Goverance

Are You Underutilizing Your Board?

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Many corporations are failing to obtain the full value from their boards. This lost opportunity occurs not only in dysfunctional organizations but also in companies that perform well and are market leaders. Specifically, from a recent comprehensive study of board reviews, the authors found that many boards are suffering from the following fundamental problems: inadequate competencies, lack of diversity, underutilization of skills, dereliction of duties, and poor selection and assessment processes.

To avoid those problems, organizations need to adopt a set of five basic practices: (1) Choose the right directors (four competencies are required: results orientation, strategic orientation, collaboration and independence). (2) Appoint the right chairman (in addition to the four competencies, candidates must be skilled in empowering others to encourage vigorous debate, coaching and mentoring directors, and holding key executives and other board members accountable). (3) Make succession planning the first priority (this starts with graduate recruitment practices at the organization and is complemented by management development programs). (4) Focus on a few key agenda items (at a minimum, boards should regularly address the following issues: conformance with governance codes and regulations, review of the CEO’s performance and succession planning, discussion of ways in which the company will create and develop long-term value for shareholders, and monitoring of the company’s operating and financial performance). (5) Review the board’s collective and individual contributions (reviews should go beyond just compliance). Although these practices might seem obvious, the simple fact is that far too many organizations either neglect them or make costly mistakes in implementing them.

The authors are partners of Egon Zehnder International, a global executive search firm. Chris Thomas has been responsible for developing the board consulting practice at Egon Zehnder; David Kidd is currently the leader of that practice; and Claudio Fernández-Aráoz is a member of the firm’s executive committee and the author of Great People Decisions, to be published by Wiley in the summer of 2007.

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