that took place at the EY Strategic Growth Forum® in November 2012. A video of the session, “Untapped value? Look to your board,” is available at ey.com/us/sgf.

Endnote: Fulfilling the Promise: How More Women on Corporate Boards Would Make America and American Companies More Competitive, The Committee of Economic Development, June 2012.

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