Saving the Corporate Board: Why Boards Fail and How to Fix Them

Rating:
Summary: Proven advice for putting boards back on track
Review: When we hear about the scandals in companies like American Enron, Italian Parmalat and so on, we get a little bit of insight into what (also) happens around the mahogany roundtable in the obscure boardroom. We are witness to dictatorial executives, antiquated decision processes, incompetent amateurs, and sometimes even corrupt lawbreakers.

Often the focus is on the catastrophic mistakes in management, auditing, and/or disclosures. But the sad truth is that many of these mistakes could have been found and fixed in the boards. The board's role is to supervise and govern. If the board does not have the resources themselves, they must make sure that an impartial third-party service provider does it.

This book explores why corporate boards fail and also give ideas on how to fix them. The author reveals ten specific failings of the typical boardroom model and proven advice to get boards back on track. Some of the boardroom ills he diagnoses include:

WEAK BOARD LEADERSHIP
Problem: The board oversees (at the same time it is led by) the CEO. Too many boards accept that the CEO runs the board meetings - without being sufficiently challenged by the chairman or the others. In Europe, we divide the roles of the chairman and the CEO. But that doesn't mean that we don't have our share of scandals, since a strong CEO also can dictate solutions in practice by forcing rubberstamp decision processes in the boardroom
Solution: Make some of the board meetings (or part of them) without the executive officers. Keep the meeting's chairman role and the CEO role separate.

POOR DATA (and even worse delivery).
Problem: Some boards receive too little or too much information - or just plain bad information.
Solution: Too much data: Require a one-page-summary from the CEO summarizing the top three to five issues of the information pack. Too little data: Require more and better information before a decision is made.

INCOMPETENT BOARD MEMBERS
Problem: Inadequate time, resources, and expertise for the job.
Solution: Better board member recruiting process as well as annual performance evaluation of individual board members.

DIRECTOR ISOLATION: Don't-ask-don't-tell model.
Problem: Outside board members are often amazingly out of touch with the staff, shareholders, and the firm for which they bear ultimate legal responsibility. This is a key weakness.
Solution: Professional directors build their own informal networks with e.g. finance, investor relations, sales, marketing, production, or research. If the director then also talks to a few of the firm's external stakeholders such as shareholders, customers, and suppliers, then it will provide an even stronger background to base any board decisions.
I have personally experienced board members who on their own have spent full days visiting head offices and production facilities and included individual talks with non-executive managers. It's very inspiring for the managers. It also gives the board member a much better feel for the views and competences of the broader management team.

Management in corporations has over the last 50 years become more professional and universal due to formal education. However, governance of the same corporations is still stuck at the level of anecdotes and myths. This book helps to unveil many of the important issues of making corporate governance work in practice.

Ralph Ward is the author of several fine books on improving corporate boards and publishes an online newsletter. You may want to check his (unsophisticated) website on www.BoardroomInsider.com.

One of the best things of this book may be that Ward is letting many experienced board members comment on the issues and provide their advice for the reader. It makes the book much more extensive in scope and exciting to read.

Having just started on being a board member myself, I already recognise many of the issues that this book raises. Having spent 15 years in businesses on preparing board material, I unfortunately also feel guilty of some of his very relevant points on (too much) information.

Peter Leerskov,
MSc in International Business (Marketing & Management) and Graduate Diploma in E-business