Dr. Earl R. Smith II

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

One of the challenges facing any board of directors is to manage the inputs from sources outside the board and maintain a deliberate process that focuses on protecting and extending shareholder value. Even boards of smaller companies face this challenge. Some of the inputs may come from advisers and consultants. Other sources include the media, industry news, communications about or from competitors, company management or employees, major shareholders and the network of connections that each director maintains. Much of this information is extremely valuable and should be included in board deliberations. The trick is to balance it with the deliberative process and maintain focus on the board’s fiduciary responsibility to the shareholders.

Participating in corporate governance really means participating in the decision-making process and implementing the strategies of the decisions reached. Corporate boards must encourage participation by its directors and CEO, and demand leadership on issues affecting corporate financial results. Good corporate governance on complex issues requires the talent of all the directors appointed to the board to share in open discussions, strategies and possible outcomes. Directors preparation for board of directors meetings centers on information rich reports from various committees and advisory boards, and lively discussions of strategy and compliance management issues. It also includes information from sources beyond the board and company management. Boards have developed several strategies to deal with this increasing complexity.

Boards of directors have changed practices over the years to include participation by a larger set of stakeholders. The new governance model invites reports gathered from corporate management, company employees, customers and outside advisers. More boards are collaborating with advocacy groups and special interest groups to demonstrate their commitment to causes important to their constituency or their stockholders. Special interest groups are forming among stockholders and blocks of stockholders and pressuring board of directors to act on their issues. One result is that the decision-making environment of the board becomes far more complex and requires a more delicate approach to balancing conflicting priorities.

Succession committees maintain records of board of directors meeting on director participation rather than just attendance. Boards can no longer survive on the participation of just one or two leaders. Leadership development is a large part of the governance model. Strategic plans for retaining talent and attracting the next wave of directors increasingly focuses on personal growth and corporate governance. It is more and more common to provide leadership development coaching to sitting directors

Coaching, long a part of CEO and senior team development is now being offered to sitting directors. Coaching of directors has proven to be a good investment. It improves performance, reduced liabilities and increases retention rates. Board assessments consistently demonstrate this fact. Boards are more than ever participating in the evaluation and self-assessment of their performance. Coaching helps to professionalize the board and its operation – assessments measure the progress along these lines.

Corporate boards are also authorizing directors to form and participate in industry councils. Industry council’s work with competitors to write and execute strategic plans ranging from compliance with Sarbanes-Oxley to overturning regulations the industry sees as unwarranted. Industry council form education consortium to offset the cost of employee training to comply with government standards or to address issues surrounding contracts with government agencies. Industry councils form Political Action Committees and hire professional governance to manage their PAC’s.

Under many regulatory rules, boards as a whole share in the responsibility of compliance with federal and state regulations. However, more and more boards are hiring outside advisers to manage issues outside the organization’s mission. Directors participate in the discussions with the outside party and ensure compliance with corporate ethics and rules, but the third party conducts the actual assessment and has the duty to conduct the work according to the law. The board of directors must vote to accept the recommendations of the third party and to accept the responsibility if the contractor fails to execute to the standards required.

Corporate director’s time is a limited commodity. While directors are usually required to meet ten to twelve times per year, the job of corporate governance demands more participation time between board meetings than actual board meeting time. Directors must demand higher standards of their CEO for leadership on important issues. Boards must be strong enough to allow outside participation by employees and customers, and directors must hire advisors to conduct redundant regulatory functions to allow the board and corporate management to focus on the strategy of enhancing shareholder value.

If you want to learn more about my board services, send me an e-mail and we will arrange a time to talk.

© Dr. Earl R. Smith II

Related Articles:

• Corporate Ethics and Compliance – Board Responsibilities
• Board Assessment – A Critical Part of Good Governance
• Corporate Governance and Informal Committees
• Corporate Talent – Coaching and Retaining the Best
• Leadership Development – Good Board Governance

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 Friday, October 31st, 2008 at 9:49 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.