Gordon Davis, The Daily Record Newswire
Selecting owners is critical, but effectively engaging them in ongoing decision making and planning is just as critical for the growth of the firm and in transition planning. It can be tempting to keep the ownership group small to make it easy to keep them engaged and informed. However, a small group is not necessarily a good way to develop future leaders or assure that sufficient depth exists to implement a transition plan. As the ownership group increases in size though, the significance of the board of directors becomes more important.
I have served as an outside board member with several companies. Upon joining those boards, I have almost always found an uncertainty among members as to exactly what the board is supposed to do. A typical response is “hire and fire the CEO” and “represent the owners.” More thoughtful responses include “set goals, objectives and policies;” “ensure sufficient resources are available to finance operations;” and “be accountable for the company’s products, services and expenditures.”
Other questions follow even these responses, particularly about the difference between board and management decision-making but also about the board’s purpose. Whose board is it? What is the role of the CEO on the board? Should key owners/managers all sit on the board?
Despite textbook descriptions of boards and legal advice from corporate counsel, boards — particularly those of private companies — are unique and have a “personality” that often reflects the CEO’s or a founding principal’s. In smaller companies, boards often tend to look like management committees. In larger, more mature companies, boards ought to be more removed from daily operations — but sometimes are not.
Because there is no single model for what a board should do and what the scope of its decision-making responsibility is, I look at boards with a different eye. I focus on what decisions a company needs to be making today for what it is trying to accomplish tomorrow. Whether it is a strategic growth plan, a major reorganization or a CEO transition, you want a strong board with knowledgeable people who can oversee, if not guide, the decisions the company is facing. I look at a board as a dynamic and strategic decision-making body, with members who understand the goal and what is expected of them to help the company achieve that goal.
Before I agree to join a board, I ask the CEO a series of questions:
1. What do you see the company doing in the next three to five years?
2. What critical issues will the company face during that time period?
3. What risks will the company face as it deals with those issues?
4. What weaknesses do you see in your key leadership?
5. Who is on your board now, and what perspectives do they bring to discussions and decision making?
6. Why are you approaching me to be a member of the board?
I enter this discussion with knowledge of my personal strengths and weaknesses and my past level of effectiveness in decision-making roles. This information, along with the answers to my questions above, lead me to define for the CEO what role I am prepared to assume and see if it matches his or her expectations.
I have also found that for the CEO, answering my questions sometimes helps clarify just what the board needs to focus on and whether the right people are in place for the board to be truly effective.
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Gordon Davis, a partner in the Succession Consulting Group, has provided strategic counsel to firms on ownership, leadership, management and transition for 40 years. Contact him at gordon@gordondavis.net.
