“Tips for Being a Good Board Member”

When you serve as a corporate board director, you play a key role in the company’s future. If your board does good work, it will help make the corporation more successful and more attractive to investors.

A recent survey by McKinsey & Co. Inc., shows that international investors are willing to pay a premium — in fact, a mark up of more than 20% — for shares of companies that demonstrate good corporate governance. The survey, which polled more than 200 institutional investors in the United States, Europe, Asia, and Latin America, found that three-quarters of respondents consider board practices to be at least as important as financial performance when they are evaluating companies for investment ["Globalization of Corporate Governance" by Holly J. Gregory. Global Counsel (October 2000).]

But to help the board do its best work, you need to fully understand your role and hone your skills as a director.

In this Quick-Read you will find:

• Reasons for serving on a board.
• Board protocol: What you should and should not do.

You may also want to take a look at the following: "Working With an Advisory Board" and "Establishing and Working With Your Board of Directors".

SOLUTION [top]

Serving on another company’s board will require additional time and energy when you’re already fully engaged with the demands of running your own enterprise. Why, then, take on this additional demanding task?

• You can reciprocate for all the help you’ve received while growing your business.
• You’ll enjoy sharing the expertise and special skills you’ve gained from growing your own business.
• You’ll expand your professional network by associating with board members from other businesses and industries.

Your role on the board

As a director, you don’t work for the benefit of the board, the CEO, or the company’s staff, management, or customers. Your role is to help management — represented by the CEO — maximize shareholder value and operate in the best interests of the corporation. This is true even if you’re serving on the board of a privately held company, in which the CEO is the sole shareholder.

Key point: The board of directors doesn’t manage the company. The CEO and his or her management team fulfill that role on a daily basis. Board members cross the line when they interfere in the running of the company.

Don’t try to intercede on behalf of customers. Never go behind the CEO’s back by talking with subordinates about, say, a major decision the CEO is making. And don’t try to make decisions for the CEO by telling his or her subordinate, "You go ahead and do X, and I’ll tell Jack what’s happening."

The CEO is responsible to the shareholders and, therefore, must listen to the board of directors. But you might find it helpful to think of the company as a ship with only one captain — the CEO. This is what he or she will expect of you:

• Fairly evaluate management’s proposals. Study them closely and with an open mind. Then question and even challenge management — but without personal prejudice.
• Help the CEO formulate policies that would affect the long-term health of the company. Always consider what’s in the best interests of the shareholders.
• Show respect and loyalty. Encourage the CEO, and respect the chain of command. The CEO is already in the hot seat and doesn’t need the added burden of having to look over his or her shoulder, anticipating board members stirring things up or doing end runs around management decisions.
• Draw on your own experience. The CEO probably doesn’t need you to propose wildly original ideas. He or she can benefit most from your experience: "This is what I’ve seen work in another company that faced a similar challenge" or "I experienced this at one point in my career and here’s what worked for me…."

REAL-LIFE EXAMPLE [top]

Judith Hurwitz is president of The Hurwitz Group in Boston, Mass., an e-business consulting firm that helps companies translate the benefits of key technologies into terms customers can understand. Her first board membership was with an e-business company, a portal that provides aggregated information to CEOs and other high-level executives.

Because this was a relatively small company with private investors, Hurwitz says, "my role was more that of an adviser than a director. As advisers, we were invited to offer the company feedback on ideas that included potential fund-raising partnerships and marketplaces they could approach."

Hurwitz says she met personally with the CEO, looked at her business plan for the company, and provided feedback and guidance. "I also recommended companies she could partner with."

Partnership is a key word, Hurwitz says. "A good board member is a partner committed to helping that company grow. You need to guide the entrepreneur in making his or her vision real."

Hurwitz proved her commitment by "delving into my own experience. I would share what I’ve done when faced with similar situations in business. I talked about what worked and what I wish I’d done differently."

Hurwitz advises accepting your board seat as "an evolving thing. You could be there a year in a very fruitful partnership, and then everything could change dramatically. For six months, while in fund-raising mode, the company needs your contacts and expertise. Then its needs or priorities change, and you may no longer be needed." Her advice: Go graciously.

DO IT [top]

1. When you’re asked to serve, ask why you were chosen. Will you be expected to offer some special skill or perspective? Are you a replacement for a predecessor who dissented from a board decision and left in righteous indignation?
2. Learn about the industry. Get up to speed quickly on what’s going on competitively. You’ll need to know how well competitors are doing to evaluate the performance of your CEO. Ask to see the market research reports the management team is using as a basis for its decisions. Consider subscribing to a trade journal to learn about industry trends.
3. Learn about the company. You need to understand how it operates if you’re going to guide its director. Examine recent 10-k’s and annual reports. Arrange to visit and talk to managers, employees, and customers to gain understanding of the company’s culture.
4. Be clear about your role on the board. You’re there to maximize shareholder value and to be a sounding board for management. You’ll be expected to help the CEO select creative solutions to challenges facing management, and to look at those challenges from a macro and longer-term perspective. Read the corporate charter, board bylaws, and past board-meeting minutes to confirm your responsibilities and authority. If you have doubts, get clarification from the board chairman, the CEO, and other board members.
5. Learn acceptable protocol. Other board members will know that you’re a newcomer and understand when you ask about mechanics and policies. Find out how much work board members do in preparation for meetings. Ask what the board policy is regarding informal individual meetings with the CEO or other board members between sessions.
6. Learn from your own board. Model your behavior as a director on the strengths of your company’s best board members. It can save you from committing the sin of micromanaging or, at the other extreme, the sin of rubberstamping every CEO decision.
7. Attend all scheduled meetings if possible. You’re responsible to shareholders, who expect you to be present and active at meetings. Many institutions will withhold your voting privileges if you don’t sit in on at least 75% of scheduled meetings.
8. Come prepared to ask questions and engage in discussion. Read any materials — such as documents and reports — distributed before the meeting. Be up to speed on financial statements and the background detail on issues that will come up on the agenda. Let the CEO and chairperson know if you’re getting too much or too little detail in the documentation you’re sent to prepare for meetings.
9. When you disagree, argue. But when the meeting is over, publicly support all board decisions. Insider solidarity begets public confidence.
10. Take your performance seriously. You’ll be evaluated on participation, attendance, leadership, and teamwork. (Learn when and how and by whom.) While there’s no way you can understand complex new plans as well as the CEO and managers who devote all their time to it, don’t passively rubberstamp the CEO’s decisions because you don’t understand them completely. Always ask why, why, why, and what options were considered, and why they were rejected. If the answers are not clear, charge the CEO with making them clear before voting.
11. Get feedback on decisions. When decisions are made, press to establish quantitative measures of success or failure, and schedule their report and discussion at future board meetings.
12. Be aware of your exit options. If you’re on the board of a private company, the CEO can call a meeting and change the board on the spot. And, of course, you can leave when you want. But in a public company, where you’re elected by the shareholders, the CEO can’t fire you. And even if you want out — perhaps the company’s involved in something illegal and you don’t want to be part of it — you are obligated to serve out your term. Once your term ends, though, you can choose not to stand for reelection.
13. Seek continuing education. Colleges and large universities offer learning opportunities for board directors. You can benefit from learning more about the role of the board, strategy, the CEO/board relationship, and audit committee rules. It’s especially important to understand accounting practices well enough to analyze financial statements and reports.
14. Don’t over-extend yourself. If you are CEO of your company, sit on no more than two other boards besides your own. Avoid agreeing to serve on a board if you don’t actually have time for it. Remember that you’re obligated to be there when the company needs you for their board business. As a director, you want to meet your commitments to shareholders.

RESOURCES [top]

Books

The Board Book: Making Your Corporate Board a Strategic Force in Your Company’s Success, by Susan F. Shultz (AMACOM, 2001). What boards should do for companies. Chapter 10, "The Role of the Director — Value Added," is especially pertinent for individual members.

Improving Corporate Boards: The Boardroom Insider Guidebook, by Ralph D. Ward. (Wiley, 2000). Lots of checklists for keeping a board focused.

Internet Sites

Web articles

Corporate Board Member: The Magazine Written and Edited for Directors of Public Companies

The Best Practices for Board Operation, from Private Company Board: Benefits and Best Practices, by Grant Thornton, LLP. (2000).

Writer: Kathleen Conroy

Peter Gleason, vice president, Research & Development, National Association of Corporate Directors; 202-775-0509.

Jack Pycick, business consultant and professional board member, South Bend, Ind.; 219-282-3980.