October 3, 2023

Building an Effective Board

Building an Effective Board

Boards play a critical role as the eyes and ears of investors, public and private in businesses that are getting more and more complex. It sounds like a tough job and entails a lot of hard work, right? But look around and you’ll see a different picture. Board membership is often seen as a return for success, offering status, money, and even stocks in a potential unicorn. There is little active engagement with the company at any level, making most board meetings high profile get-togethers. Good food and great places to meet! Take the case of Uber. Wells Fargo. GE. Enron. Lehman Brothers. AIG, VW. And of course, more recently, Theranos. These aren’t just a failure of leadership or regulation, but a complete failure of corporate governance.

Every debacle raises major questions – didn’t the board suspect anything? Why didn’t they demand answers about where the company was headed and its health? While it is the board’s responsibility to monitor the company’s health and provide overall direction and strategy, too often, the board appears to be passive or oblivious to what goes on around them – a perfect recipe for scandal and bad behavior. This is why, we need to take board member hiring as seriously as bringing the CEO on-board. Rigorous planning is essential. A board member’s qualities to succeed in the job must be carefully evaluated. Nothing good can comes from getting the wrong person on-board. The lack of oversight, as we have seen, can be devastating. That brings us to the next major question – what makes a good board member?

A good board member helps make the right decision on company strategy, hiring, financial and legal issues, and more. To be able to do this, he/she must have the experience, intelligence and relevance. By relevance, I mean credibility in some form in your industry, business model, and the stage your business is in. It is paramount that your board consists of people who understand your company, have access to information that will help set the future course and direction, and provide early warning signs of problems and developments. Above all they need to be ready to get into the details. Being a good board member begins with being actively involved and engaged – ask the right questions, do your own research to validate what the management is telling by talking to employees, customers, competitors and vendors to get a firsthand perspective. The extra pair of eyes and ears should act as the alarm signal for the management going off well before anything fatal happens to the company. This is clearly not a “retirement” or “trophy” job.

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