Boards, Leadership, Governance and Risk
Posted by Dr. Earl R. Smith II in Governance, tags: adviser, advisory board, angel investor, board of directors, CEO, chairman, coaching, consulting, director, earl r smith ii, earl smith, Executive Coaching, federal circle, federal contracting, funding, Governance, government contractor, investing, investment, investor, Leadership, leadership assessment, leadership coaching, leadership development, leadership styles, management assessment, managing partner, Personal Growth, the federal circle, turnaround, Turnaround Management, Venture CapitalDr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com
Leadership is a critical factor in the functioning of a well-organized board of directors. Every board (organization) should strive to diversify the composition and have overlapping layers of expertise to call upon in any given situation. Good governance stresses the need for each director to attend seminars to enhance their leadership development skills. CEO’s engage their senior managers in one-on-one and peer-to-peer coaching programs to prepare for an orderly transition of power. Succession committees meet regularly to identify future talent and future skills the company will need to train or recruit for as the company moves through the business cycle. All of these efforts address the issue of leadership.
Leadership defines the level of professional governance for any board. A board without strong and effective leaders will ‘bob along’ in a sea of mediocrity or worse. As baby boomers age, strong leaders with impressive resumes of success are becoming more difficult to find and recruit. Strong engaged directors are highly valued and often locked in with exclusive, non-compete contracts.
Board leadership is the key to how a board completes its work. The board Chair leads the board meetings and oversees the execution of the strategic plans that the board deems appropriate for the company. The Chairman is the driver of the key strategic decisions for the company, and the spark that keeps the senior management moving in the right strategic direction.
Many times this person leads the development of the strategic plan and carries the institutional knowledge that is essential to the success of the company. This is the case in many small companies as well as in a significant number of larger, public companies and organizations. Start-ups are particularly vulnerable to this type of situation. Entrepreneurs are notorious for having making important business decisions bases upon intuition.
Sometimes early-stage companies are funded – and often controlled – by institutional investors. In these situations, boards safeguard the venture capital firm’s investment. A second goal might be to assist the entrepreneur with the strategies and new challenges the company will face in the rapid growth phase the company is entering but the principal interest of the board members who represent the investors is the maximization of the profit to the investors. Given the boards legal responsibility – a fiduciary responsibility to protect and extend shareholder value – board leadership can find it difficult to manage the board’s activities without coming into conflict with the relatively shorter-term agendas of these ‘investor directors’. The problem grows as the pool of new, minority shareholders grows. The Chairman’s challenge is to see that the board meets its responsibilities to the shareholders – all of the shareholders. The contention that there is an identity of interests between the ‘investor directors’ and the ‘outside directors’ – between institutional investors and ‘ordinary shareholders’ – has been tested in court and discarded. Strong leadership is required – particularly from the Chairman – to make sure that the short-term vision of the institutional investors does not override the long-term interests of the shareholders – including minority shareholders.
Professional governance demands that boards look for ways to mitigate risk to the organization they govern. Strategies address issues that could potentially cause devastating consequences to the organizations ability to function and add value to the stockholders investment.
© Dr. Earl R. Smith II
Related Articles:
- Nomination Committee Strategies
- Characteristics of a Task Oriented Director
- Officer and Director Vetting
- Governance and Risk Management Strategic Plans
- Good Governance – The Chairman’s Role
- Corporate Risk Management
Dr. Smith is a proven senior Dr. Smith is Managing Partner of The Federal Circle. The Federal Circle partners with teams and existing companies. We help them up their game and win big in the Federal space. We also arrange funding for acquisitions and expansion by acquisition. Our model is based on the belief that, if you select the very best and work with them in a highly professional and focused manner, the results will be truly amazing. He is the author of Amazing Pace: Turbo-charged Business Development – a book that shows how Advisory Boards can dramatically increase revenue. Dr. Smith is also the author of Dream Walk: Parables for the Living – a book of Raven Tales and exploration.
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