When a company board of directors used to meet, its members politely listened to the officers’ reports, talked about all the good things going on in the company, agreed with the CEO’s recommendations and went back to their real jobs.
Not anymore.
Today’s boards are informed, confrontational and unapologetic. At least they should be, according to a group of prominent area CEOs and board directors who spoke at Cleveland State University’s James J. Nance College of Business Administration Executive Development Center.
“The pressure is on outside directors to be much more critical, much more demanding, much more involved,” says John Ong, chairman emeritus of BFGoodrich. “Largely, I think that’s been a positive thing. At the same time, any human institution can’t exist based on friction, hostility and suspicion inside the institution itself; you’ll have an unhealthy institution.”
Indeed, a board of directors that does nothing but argue is a problem. But don’t limit your outside directors to those with a business-only background. Diversity is paramount. The only real criteria are intelligence, good problem-solving skills and a willingness to learn.
“Rubber-stamp boards, buddy boards, old network boys, old buddy boards, all they are doing is taking away shareholders’ rights,” says Jack Kahl, CEO of Manco Inc. “A real good board member is a guy who has the guts to be a good board member. If you can get a good director that has guts and can challenge the CEO and still build his friendship by challenging and not by succumbing to the buddy system, then you get an active board.”
Michael Feuer, founder, chairman and CEO of OfficeMax, agrees, to an extent. He admitted that in OfficeMax’s start-up days, he liked his directors to be a little less obtrusive.
“When you’re a start-up company, you want ‘nodders.’ If you nod, they nod,” Feurer says. “As the company evolves and becomes a larger company, you want board members that have other skill sets or a variety of skills.”
Board size is shrinking
The days of 17- or 18-member boards are long gone, except for at very large corporations. Even some of the multinationals have boards in the range of only 12 to 13 directors, mostly culled from outside companies or organizations.
Experience has shown that the smaller size allows for more open conversation, while keeping the meetings at a reasonable length.
“I can remember Dow Chemical had about three outside directors on a board of about 17 or 18 people,” Ong says. “That’s changed dramatically. I think that’s primarily been influenced by the explosion of high-tech companies, dot-com companies, and if you invested in some of those, like I did, you get these proxy statements and there would only be five guys.”
Hire a CEO
A board that can’t work with or doesn’t trust its CEO is doomed to failure. The most important decision a board of directors makes is the hiring and evaluation of the company’s CEO.
“It’s such a factor that it’s out there 50 lengths in front of everything else,” Kahl says. “If you get that right, the rest of the job, which is to protect shareholders’ rights, becomes easy.”
Once a board hires the CEO, however, it’s important that the directors stay informed about the business, know the problems that are going on and are available to meet if there needs to be quick action.
“I tend to have more meetings when times are tough, so I’ve been having a lot of meetings recently, but that’s a different story,” quips Feuer. “The reality is, a well-informed board is a more effective board, and also it takes a little bit of pressure off the CEO.”
Meet before the meeting
Smaller companies can usually be productive in the one day allotted for the regular board meeting. Boards for larger, diversified companies should at least meet the night before the regular meeting, formally or informally, to discuss important aspects of strategy, business trends and developments.
“You can really get into the heart of the opportunities and the hearts and problems in an open atmosphere,” says Richard Pogue, senior adviser for Dix & Eaton. “You’re not quite as likely to open up and say things that are arguable or dubious or questionable if there are 20 people sitting around you in a room as opposed to 10 or 12.”
Pay in equity
Directors need to have a stake in the company. Not only does equity give more weight to the decisions they make, it sends the message to shareholders that their directors have their faith and money in the company as well.
“Requiring them to have a certain level of stock is a good business practice,” Pogue says. “It always looks terrible in the proxy statement where a board member has zero in stock. It just looks awful.” How to reach: Cleveland State University’s James J. Nance College of Business Administration, (216) 687-6925
Morgan Lewis Jr. ([email protected]) is a reporter at SBN Magazine.
