Why boards matter

Knowledge, experience, contacts – your board members have virtues and experience that could turn your company from also-ran to winner.

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In the quest for business excellence and competitive advantage, it can be easy for executives to overlook a potentially valuable resource that is often a lot closer than they think. In fact, it may be just down the hall, in the boardroom.

Corporate directors are a rich reservoir of knowledge, experience and contacts just waiting to be tapped by savvy CEOs. This potential for business-boosting knowledge raises fundamental questions about the composition of boards, how members are chosen, how often they should meet and how long they should serve.

You need a mix of strategic and technical people.

It also presupposes a positive working relationship between CEOs and their boards.

“Boards today are being constructed more around talent,” says Kay Koplovitz, founder of USA Network and Syfy (formerly the Sci- Fi Channel). This means that different board members acting as well-informed advisors cover different aspects of the business.
Koplovitz is now Chairman of Fifth & Pacific Companies (formerly Liz Claiborne), a board member of CA Technologies and ION Media, and was previously on the boards of such companies as Oracle and Nabisco.

“CEOs should look at boards as another talent group for them to access,” she says. “And boards should be saying: ‘Let’s see if there’s a way we can help and what kind of advice we can give.’

“The two most important characteristics are trust and transparency to really have an effective board and for the CEO to get maximum leverage out of board members.”

Dennis Wolf, CFO and Executive Vice President at data delivery company Fusion-io, lists transparency, consistency and a constant presence as key ingredients in forging strong relationships between boards and CEOs.

“What you don’t want a board to be is on the other side of the table,” says Wolf, a director of Codexis and Exponential who has also served on the boards of several other private and public

“When it feels like there are two sides of the table, there’s a problem.”

He also warns against board members being too like-minded. “You have to have a skill mix of good corporate governance — especially today — financial acumen and a good mix of strategic and technical people.”

Engagement is crucial

Lorrie Norrington, of Norrington Advisory Services, has held executive positions at eBay, Intuit and General Electric, and is today on the boards of Autodesk, DirecTV and Lucasfilm. She faults some CEOs for not taking the time to craft their own agendas.

Their board meetings typically comprise PowerPoints and other presentations without necessarily engaging board members and delving deeper.

It is a dedicated, time-consuming, engaged activity.

“At the end of the day, you really haven’t had a chance to sit down with your board and say: ‘Here’s what’s on my mind. Let me just tell you what I think is going on here. Let’s have an hour’s dialogue about what questions you have,’” she says.

Koplovitz agrees. “The most critical thing for a good, functioning board is to have dialogue, to have discussion and to place the most important issues in front of you — challenges, strategies, opportunities, problems,” she says. “Because what you really want as a CEO is the input, the advice and the dialogue that helps you think through the difficult problems.” And that, she adds, can come at board meetings or in calls between meetings.

Aim for diversity

The composition of boards is critical. “When private companies are contemplating going public … you really have the opportunity to construct your board in a way that will help you get your company to the next level,” Koplovitz says.

This is the time to consider where you want your company to be in five years and what kinds of people and skills you need to get there. In making those decisions, she says, don’t overlook the benefits of diversity and, specifically, women board members.

Koplovitz says only 16% of public company board members are women. However, companies with three or more women on their boards outperform those with fewer or none by 53% in return on equity, by 42% in return on revenues and by 66% for return
on investment capital.

In the debate over holding staggered elections every few years versus annual elections, Doug Bowers, President and CEO of Square 1 Bank, likes the annual proxy because being a board member is a “very dedicated, time-consuming, engaged activity.”

Wolf echoes that thought, quoting “best practices” that show that annual elections encourage board members to add value better and faster, and ask members to “make a commitment once a year that this is not a retirement home.”

For Norrington, term limits are essential to maintain objectivity. “If you’ve been on the board 15 years, there’s no way you’re objective,” she says.

She also offers advice for those selecting prospective board members. “When you’re in the interviewing process, you need to make sure people are really going to fit, that they are going to strike the balance between being contrarian [and being] able to work with other people and check their egos at the door,” she says.

“If your board member has all the greatest skills in the world but can’t thought-partner with you and the other members, then it’s a non-starter.”