What you need to know about a board s 'hygiene': important questions to ask about practices designed to preserve the health and well-being of the board--before you accept an invitation to join.In April 2004 I became nonexecutive chairman of the board of IMCO Recycling Inc. on an interim basis. We were then in the midst of merger negotiations with IMCO's largest customer. To gain some insight and wisdom on my expected role, I asked an old friend, Warren Batts, ex-CEO of both Tupperware Brands Corp. and Premark Corp., to have breakfast with me, and when we met I asked him, "How do I do an effective job of serving as chairman?" Without a moment's hesitation, he replied, "Be prepared to piss off the CEO."
The merger happened in late December 2004 and created Aleris International Inc. By late December 2006, the Texas Pacific Group had bought the new company outright and taken the company private, thereby ending my first tenure on the board of a public company.
In the meantime, I had participated as a member of the audit committee in overseeing the refinement of the company in accordance with the Sarbanes-Oxley Act and observed the development of an entirely new company culture under the leadership of the chairman and CEO, Steve Demetriou. I had also experienced a boot camp in governance at the hands of my board colleagues, including Paul Lego, former CEO of CBS and Westinghouse; Fred Fetterolf, former COO of Alcoa; Dale Kessler, former senior partner at Arthur Andersen (long before its bankruptcy); John Grimes, former CEO of Enterprise Rent-A-Car s Dallas area; and John Merow, former managing partner of Sullivan 8c Cromwell in New York City. I could not have asked for better teachers. What I learned from them shaped much of the thinking in my new book, 21 Questions To Ask Before You Join a Board.
While the buyout of Aleris was a personal boon, the personal learning from my board colleagues provided the far greater benefit and gave me a realistic sense of the stories of accounting, ethics, and governance then playing out in the business media. They also helped me gain a pragmatic sense of the responsibilities of directors, as well as the risks inherent in directorship.
What I understand several years after my breakfast with Warren Batts is that the role of the board chairman (or frankly, of any board member) is not to seek an opportunity to irritate the CEO, nor to be the CEO's best buddy, but to be prepared to differ with the CEO when the occasion calls for it. On any board I've ever seen or served, the occasion has always presented itself. I learned: be prepared, or don't join the board.
Certain preconditions must apply
I take as an axiom of prudence that, if you have received an invitation to join a board of directors (or trustees), certain preconditions apply, including these:
* You respect and trust the CEO.
* The mission is well articulated; you know it; and you support it. and you support it.
* The organization provides reliable indemnification for directors (via both bylaws and insurance).
* You know the time required and expect to show up when needed, whether This or not scheduled.
* You serve on no more than three other boards of any kind, whether for-profit, not-for-profit, public, private, or advisory.
If the above five conditions are not fully satisfied, I regard it as imprudent for you (or me) to entertain the invitation to join the board.
Testing the board's well-being
Before I made the decision to accept my most recent invitation to join a board, I called a few consultants to ask what they would ask before saying yes or no. What I heard from them proved unsatisfying, and 1 began working on my own list of questions, eventually narrowing my line of inquiry to 21 Questions.
The following observations (and the accompanying exhibit) focus on a cluster of seven questions that address matters of board hygiene, by which I mean a set of practices designed to preserve the health and well-being of the board as effective governors and of you as a likely director or trustee.
For example, shockingly few boards have direct conversations with the CEO--or among themselves in executive session--about the CEO's time horizon in the top leadership role. The absence of this discourse leaves the organization vulnerable to unwanted and untimely shocks to the continuity of leadership and culture. Similarly, few boards examine in any discriminating way both the exit price (what it would take for a competitor to steal likely successors) and the true replacement cost (in search fees, new-hire compensation, and board time) of the company's leading talent. The related analysis and director dialogue enable the board to anticipate leadership and talent changes, and to dampen the vulnerability of organizational culture to surprise.
Do you know your customers?
Winning the war for customers, in addition to the competition for talent, also falls within my definition of board well-being for the discerning attention this must command from the board. Every firms sells its primary offering to someone, but the critical question is this: to whom specifically? Directors need to know who actually pulls the trigger on buying what the firm offers, plus how the organization reaches the most likely buyer. And only when the senior leadership participates in the sustainability of the most important customer relationships can the board hear regularly the CEO's firsthand insights on how to get nurture, and keep the most vital customers. The board's knowledge of the company's customers, buyers, and selling strategy significantly shapes the board's ability to participate in strategy refinement and approval.
Finally, in the Internet age, many if not most directors are called continually to reach beyond their own arenas of replacement C expertise to assure themselves that customers have both the Company ready and secure electronic access to the company. The talent proliferation of incursions by hackers into sensitive organizational data demonstrates the growing capability of cyber-based interruptions to slow or stop the normal flow of business between companies and customers. (I strongly recommend directors read Richard Clarke's 2010 book, Cyber War.) Board attention to this new threat of business interruption adds materially to the demands of oversight over a growing purview of risks.
These cautionary notes begin to tell how and why I would suggest you decide on your response to the invitation to join a board. Ask these questions and others, and get satisfactory answers, or else just say no. H
The author can he contacted atjohn.baIkcom@gmail.com.
Few boards examine in any discriminating way both the exit price and the true replacement cost of the company's leading talent
Board Hyqiene Questions Question Red Flags Gold Standard 1. What are the * No * The CEO and CFO professional well-prepared have disclosed to time horizons of successors are the board their the CEO and of specifically personal time the CFO? known to the horizons on board. service in their current positions * The board's * The CEO only expectation regularly reports is that an to the board on outside hire the professional would be needed progress of the in the event of most likely the sudden successors to unavailability senior leadership of the CEO or positions. CFO. 2. What would be * Leadership * The CEO the monetary and succession provides the time costs of rarely appears board with replacing the on the agenda of regular reports top officers in the board and on bench strength a pinch? its executive for the two committee, and levels of direct the costs of report below the replacing CEO, as well as leadership are potential outside largely candidates, unknown. should they be needed. * Moody's has * The identified "key organization's man risk" as an regulatory issue associated reports disclose with bond specific offerings and succession other responsibilities borrowings. and processes, without naming likely successors. 3. Does the * The selling * The functional organization organization head of sales and have a clearly accepts any the CEO share a articulated and available highly rigorously contact as a articulated view executed selling viable entree of the components strategy? into a new sales of major sales, opportunity, the steps irrespective of required to close the contact's a sale, and the demonstrable most likely authority to legitimate buyers buy. in any prospective customer's organization. 4. Do customers * Customer * Customers have and other major call-ins are met dedicated lines constituents with long of communica- have ready waiting times tion into the access to the and multiple organization and organization? levels of can reach a live automatic and responsible recordings, person in a irrespective of matter of the size and seconds. duration of the customer relationship. * The board * The senior rarely if ever leadership receives regularly reviews information customer feedback about customer and often feedback. monitors incoming customer calls. 5. Is the * Passwords * The security of protecting data organization has sensitive data access are a well-defined well protected recorded in set of protocols both obvious places controlling electronically and available in access to and physically? ways that sensitive circumvent the customer and adopted access financial data control policy. (the access control policy) and assures data redundancy via secure off-site storage. * Portable external devices such as thumb drives are left unprotected. 6. Who manages * The senior * The CEO knows large customer leadership has the largest and relationships, limited longest-lived and how? knowledge and no customers and active regularly participation in participates in securing and the oversight of managing large their ongoing and critical relationship. customer relationships. * The senior leadership understands the financial and reputational costs of losing a large customer. 7. What is the * A short list * No single organization's of customers or customer experience with constituents represents a and represents a serious threat to vulnerability large majority the organization to the failure of cash inflow, because incoming of a large and the revenues are customer? elimination of widely dispersed even one such among customers customer could (or buyers or cause an contributors). interruption in the business. Source: 21 Questions To Ask Before You Join a Board by John Balkcom [book in progress]
John Balkcom has been a longtime adviser to management and boards. He retired in 2000 after 25 years as a management consultant, and continues to serve as a corporate director and advisory board member for a number of public and private enterprises. Most recently, he became a member of the governing board of the Bulletin of the Atomic Scientists. He has written several articles for Directors & Boards, This article is an excerpt from a new book he is writing, 21 Questions To Ask Before You Join a Board.