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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

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

                  * 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.

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

                  * 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

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

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

                  * 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

                  * Portable
                  external devices
                  such as thumb
                  drives are left

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.

                                    * The senior
                                    understands the
                                    financial and
                                    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.

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Title Annotation:BOARD PRACTICES
Author:Balkcom, John
Publication:Directors & Boards
Article Type:Column
Date:Jan 1, 2012
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