I used to wondered why companies with Board of Directors fall into trouble financially, whereby having to restructure or worse, file for bankruptcy. Having sat on multiple boards over the last 10 years, I now know why. If the board does not have the right members, it can become a feeding ground for disagreements and status quo, where nothing important get accomplished and it’s more about who is sitting where at board dinner than the companies best interest.
On a recent project, I was helping a company pick new board members. The company had gone through a merger some years earlier that proved to be difficult, and somehow the board ended up with four executive; two executives from one business and two from the other. Having four board members from each of the legacy companies caused major problems. In fact, they were stuck operating as two separate business units for almost seven years when I met them, resulting in 0% of the synergies they expected to capture.
It was impossible for them to agree on strategy, or anything for that matter. They would end up in the weeds of the operations going around and around an issue until one side gave up or they tabled it for the next meeting. They even hired an outside “consultant” to sit on the board so they could have an odd number to split the vote, but nothing was getting accomplished and they were frustrated. Even more frustrated were the employees.
When I was hired by the CEO, he was adamant that this BOD problem could not be solved, and could I please help to capture some of the synergies and increase productivity and margin. Never shying away from a challenge, I said I would help and I knew how to fix the board of director problem.
I conducted interviews with the top 20 leaders in the organization and an employee survey and found that not only did they find zero value in the current board of directions, they did not trust the direction they were guiding the company.
This wreaked havoc on the culture and productivity of the employees. There was confusion on who was responsible for what parts of operations, who had the right to make strategy and product decisions and major communication problems. In fact, one leader from the legacy company forbid anyone from their business unit to communicate with the other legacy company employees without going through them first. Imagine the inefficiency of that!
I was able to convince all five board members to let me run a process called a Strategic Architecture. It involves a group of top talent employees from every level as well as the leadership to work through a process I’ve developed (and used successfully over 10 yrs), to redesign the organization starting with the board of directors.
The result was a board with seven members, four external and three internal. Along with the number of board members was the criteria for selecting them.
Choosing the right board of director members is crucial to a companies’ success, especially for smaller to mid- sized companies. While there are firms that can help you find board members, I don’t believe they add the value a good network provides. Maybe for the large corporations it’s important to go to a firm, but I’ve worked with many companies who did not, and through networking, were able to find the perfect board members.
What exactly is a board member and what’s their responsibility?
A Board member is an elected participant on the board of directors of a corporation or the supervisory committee of an organization. The board of directors of a company is defined as the governing body that is tasked with decisions pertaining to where the company is heading. The key decisions for the business body come from the consensus of the Board.
Board of director members are elected by the shareholders of the company and are responsible to set the company vision and appoint the chief officers to carry out that vision. Each member of the board participates in board meetings wherein the discussions of performance, critical roadblocks, turnarounds, and future strategy take place. In other words, they are responsible for the global direction of the company.
With this much power, the wrong board member can throw a monkey wrench into a productive meeting. So, how do you ensure you are picking the right ones?
I have a formula I use, but to make it simple I’ll lay out 3 common things I look for:
The first thing to assess is their understanding of business operations to see if they can understand your business model and challenges. If a prospective board member has only been a consultant or academic and never been inside a company working, it’s hard for them to understand how the work gets done. This will give them a disadvantage when a new strategy is being reviewed and the question of resourcing, scalability, and distribution come up…and they ALWAYS do!
I recommend to my clients to find someone who has at least 10+ years of operational experience. If you can find someone within your industry, even better. Having someone that understands the market and its customers is an incredible asset when it comes to making decisions on strategy.
Filling the Gaps
The second step in my formula is to use a tool to assess the prospective board member’s skills and competencies. Then I do an analysis of the strategy versus their skills to see if they will add value to the company.
What I’m looking for is who fills the gaps from what’s missing from our leadership team. If I have a weak area in Finance or Technology, then I want a board member with a strong finance or IT background, so maybe a CFO or CTO. Or maybe I need help doing business internationally. Then I’d look at people who have experience working globally. The key is to get board members who are strong in the areas you are weak, rather than where you are strong already.
The final and third step is to assess personalities. There are lots of tools out there, Myers Briggs and DISC are two well-known ones, but I like to use the Keirsey Temperament Sorter. It helps that I’m certified in it and can do a deep dive into the results. But what this does is allow you to uncover how the prospective board member will communicate and behave in the board room.
I have worked for companies where there were shouting matches in the board room because one person disagreed and was triggered. Most candidates for board seats are in or have been in leadership roles, where they may have been the boss and they get the final decision. In a board environment, it’s not about getting it your way and it can be hard to swallow when an idea you don’t support gets voted through or visa-versa.
The other reason I like a personality test is because I can see how their mind works. It’s pretty well known that we all have different ways of thinking. Some are analytical, some are visionary and strategic, and some are creative. A good board has a mixture of all of these. Having all analytical people on the board could turn a meeting into analysis paralysis. All strategy could be only about vision and nothing concrete. Having a well -rounded board is like having a well-rounded diet…it’s good for the company.
While this seems simple, it’s actually harder than you think. This is one piece of a much bigger pie. It’s a process and takes months and months to do it correctly, but it’s a good start and certainly will have you on the right track to picking the best board members.