Tag Archives: board of directors

A Corporate Board of Directors is Most Effective When it Practices Good Parenting

There is more to being a successful corporate director than meeting strict fiduciary duties, enjoying the prestige of position, hobknobbing, ego-stroking and raking in big bucks.

At the moment an individual is invited to become a corporate director – especially of a public company – there is a natural rush of well-earned ego gratification. At its most superficial level, being a director of a public company gives the individual status and bragging rights at the country club or cocktail parties. On a more fundamental level, the invitation to join a board is recognition and validation of past efforts, accomplishment and sound experience; all things that can’t help but to stroke the ego. There is nothing wrong with that, but to be an effective director, that ego must be checked at the door.

Efforts targeted to achieve individual success and recognition must be relegated to the past and sublimated to the development and accomplishments of a larger organization and its management team. (You may be able to name the CEO of a successful company, but can you name even one of its directors?) The effective director will recognize they are entering a new phase of their business life; that, while it will draw on their past experiences, it is not about the past or their individual recognition.

Rarely is it expressed in this fashion, but becoming a corporate director is, in a way, like the young person who has had a great time playing, partying, enjoying the freedom to care only about “me,” and then becomes a parent. Suddenly life is not all about them, but about parenting and providing the child with every possible opportunity for healthy growth and a good life. The surest path to failure as a parent is to impose your plan on the life of the child; or even worse, to interfere with and attempt to live their life for them.

Good parenting means setting a good example, exposing the child to ideas and opportunities, supporting the efforts of the child to find their way, being a resource for them to depend upon and then stepping back to allow them to be what they will be. It is the same type of role the corporate director should fill. Some critics may view this “corporate-director-as-parent” analogy as fanciful. It is not, after all, the traditional way to describe the duties of a director. But it is the way that effective directors see their role and add value to the company they serve.

Could You Be a Good Director?

At its most fundamental, the board of directors is a group of individuals elected by the shareholders to represent their interests. Shareholders charge the board with seeing that the company is well managed and the value of their investment is protected and potentially enhanced. These accountabilities call for the director to perform two clearly defined duties:

  • Monitor the activities of management
  • Make certain that strategies are developed and implemented that offers the best opportunity for increased shareholder value.

Critical to the effective functioning of a board of directors is the understanding that fulfilling the fiduciary obligations and encouraging increased value are interdependent, but separate and distinct. A company has never become great because it functioned under a clear set of processes and procedures. Likewise, many a successful company has been rent asunder by the failure to have strong organizational and financial controls. This is a delicate balance that many directors fail to understand or strive to achieve.

In order to fulfill its fiduciary duties, the board of directors will appoint and compensate the officers and managers of the organization, review, approve and endorse a long-term vision that has been identified and delineated by management; and finally to approve and monitor – with specific and determinable checkpoints – the development and implementation of strategies calculated to achieve the vision.

It is important that most directors bring to the board business experience rich in operational and strategic success. But there’s a caveat here. Such experience can lead to the most egregious error a director or board can make, and that is to become involved in the actual management of the company.

The board of directors is – and should always be – distinct from management. In its role as parent, it should to act that way: encouraging, guiding, supporting, and challenging, but not being one of the kids. It is not the province – nor should it be the prerogative – of the board to manage a company, but it does have the responsibility to monitor the managers it has hired. When the board inserts itself into the management of the company, these lines become blurred, and it risks losing focus on its primary purpose. The authority of the CEO is then undermined. Messages to management and employees can become mixed as well as confusing. The ability of the board to hold management accountable is weakened.

The most effective separation of powers is for the executive team to conceptualize a vision and develop strategies to achieve it. The board can properly question and challenge management’s thinking, but once it has given approval to the vision and strategies, involvement should be limited to overseeing the execution of the strategies and measuring the performance of the management group against the agreed-upon objectives. The board of directors can rightly offer an experienced, independent sounding-board for management to present their ideas and plans, but once approved, the board should step back from management and serve as a council of accountability for the actions of management.

This approach to the relationship between the board and management does not preclude individual directors from using their unique experience and knowledge to offer perspective and mentoring for management; much like a parent can use their life experience to guide and mentor the child. After all, it is this distinctive individual knowledge and successful experience that qualifies one to be a director and is the license to judge and monitor the plans and performance of management. But, at the same time, this past experience should never be used as an excuse to interlope on the actual management of the company; just as a parent should not use their life experiences and desires to interlope on how a child lives their life.

And the Moral of the Story …

A board of directors plays a unique and valuable role in the corporate universe. The board straddles the worlds of ownership and management. It has a fiduciary responsibility to represent the interests of shareholders, but is closest to the management group it has hired. To be efficient and effective the board must position itself as a fulcrum that balances the obligation of corporate governance without inhibiting management from developing and implementing their plans for growth.

This is the ultimate challenge for most corporate boards because they are comprised of individuals who have a history of success and leadership in management. Most directors are used to being hands-on, involved and in charge. Thus, the very attributes that qualify an individual to be a director are the very attributes that make it difficult for them to remain above the fray and function in the objective role to approve, monitor and assign accountability.

It is possible for a board of directors to function effectively, but only when the individual directors recognize that – unlike their past experiences – this is not about them. There is no need for them to prove how good they are or how much they know. Instead, the board and its directors should take on the role of parenting. The experience and success of the individual directors provides the knowledge to protect the interests of shareholders and is a resource that can advise and consent with management as they develop and implement plans for corporate growth.

As long as a board and its individual directors keeps this balance in perspective, it can be very effective; but when this is violated – either by not meeting their fiduciary obligations or by interfering with management’s ability to manage the company – they become little more than bad parents.


Tips to Take from the Terrible Travails of Tressel

How trying to cover-up will sometimes make you naked

In 1972, Richard Nixon was running for reelection against a woeful candidate who was the Democrat party’s answer to the incompetence, irrationality and incoherence of someone like Michele Bachmann. With a lead in the opinion polls approaching 30 percent, the most memorable moment of the campaign was when one pundit quipped that the only way Nixon could lose the election was for him to be found in bed with a live man or a dead woman.

Neither happened and Nixon, of course, won a victory of such overwhelming proportions that it earned a place in election record books: Nixon captured the electoral vote in 49 states, harvested more than 60 percent of the vote and received a plurality of 16 million votes, the largest margin in the history of presidential elections. And yet, in less than two years, the president who began the phased withdrawal of U.S. troops from South Vietnam, eased cold war tensions, initiated strategic arms limitation talks with the Soviet Union and opened relations with the People’s Republic of China was  forced to resign from office in disgrace. He left behind two years, six months of his four-year term and some $500,000 in salary.

Jim Tressel has been the football coach at Ohio State for the past 10 years and during that time compiled one of the most successful records in college football. Under Tressel Ohio State won 82 percent of their games, participated in eight BCS bowl games, played in 3 BCS title games and won the national championship in 2002. Maybe most significant of all – at least for Buckeye fans – is that during Tressel’s tenure Ohio State defeated Michigan nine out of 10 times. And yet, like Nixon before him, Tressel has been forced to resign in disgrace. He had four years left on his estimated $3.5 million-a-year contract.

What happened and what can be learned from these tragic failures?

Much like a single match that can ignite a cataclysmic explosion, it was the small things that led to the downfall of both Nixon and Tressel. For Nixon it was a two-bit burglary seeking information that even if successfully purloined, would have made no difference in the election. For Tressel it was a penny-ante sale of football memorabilia in exchange for a few non-memorable tattoos. As you can readily see, it was not the magnitude of the transgressions that caused the downfalls of Nixon and Tressel, but how they responded to them. When both Nixon and Tressel were informed of the indiscretions of others, they answered by covering up their knowledge of what had happened.

These attempted cover-ups merely whetted the suspicions of the media whose watchdogs are ever-hungry for the scent of wrongdoing. Nixon invited the frenzy of the Washington Post’s Bob Woodward and Carl Bernstein; Tressel caught the investigative eye of Sports Illustrated, as well as NCAA officials.

Assuming Nixon did not know beforehand (which is a big assumption) of the break in at the Democratic headquarters, when he did learn who were responsible, instead of taking quick actions to condemn and terminate those involved, he conspired with others to create an elaborate plan to protect those implicated and hide his knowledge of the event.

Assuming Tressel did not know beforehand (which is a big assumption) that players were receiving illegal benefits by selling memorabilia, when he did learn what was happening, instead of reporting the transgressions and putting a stop to them, he entered into an elaborate plan to protect those players involved and hide his knowledge of the events.

The decision to cover-up inappropriate actions, rather than disclosing them created two problems: for both Nixon and Tressel it generated an air of suspicion and led to discovery of a pattern of abuse.

We now know that Nixon’s motivation to cover up the Watergate burglary was his knowledge of (and participation in) a pattern of immoral, unconstitutional and often-illegal actions that had been standard operating practice in his administration. Nixon knew that once the dam of collusion began to leak, a gusher of deceitful information would certainly drown his presidency. We don’t yet know all the facts that motivated Tressel to embark on the cover up, but we can surmise that, at the very least, it was done, ironically, to protect his carefully crafted, pristine reputation for demanding high ethics from his coaches and players. While Tressel has claimed he went into cover-up mode to “protect his players,” it does not take much cynicism to conclude that his real reason was to keep the players eligible in order to protect his winning record and possibly to hide other abuses; only time will tell.

So, what can we learn from these actions and the results they generated?

Well, we could draw the conclusion that if we are going to avoid falling into a pattern of activity that could ruin our reputation and future, we need to have a better plan for cover up than Nixon and Tressel had. But of course there is a better approach and one much more likely to promote success.

It may seem simplistic, and I guess it is, but the only way not to fall into the trap that ensnared Nixon, Tressel and scores of others is to assume that all decisions you make and all actions you take will become public knowledge.

If, when Tressel first became aware that players were systematically violating NCAA rules and before he decided to warn the player’s representatives and cover up the activity, he he should have asked himself, “What will this look like if my actions become public?” He may have lost a few football games by coming clean, but his job and reputation would today be intact. (That is unless like Nixon he knew of other activities would make the situation even worse.)

Admittedly, when Tressel learned his players were violating NCAA rules (even if stupid rules) it would have been difficult to turn in his players knowing they would lose eligibility and possibly impact the rest of their lives. It may be that Tressel was simply trying to protect the players, but by failing to consider the impact of this action becoming public, he made the problem much worse than it would have been.

We don’t have to be president or a big-time football coach to gain the benefits of a philosophy that assumes any and all our actions will become public. If you travel for a company and assume that each and every expense report you complete will be closely audited, there is little chance you will ever be questioned. If you serve on the board of a company and operate on the basis that every decision made and every action taken will ultimately become public, then there will never be a temptation to engage in a cover-up.

This philosophy is more than complying with the “letter of the law,” it means complying with the “spirit of the law.” How many times have CEOs, companies and boards of directors found themselves in trouble for attempting to comply with the laws of disclosure, but in reality covering up the intent of what they were trying to do?

The simple point is that if you ever find yourself in a position where you have to attempt to cover your tracks, then it is obvious that you have taken the wrong track. And while there may not be a Woodward or Bernstein, or some other media or government watchdog who follows the scent of your misfeasance, you would do well to act as if there could be.

And the Moral of the Story …

If, whenever you are presented with a decision or action to be taken, you always ask yourself, “What will this look like if it becomes public?” then there will never be a need to have to consider a “cover up strategy.”

That does not mean that you will not have to make difficult decisions and it won’t protect you from being criticized or from making the wrong decision, but it will protect your credibility and your ability to make other decisions in the future. And best of all, you’ll never have to lie when you say, “I am not a crook.”