Archive for the ‘Meetings and Decision-Making’ Category

How Tweeting by a PwC Partner During the Oscars Sullied PwC’s Reputation and Offers Lessons for Distracted Board Members

Feb 28

Posted in Board and Committee Leadership, Information, Resources and Reporting, IT Governance, Meetings and Decision-Making | Comments Off on How Tweeting by a PwC Partner During the Oscars Sullied PwC’s Reputation and Offers Lessons for Distracted Board Members

PwC partner, Brian Cullinan, evidently was tweeting backstage moments before he handed the wrong envelope to Warren Beatty, resulting in reputational damage for PwC in its assurance role over award envelopes and the announcing of the wrong award for Best Picture.

Social media use can become an addiction, and can compromise not only reputation, but decision-making as well.

The most common complaint I have during my reviews of boards of directors’ performance is distracted directors. I see distracted directors in boardrooms and distracted students in classrooms all the time. More leadership and common sense is needed by board chairs and professors.

I was auditing a graduate university class recently, and most of the students were on their laptops, typing away, apparently oblivious to the lecture occurring in front of them. Their eyes were not on the professor or their colleagues. They were not engaged in the moment. This is like directors looking at iPads and laptops during the board meeting instead of each other.

I stopped the class and asked what the point was that the professor had just made. No one could answer. I instructed all students to close their laptops and discontinue all technology for the remainder of the class. Further, students were not to consult any notes and stay in the moment for the entire class.

In another board meeting, the board chair was obsessively using his cellphone during the board meeting. When I walk around boardrooms and classrooms, I see directors and students typing, answering emails, texting, using social media – in other words, not doing their job.

The laptop creates a physical and psychological barrier. It also takes two hands to type, as opposed to one hand to write.

Certain Toronto high-schools announced a few days ago that they are banning cellphones from classrooms. Hospitals and courtrooms also ban the use of cellphones.

The answer for boardrooms and classrooms is not to ban technology, but rather to use technology to enhance individual and meeting performance, not diminish it.

You are four times as likely to be distracted when you use technology. Studies show that retention increases when notes are taken the old-fashioned way, on paper, rather than on a computer. Technology does not necessarily enhance performance; indeed, studies show it may diminish it.

If you are prepared for class or a for board meeting, there is no need for any technology, or very many notes for that matter. The use of technology, including PowerPoint slides, can be a safety blanket or used to manipulate your audience. If a person reads PowerPoint slides, chances are they are unprepared, and further, you have a weak board chair or weak professor.

A great board – management discussion or presentation can occur without any technology whatsoever. Think of twenty years ago when this technology did not exist. Some of the best discussions that I have moderated and witnessed in boardrooms and classrooms do not include any technology.

What is the answer for boards of directors and classrooms, and the use of technology?

• Resist the use of technology simply because it is available. The litmus test for technology is performance.
• Lay down the rule if you are the board chair or professor: No technology unless it is directly related to the meeting. And lead by example.
• Make sure all discussions, agendas and information are relevant, to respect your audience’s time, and resist their temptation to be distracted.
• Insist on full preparation and focus on the discussion. The discussion is where the learning and important decisions get made.
• Have students submit 2-page summaries of the readings at the start of class, to validate their preparation.
• The foregoing would be draconian for directors, but it is blindingly obvious to directors who is prepared for the meeting and who is not. Have a system to enforce preparation.
• Insist on peer assessment of directors and students.
• Make sure that you can see someone’s eyes. If you cannot see their eyes, chances are they are distracted.
• Take frequent breaks to use technology for personal purposes.
• Insist on in-person meetings to the fullest extent possible.
• Self-police any errant director or student who cannot comply with the above.
• Most of all, lead by example.

Dr. Richard Leblanc, Editor of The Handbook of Board Governance (Wiley, 2016), can be reached at rleblanc@boardexpert.com.

The Board’s Right to Know and Red Flags To Avoid When You Don’t

Sep 14

Posted in Information, Resources and Reporting, Meetings and Decision-Making, Relationships and Communication | Comments Off on The Board’s Right to Know and Red Flags To Avoid When You Don’t

I was called into the Chairman’s office. I received a message on my voicemail from his assistant saying the meeting was urgent. The company was splashed all over the newspapers because of misstep after misstep. People were saying the board was asleep at the switch.

The Chairman shrugged when I met him and simply said, “We missed it.” (Again.) Part of my job was to interview each director and find out why, and produce a report to the full board and regulator. I had a month to do it. The Chair’s office would book any plane flights I needed.

This scenario – my assessing a board – has repeated itself in situations ranging from fraud, stock option backdating, bribery, property destruction and death. When a board “misses it,” it’s rarely because they were not complying with rules or laws. They were. The reason is what goes wrong inside the boardroom – with relationships and people.

Here are some questions that go beyond the rules and more often than not in problematic boards the answers I receive (and see) is “No,” “I think so,” or “I don’t know.” Ask yourself as you read these questions if you can answer, “Yes” to all of them for the board or boards you are on.

Does bad news rise in your organization?

This is a favorite question to ask a director. It’s simple but powerful. If you are not getting the real goods, sooner rather than later, consider this a red flag, as you may be the last to know.

Do your CEO and CFO have integrity?

Another favorite. If the CEO or CFO holds back, funnels information, manages agendas, is defensive, or plays his or her cards too close to the vest, this is a warning sign.

Do you understand the business and add value?

If you asked the management team whether you as a director understood their business and added value strategically, what would their response be? What if you asked shareholders? You would be surprised at the answers I get. Frequently there is a disconnect.

Do you know how fraud occurs in your company and industry?

Depending on your local markets and the business you are in, there are tried and true ways to commit fraud that work and are being practiced by your employees and key suppliers. Do you know what they are?

Do you compensate the right behaviors?

You are at the helm as directors. Whatever you compensate, management will do. Ask yourself whether you are rewarding what you intend to reward.

Do you get disconfirming information?

If you get your information only from management, this is a red flag. Use social media, go on unscripted tours, listen in on analyst calls, move a board meeting to a jurisdiction you need to know, and get industry presentations on your competition.

Do you get exposure to key business lines and assurance functions?

Bring these people into the boardroom, with no PowerPoint slides. See how they think on their feet. It is good for succession planning, and is an excellent source of information.

Do you get good advice and stay current?

Don’t let management pre-select advisors. Bring tailored education into the boardroom and stay on top of emerging developments. Get the information you need to do your job.

Do you meet with shareholders – apart from management?

Ten years ago I had to ask CEOs to leave the room when independent directors met separately. Now I am doing so when directors meet with shareholders. Meet with key shareholders regularly. Listen to them. Don’t let lawyers interfere.

I brought the Chairman of the Hershey Company, James Nevels, into my corporate governance class that I taught at Harvard this past summer. We talked about people and relationships, but what Jim also said was how important the Board chair position is to create the climate and environment for the above questions and practices to occur. Jim has a saying he uses to focus his fellow directors – “We need all hands on deck for this one” – for a key decision, and makes sure each director brings their “A” game all the time. He goes around the table and he speaks last.

You need to bring your skills forward as a director. Every director slot matters now more than ever.

10 Questions to Determine Whether Your Board Has the Right Dynamics and Behaviors

Jan 27

Posted in Meetings and Decision-Making, Performance and Evaluation | Comments Off on 10 Questions to Determine Whether Your Board Has the Right Dynamics and Behaviors

What fascinates me is what goes on inside boardrooms. Boards can have the structures, the boxes ticked, and the protocols and policies on paper, but if they are not lead properly, if they don’t behave as a team, and if they don’t have proper oversight over the CEO, they won’t be as effective as they can otherwise be.

It’s hard to determine these factors from outside the boardroom. Indeed, a reason researchers can’t find a clear causal relationship between boards and performance – even though directors tell me emphatically that boards do matter – is because what happens inside closed doors is largely invisible to outsiders. But board dynamics – including leadership, teamwork and behavior – matter greatly even if they can’t be measured from the outside.

I am interviewing several leading directors and chairs to obtain their views on boardroom dynamics. I am also observing boards in action. The data from my research is fascinating. Here are ten focal points I am focusing on. They are modified and phrased in questions I use. They represent only a fraction of what I am looking at; however, they are also ‘favorites’ of boards I assess that are leading edge.

10 Board Dynamics Questions

1.     Our Board Chair conducts an effective decision-making process (i.e., ensures that, for crucial decisions, alternatives are generated, a thorough discussion and analysis ensues, relevant perspectives are brought to bear, the best decision is made, and the decision is supported).

Here, I am trying to understand how effective the Chair is, particularly in chairing meetings and shaping key decisions. This is a key weakness of ineffective chairs.

2.     Our CEO welcomes the Board’s constructive input into our Organisation’s strategy (i.e., by being sufficiently candid, open and responsive; and encourages the same from direct reports).

Here, I look at the behaviour of the CEO. CEOs can easily hold back, block, or try to “manage” a board.

3.     Our Non-executive Chair (or a leading or senior independent Director) has a constructive working relationship with the CEO (i.e., mentoring, supportive and collaborative, open yet independent, candid and professional).

Here, I look at the nature of the relationship between the Chair and CEO. I interview both, as well as other directors, trying to get a sense of whether the Chair provides a strong counterpoint or is managed by the CEO.

4.     Boardroom discussions are constructive (i.e., Directors disagree without being disagreeable, assumptions are constructively challenged, views are skillfully explored, differences of opinion are appropriately acknowledged and resolved, and consent is forged).

Here, I look at how debate and decisions get made within the boardroom, in real time.

5.     Our Management (including the CEO) do not inappropriately influence meetings (e.g., by filtering or managing the flow of information to predetermine an outcome, not providing independent data, not facilitating access to independent advisors, etc).

Here, I look at “undue influence” or the attempt to shape or funnel information, agendas or outcomes. If this happens, the board will miss something.

6.     Our Board displays at all times a culture of diversity of views and open dissent (i.e., Members sufficiently challenge one another, differences of opinion are fully aired and accepted gracefully, no topics are “off-limits” for discussion, and Members feel free to speak out openly and honestly without fear of criticism, even when voicing a minority position or asking a probing question).

Here, I look at “constructive dissent” and how (or whether) it happens within the boardroom, including whether “groupthink” happens.

7.     Each regular reporting member of Management has a constructive relationship (i.e., characterized by respect, responsiveness, openness, transparency, candour, professionalism and accountability) with the Board and each Committee of which I am a Member.

Here, I look at the interface between committees and reporting management and whether there is blockage or dysfunction. Committees are where the work gets done. If something gets missed, it often happens here.

8.    The Board reacts in an appropriate fashion towards reporting Management (i.e., predictably, constructively, confidentially and deliberatively) in order to build trust on Management’s part to come forward with their real concerns in a candid manner.

Here, I look at the board’s behavior in shaping trust and candor with management. Trust is a two-way street and how the board behaves also matters. If the board dominates, leaks or is unpredictable, management simply closes up. Then, something can get missed or the board does not add full strategic value as management is holding back.

9.     Our discussions (Boardroom and at each Committee of which I am a Member) significantly improve the quality of Management decisions (e.g., by engaging of Management in thorough and constructive sessions that stimulate, guide and enhance Management’s thinking and performance, impact outcomes and add value).

Here, I look at whether the board adds strategic value. A “360 degree” assessment that incorporates management’s views can bring a reality check to a board that thinks they add value when they may not.

10.    We (Board and Committees) are not overly reliant on (or influenced by) a particular individual (e.g., with the most relevant skills and experience or tenure, or in a particular role or reporting relationship) given the work that we undertake.

Here I look for pockets of undue influence. It could be a shareholder, a director or a manager that can influence debates and outcomes, acting out of self interest.

What do you think? Can your board answer an emphatic “yes” to all 10 questions above? (Most boards cannot.)

Whether a board is effective or not, for the most part, comes down to factors inside the boardroom. The above factors are uncomfortable to ask, and data is limited, but they matter. Board dynamics is known mostly by directors themselves. The regulations and guidelines focusing on having a majority of independent directors, a certain size, a separate chair, etc., are important but are inadequate to ensure effectiveness and ultimately performance of the company. For boards to succeed, and for shareholders and other stakeholders to receive returns, more of the above factors should be focused on.

Why boards of directors lack courage

Jan 10

Posted in Board and Committee Leadership, Direction, Strategy and Planning, Meetings and Decision-Making | Comments Off on Why boards of directors lack courage

Last night on the national news, embattled imaging-seller Kodak was compared to Research in Motion by a commentator comparing both companies’ inability to exploit advantages that they originally created. Regarding Kodak, one younger woman who was interviewed remarked, “What is film?”

A few weeks ago, I took a friend into a Black’s Photography store to have a digital picture taken for a LinkedIn profile picture. I asked the employee if he could take several digital pictures and email them to us so we could select one. The person had not even heard of social media, let alone LinkedIn, and said that the store could only take passport photos in hard copy form. Then we drove up the street to another picture store. This time we were told that there is a $300 “sitting fee” to have a picture taken. I took my friend’s picture myself with my digital camera and we downloaded the picture into LinkedIn in less than 15 minutes. I replaced my blackberry phone with an iPhone about three years ago. I doubt these photography stores – and maybe even RIM – will exist in their present form in the next few years.

Kodak is on the brink of bankruptcy. Three of its directors resigned this week. In a Harvard Business Review blog, an adjunct professor Simon Wong wrote a post questioning whether independent directors should flee their companies in times of trouble. Wong argued that it’s problematic for such directors to leave when they are “most needed.” Professor Michael Useem from Wharton maintained that leadership means you “stay the course.”

I would argue the opposite. The very people who caused the problem are unlikely the ones to solve it. These directors are probably “least needed.”

The question is not whether failed directors should stay on boards, but why they were not replaced sooner. Directors should be much easier to hire and fire by shareholders. Today, it’s virtually impossible to do either easily. These two things need to change for corporate governance to improve.

Kodak’s business model should have changed two years ago and maybe if shareholders could replace the directors more easily who were incapable of changing the management and business model, this actually would have been better.

Shareholders should not have to fight long, expensive public relations or proxy battles or arm-twist behind closed doors to effect change because they have no legal channel to do otherwise. Right now in Canada, shareholders cannot even vote “against” a director (they must either vote “for” or “withhold”), and a director can be elected to a board with a single vote “for” under existing legislation. This also needs to change to give power to shareholders to nominate and replace board members of the companies they own.

Currently, troubled boards drag their feet, are silent, write letters, conduct studies, avoid meetings, and refrain from making the tough changes necessary. They do so simply because they can. We see examples of this almost on a weekly basis. Why is this so? Self-interest and lack of courage.

The self-interest is obvious. Directors are conflicted as they are assessing their own performance and would rather not advocate their own replacement. Change will unlikely come from within.

Regarding lack of courage, experienced non-executive chair and activist investor, Henry D. Wolfe, a member of the LinkedIn Group, Boards and Advisors, when speaking of directorial courage from an investor’s perspective, wrote yesterday:

“From an investor’s perspective, if I am aware that directors in a company in which I have a position are acting cowardly because they fear the ramifications, then I would be inclined to take action to replace those directors with individuals who will not shirk from taking the action necessary, including speaking their mind, to aggressively pursue the maximization of the funds that I have invested.”

Why do boards lack courage, or the willingness to act during non-performance and significant declines in shareholder value? Three reasons: they are not truly independent (I have written about director independence earlier); they lack the recent and relevant industry experience to know what to do; and they lack leadership. They therefore become captured by management, defaulting to process and denial rather than making tough choices in the interests of shareholders.

Corporate governance is a rather genteel sport at present. Many directors of companies have not led or significantly influenced the very industries as executives on whose corporate boards they sit. Be it technology, transportation, mining or financial services, if you scrutinize failed or underperforming boards or companies – really scrutinize – this serious shortcoming – the lack of industry experience and leadership – will become obvious. Many more directors need to have been the primary person responsible for driving superior performance and redefining competitive dynamics within the industry for corporate boards to be effective. These directors should be sourced globally. Local accountants, lawyers, business school deans, consultants, politicians, and even CEOs of unrelated industries are nice but they should be the minority. A majority of these latter individuals is not the recipe for an effective board. Sadly, many corporate boards look like this, are dated, and are in dire need of renewal and diversification.

Lastly, and most importantly, boards need to be independently led, in substance and form. First and foremost, the nonexecutive chair should have a deep and full understanding of value creation for shareholders and a mindset for the longer term; be disciplined and focused on strategy development and execution; and be able to lead and inspire – really lead – independent directors and maximize their engagement, performance and focus on the most critical objectives. Any board that is ineffective likely has an ineffective chair.

Then, and only then – when a board is independent, composed of industry leaders, and effectively led – will it rise up and have the will to act. The fact this has not happened yet in many troubled companies means change must occur by shareholders rather than from within. Regulators would be well served to enable corporate governance changes to be facilitated by investors.

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