Dr. Earl R. Smith II

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

Good governance does not turn on a single issue – or even a short list of them. It results from an organization successfully making a good faith and professional level effort to govern for the benefit of the stockholders and stakeholders of the company. Good governance requires a common sense approach to decision-making – a systematic approach and an agreement on corporate policies and strategies.

For most boards, the decision-making process is determined by the relationships among directors. As trust grows or wanes, members share or hoard power. When the latter happens, consensus decisions become harder to reach and the decision process often becomes convoluted, stilted and more random. When the former happens, board effectiveness tends to improve.

A quick review of a board of director’s minutes can often yield useful insights into the decision-making process of the board. The delay of seemingly straightforward decisions is a good indicator of a dysfunctional board with directors who are distrustful of one another. Dysfunctional boards are a danger to shareholder value. When directors are feuding, management has a chance to gain control over the agenda and drive its own interests over that of the shareholders. A feuding board will take its eye off the ball and miss opportunities to advance shareholder interests. Too much is at stake – something has to be done.

A common-sense approach to solving this problem requires the Chairman to charge the succession committee with an emergency assessment of the board. The results of this assessment should be used to devise a plan for dealing with the board’s dysfunctionality. The board may need to change either the number or the composition of directors to achieve the balance of talents necessary to address the issues at hand. Some directors may be asked to leave the board while others may require an ‘attitude adjustment’. This process is far better managed with the help of external advisers. Facilitators can often defuse situations which, uncontrolled, could prove explosive.

During a number of engagements, I have had to take the lead in removing directors and replacing them with new, more collaborative ones. Sometimes this process is tense – occasionally explosive – but the results have always been therapeutic. For the most part, the management of the process rests with the succession committee but the Chairman is ultimately responsible for outcomes. Succession committee leadership should decide how new directors will be added. They should also focus on leadership development programs. Leadership development should be based upon the assessment of future needs, however if a board is struggling with compliance issues, talent should be brought in immediately to address the issues or regulations. The Chairman’s plan should be proactive – it is vitally important that every director and adviser buy in to it and work to improve board effectiveness. Change is often difficult – particularly with small, collegiate organizations like boards but it must be managed in such a way that real change occurs in the most productive way.

As new board members are added, time and energy should be spent on their orientation. New board members should not be expected to attend meetings and cast votes on issues and strategic plans without first understanding the current corporate climate and culture. Integration of new directors is an important part of good governance. Boards should have a written charter to address nearly every aspect of governance – and new member integration is no exception. Directors and stockholders alike who understand the procedures for having concerns addressed have an increased trust-factor toward the organization. When processes are transparent and directors are knowledgeable, power becomes less of a horded commodity.

Establishing a solid and common understanding of ethical standards goes a long way to solidifying a productive board culture. Corporate ethics should be a written statement of the values the company holds as sacred. Policies should accurately reflect those values with no mixed signals being sent to corporate management. Leadership principals should be built around governance policy reflecting the corporate ethics. Open discussions should be held and reflected in the board of director’s minutes supporting corporate ethics. External advisors should receive orientation regarding corporate ethics prior to starting any consulting work. This common sense approach to good board governance ensures that issues which will arise can be dealt with by management and directors in a transparent manner that builds trust and confidence.

Working within a set of parameters or guidelines is something we are all comfortable doing. When we know and understand the responsibilities, excellent directors will work to exceed together to exceed expectations. In the era of Sarbanes-Oxley, many companies have gone well beyond mere compliance instead opting to adopt a corporate ethics exceeding regulations. When leadership agrees that the boundaries within which they operate are unmovable, issues within those boundaries become easier to resolve.

The culture of a board largely determines how productive it will be in pursuing its primary mission of protecting and extending shareholder value. The management of the board – and the support of attempts to develop and maintain the correct culture – is ultimately the responsibility of the Chairman.

© Dr. Earl R. Smith II

Related Articles:

• Board Diversity – A Subtle Challenge
• Successful Board Assessment Models
• Good Governance – The Chairman’s Role
• Corporate Ethics and Compliance – Board Responsibilities
• Business Ethics – A Function of Corporate Governance and Commitment
• The Succession Committee – Selecting Leadership for the Future

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.

This entry was posted on Monday, November 3rd, 2008 at 10:05 AM and is filed under Governance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.