Vice Chairman and Co-Leader, ESG and Board & CEO Services
The Mosaic That Is the Modern Boardroom
While we’re cautious about discussing board development in a way that implies lockstep linear progression, it’s clear that corporate governance has evolved dramatically in the past two decades. Given the caveat that there are always exceptions to the rule and each board’s unique culture will be a significant variable in its development, let’s briefly trace the high-level evolution of the modern board.
For years, the boardroom was dominated by the CEO, with boards often assembled according to who knew whom rather than who knew what. While this was challenged by shareholder groups over the years, the model really began to shift following a series of corporate crises in the early 2000s, and shifted even further following the global financial meltdown of 2008.
Regulations now ensure greater oversight of corporate governance; and those who serve on boards are now more wary and watchful, and expected to actively fulfill their duties as representatives of shareholders. Greater recognition of both opportunities and risks in an era of rapid and constant change has pushed boards to broaden their skills and experience by recruiting directors with relevant expertise in industries, geographies, and functions, in addition to the traditional CEO profile.
In short, following an era that many viewed as that of the imperial CEO, the pendulum and power swung toward boards, but as in any effective relationship, each side provides something of essential value. Boards that work best understand and clearly define the unique role played by the CEO, carefully distinguished from that played by the board. This is a symbiotic relationship and one party cannot really operate effectively without the other to meet operational goals as well as the broader interests of all stakeholders.
Against a backdrop of many years of client engagements across a wide range of industries, we’ve learned a couple of fundamental lessons about increasing the effectiveness of the CEO/board partnership:
1. The CEO needs the board. The smartest CEOs work through many others in executing their duties, and rely more than ever on their boards for advice and counsel. The most-effective boards result from a wise selection process – one that links closely with strategic business objectives – as well as regular assessments and an ongoing education process. Even directors hand-picked for experience and skills that sync with a company’s industry and strategy need to continually learn, participate, and be challenged in active, open discussion with the CEO and other directors. With the daily demands on CEOs, intensified and shifting competition, activism, and continual public scrutiny, an engaged and informed board can be a great ally and resource.
2. The board needs the CEO. The CEO works full-time at the company, while even the most diligent directors have access to only a fraction of the information the CEO acquires. CEOs we talk with explain how crucial it is to have a board that is current on all developments, internally and externally, and brings the relevant skills and experience to bear, whether the topic for discussion is expanding into new markets, addressing the needs of new customers, growing an online presence, or a host of others. The CEO has to ensure directors have timely access to the information they require. That entails sending out board packets, with the right level of detail, in time to digest prior to board meetings; enabling directors with detailed questions to connect with top management; and encouraging directors to visit facilities with prior notice when appropriate. It also means that CEOs must invest their time in building relationships with individual directors, connecting on a regular basis outside of regular board meetings.
As a result of the board evolutionary process, the face of the modern board has morphed from one represented by the CEO, to one represented by the balance of power shifting to the board, and finally to one which, ideally, is a mosaic integrating both sides.
The best boards work as a team. They leverage constructive tension that naturally exists between insiders and outsiders, and engage in deep and rich conversation, examining all facets of issues to arrive at the best-reasoned decisions. On this team there is no bench and there is no room for spectators: Everyone must play an active role.