IMG has been involved in corporate governance consulting now for over twenty years. We believe that governance and leadership are the most important ingredients for high-performing organizations, and of course governance is half the battle, although often overlooked. Here’s what we’ve learned about avoiding corporate governance failures.
Below are the ten most common corporate governance mistakes we typically see:
- Failure to clarify roles and responsibilities between the CEO/C-suite and the Board.
- Failure to get the right people around the boardroom table, fully engaged, and doing the right things.
- Failure to develop consensus in detail about where you are, where you are going, and how you will get there.
- Failure to tend carefully to the interests of multiple, diverse stakeholders.
- Failure to be deliberate about exactly what information the board needs to do its job.
- Failure to be clear on the board’s responsibility for culture and its role with the CEO in managing and changing it.
- Failure to get CEO and C-suite compensation right.
- Failure to understand CEO (and C-suite) need for a coach and the Board’s very different role as a boss.
- Failure to appreciate the inevitability of CEO, C-suite, and boardroom turnover, and inadequate efforts to keep it positive.
- Failure to actively cultivate wisdom in the boardroom: thinking vs. doing, reflecting vs. reacting, compassion vs. insensitivity and uncaring.
Each of these mistakes has its origins in a failure to be deliberate in pursuing consensus, working together in harmony, and approaching corporate governance through concinnity.
Step one to resolving these issues is certainly awareness, but an important second step is accepting that good governance is a journey, whether you have deep experience or are new to it. Those who do it well seek sustained excellence and appreciate the journey, and by no means adopt an attitude of “been there, done that.” And of course, achieving good governance is a journey you take with other board and executive team members who may or may not share your depth of experience or views.
THE FIVE OPERATING ELEMENTS THAT MAKE BOARDS EFFECTIVE
For a Board to focus on risk, strategy and the role of the CEO it needs to have these five elements in place. Here’s how:
- Board Composition: Directors with the skills and expertise to understand risk, strategy and performance of the CEO. If this sounds like a no-brainer, it’s not. For example, despite what almost everyone thinks about their strategy skills, very few people are good at corporate strategy. Do you have some good corporate strategists on your Board? What about a Director who understands technology risk?
- Board Information: Information that informs the Board on risk, strategy and performance of the CEO. Think of the information your Board receives. How well does it help you understand the environmental and operational risks the organization is facing? Is it framed that way or do you have to interpret it? What more is required for you to be better informed?
- Board Processes: Processes like Board meeting agendas help keep the Board focused on risk, strategy and performance of the CEO. If you look at your last Board meeting agenda, how much time was dedicated to the three elements of the Board’s role? If each of the agenda items had been reframed in the context of risk, strategy or CEO performance what would have disappeared from the agenda? What different questions would you have asked?
- Board Leadership: It’s the Board leaders (Chairs and Committee Chairs) who ultimately determine what the Board focuses on. Some take their direction from the CEO – a basic governance mistake. Others are respected, experienced leaders who understand the Board’s role and the relationship with the CEO. As a Board Chair, what kind of focus are you leading your Board towards?
- Board Culture: Studies show that organizations with Boards who work well together and with the CEO perform better. However, working well together doesn’t mean always agreeing on everything. Focus your Board and CEO on risk and strategy. How well is it working together on these priorities? What’s missing?