Recruitment: maintaining healthy board dynamics

The fallout from the financial crisis of 2008-2009 shed light on the decisions of corporate boards and their impact on the company as a whole. Compensation policies, merger agreements and the appointment of a CEO are significant turning points that can make or break a firm in the long run. As corporate boards are composed of people, the healthier the board dynamics, the more likely good decisions will be made and executed.

‘You need a culture of full disclosure, honesty, a sharing of issues and problems and where the board is engaged in its role as a fiduciary overseer but not expected to manage day-to-day operations,’ says Bob Joss, a banker who sits on the Bechtel and Citigroup boards and formerly served on the boards of Agilent and Wells Fargo.

Maintaining a healthy board is important because of the trickle-down effect. ‘The ultimate consequence of an unhealthy board is that there’s no progress, no forward thinking for the organization, no agreement or movement toward a strategy,’ explains Nona Footz, managing director of RSR Partners, a boutique board recruitment firm in Greenwich, Connecticut. ‘Where there are ego issues, there is divisiveness and uncertainty.’

Health fosters dissent – and success
An unhealthy board is defined as one with control issues, territorial issues, bouts of cronyism, passivity and submissiveness, and where members are disrespectful of each other. A healthy board has open communication, banter and room for questions, debate and disagreement. ‘If there’s bad behavior or marginalized members, the communication needs to be elevated,’ says Footz. ‘The lead independent director has to step up, take extra time and effort to talk with individual directors about the issues, and expose those issues.’

One sign a board is dysfunctional is when the same topic comes up repeatedly without any resolution being achieved. ‘If board meetings are scattered and not following a clear agenda or the agenda isn’t being met and members walk away feeling they didn’t accomplish anything, that’s a clear sign the board is not as effective as it should be,’ points out Andrew Miller, president of Toronto-based ACM Consulting and a member of two not-for-profit boards.

Another sign of unhealthy behavior is if there are cliques on the board and one group is ganging up against another. ‘This leads to a lot of stalemate situations, which could make it difficult to retain top talent if people are frustrated by the outcome,’ cautions Miller. ‘If word gets around that a board is non-functional or getting in the way of the success of the organization, it becomes a drain on a company’s resources.’

A force for good
Smoothing out a board that has been dysfunctional in the past requires collaboration. ‘I am a big believer in collegiality,’ says Richard Parsons, chairman of Citigroup. ‘Boards have to work together to challenge and support management. The board is not running the company; it is a constructive force.’

The NYSE requires all boards to conduct an annual self-evaluation. Although these are helpful for maintaining healthy dynamics, they may not be enough. ‘Evaluations get stale,’ notes Tracy Houston of Board Resource Services, a board advisory consulting firm in Lakewood, Colorado. ‘So boards have to find ways to keep it fresh with peer and cultural evaluations.’

As in an individual’s personal life, transforming an unhealthy relationship into a healthy one may require outside help by way of board consultants, which can be costly. ‘When we come in, we work with the chairman, CEO and lead director and then have meetings with the other directors to find out what is wrong because it can be hard to get agreement on that,’ says Footz.

An ounce of prevention can stop a board from heading into dysfunctional territory. That’s why taking great care during the selection process of new board members is of utmost importance, according to Bob Pearson of Pearson Partners International, a Dallas, Texas -based recruitment specialist that recruits executives for board membership. ‘Select executives who can contribute, because it takes at least 20 hours of preparation for every one hour of meeting time,’ he says. ‘No board member can work on more than three or four boards and still participate effectively.’

Look beyond the ex-chief
Pearson prefers non-CEO candidates in order to create diversity on the board. Non-CEO types include human resources officers, CFOs, CTOs and chief operational officers. ‘We try to get experienced board members because people from other boards understand the dynamics of good governance, risk management, audit, finance and event management, such as a merger or the firing of a CEO,’ he explains. ‘But it’s a fine line because you don’t want someone who’s already on too many boards.’

Bob Steel, a former Wachovia board member who is now on the Wells Fargo board, defines the perfect board member as intellectual, educated, possessing a strong skill set, having integrity and a willingness to articulate. ‘Boards need executives who can agree to disagree in a way that’s constructive to the process,’ he says.

When the company’s core business isn’t growing, it may be time to fire the CEO or at least question him or her. ‘If you find yourself at a firm where management is hiding the ball from the board, you need to have a heart-to-heart talk with the CEO,’ says Joss. ‘If he or she is not forthcoming, you have to make a change right away in the leadership of the company. I won’t tolerate a board culture where management is hiding the ball.’


Top 10 board health indicators

1. Independence, expertise and integrity of board members
2. Agenda items and arrangement of priorities of those agenda items
3. Mentoring program for new directors
4. Depth, breadth and frequency of board evaluation
5. Level of board training and education
6. Number of experts who present to the board
7. Dynamics of the relationship between the board chair/lead director and the CEO
8. Relationship of committees to the board
9. How much of what the board does is based on tradition compared with enlightened beliefs
10. Quality of discovery around assumptions for strategy

Top 5 signs of a dysfunctional board

1. Same topic is discussed repeatedly without resolution
2. Cliques form and gang up on one another
3. Board members are marginalized or excluded
4. Company’s core business stops growing
5. Chairman is overly controlling

Source: Board Resource Services