Board Governance – Engaging Leadership

Dr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com

In my work with boards of directors, I often focus on the need for leadership that engages over a wide range of areas and issues. A pro-active leadership assures that the board will live up to the terms of its fiduciary obligations to the shareholders. Often, a leadership assessment of the entire board – along with a board assessment – will establish a baseline of current capabilities and leadership needs and provide a program for improving leadership and the effectiveness of board governance.

Everyone knows what it means to become engaged. However, what is leadership engagement, and what does engaging leadership have to do with corporate board governance? Everything!

The board of directors has the responsibility to shareholders for protecting and enhancing long-term shareholder value. This is accomplished by establishing a governance model for the board and management that provides the directors with a framework of checks and balances on power, balancing talent needs with individual director abilities, and holding the CEO accountable for executing the strategic plan.

Establishing the appropriate governance model is a critical piece to good governance. Each director will bring unique talents, biases and skills to the board. Many people across the world have impressive resumes and qualifying credentials for board service, however the needs of each organization predominate when adding new directors. Succession committees should conduct an assessment of the talents and skills of existing directors, review the existing strategic plan and engage the Chairman and CEO regarding the future direction the market and the company may pursue as they recruit new directors.

The Chairman should charge the board with conducting a serious assessment of their fellow directors. He should understand the leadership styles of the directors on the board and appoint Succession committee members accordingly. The board of directors should follow closely the appointments of the committee members and ensure the Succession Committee is not a group of insiders. This process effectively addresses the need for checks and balances on the CEO and Chairman’s power by ensuring fair and unbiased directors will choose the next group of directors to sit in governance over the business of the organization.

The board must also reach out to corporate management and become engaged in the business. Directors should not become part of the day-to-day operations of the business nor try to change policy on the manufacturing floor. However, directors interact with corporate management to gain a working understanding of the business and the important issues discussed in board of directors meetings. Corporate directors should also conduct informal customer assessments to gauge the appeal of the products, services or impression customers have the company.

Another important group directors should engage with is the employees. Employees are often mistakenly thought of as part of the equipment however, employees are the engine driving the profits of the company. Employees make decisions daily impacting millions of dollars of products. They perform the critical function of customer interaction, and can provide key feedback regarding customer impressions of the company and it value propositions.

Employees often hear customer comments regarding the competition. An understanding of what the competition is offering and the customers perception of the competition can often tell the board of directors where the market is heading.

Employees are often much more in tune to waste in the operations. Engaging employees and letting employees know corporate management values their opinion can be a gold mine of information for cutting needless waste and reducing costs of operations. Employees that are engaged and understand the role they play in the future of the company feel empowered and perform at higher levels leading to higher profit margins. Engaged employees are less likely to leave the company, reducing turnover and the costs associated with retraining. Engaging employees is also a great measure for determining the extent to which corporate management has done its job of spreading the message of the corporate strategic plan.

Engaging leadership is not an intrusion of directors into the day-to-day operations of the business. Directors, making the effort to learn about the issues affecting business operations gain a direct link to understanding the business they govern. Board leadership – and the plans for continuing that leadership through an effective succession program – is one of the most important components of any effective board management program. It is not something that is done once and for all time. Errors in selecting leaders, establishing a culture of engagement and governing can have significantly negative impact on both corporate performance and the liabilities of the sitting directors. These are areas that should be approached with great care.

© Dr. Earl R. Smith II

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Related Articles:

• Visionary Boards of Directors
• The Succession Committee – Selecting Leadership for the Future
• Leadership Assessment – Understanding the Process
• Leadership – Promoting Synergies

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