The unspoken rules of the board room
By Juan Carlos B. Robles, FICD
For some companies, the boardroom is a battleground, the setting for fiery clashes between board directors with opposing interests. Toss in a manipulative CEO, and you have the appropriate ingredients for chaos and grid lock. What to do, what to do?
My own board experience suggests that in order to have a fruitful board meeting, there must be thorough preparation prior to the meeting itself. Indeed, in some organizations, “allied” members hold a pre-board meeting to obtain a consensus on major issues facing the company. This practice could either be viewed as good or bad depending on one’s personal opinion: It is good because board decisions are arrived at quickly and board meetings end on time. It is bad because board directors aren’t able to engage in critical discussion and healthy debate about key issues.
On the other side of the coin, I have participated in board meetings that stretched on for hours without key issues being resolved or without directors reaching a consensus. I’ve also sat in a board meeting where the directors were saddled with seemingly endless, unimportant or workaday matters that would have been more properly addressed outside the board room. Not only are the directors’ time and effort wasted, but the company is unable to move forward with more important issues.
To ensure that boards are effective, the board agenda should be carefully crafted and then circulated to the directors days before the actual meeting. Only major issues that warrant the board’s attention should be scheduled for discussion. Supporting information and analysis should be provided ahead of the meeting so these can be studied and the board members can make conclusions based on facts.
In yet another organization where I serve as a board trustee, I observed that apart from the board agenda, a separate board calendar is provided to board trustees to remind them of their schedules and board committee meeting dates. Another best practice is the implementation of a board protocol, which gives board directors a run-down of what would normally transpire in a board meeting.
An unusual board practice I observed in at least two companies is the solicitation of board approvals through emails, with the final tally of votes being presented during the actual board meeting. Again, this practice could deprive the board of the opportunity to have a healthy debate but it could also save everyone a lot of time. For sure, this practice will become more prevalent in the future. The question is, is this a reasonable practice or not given the impersonal nature of e-mails? Again, the choice of using email messages to gather board approvals should be guided by the appropriate board protocols. In my opinion, a board that uses email messages to reach an approval is taking a big risk in terms of coming up with a well thought-out decision.
What should be taken up in board meetings? The answers vary. Many companies will perhaps say that the board should review the results of the company’s performance and the major issues it currently faces. In some companies, however, the financial results are relegated to the back burner or not discussed at all.
I believe that board meetings should start with a review of the status of the corporate strategies, the key risks that could prevent the achievement of the company’s objectives, and the related action plans that were set out at the start of the year. Deviations and delays should be identified and addressed. Emerging issues or risks arising from current operating activities or those anticipated in the future should also be discussed and the board members should agree on what action plans need to be developed.
I also believe in adopting a performance governance system, similar to what the Institute of Corporate Directors has in place, and the use of performance score cards to ensure that the board i
s able to monitor all strategic areas of concerns. But in my view, an objective-based risk identification system on an enterprise-wide level is more appropriate because the key risks emanate from the company’s strategic objectives. The key risks should be captured and action plans should be directed to mitigate these risks.
Finally, to button up everything, it would be good practice for a company to have an official board charter that incorporates the necessary guidelines, policies and procedures that its board directors are expected to observe, not only in the board room but also outside the company. The charter should also provide the rules of engagement with the company’s CEO and key management personnel. Guidance on conflicts of interests and disclosure requirements should also be included. Hopefully, with such a charter, the rules by which board directors work will become crystal clear to all of them.
(As published in the Institute of Corporate Directors' "The Corporate Director".)