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Boards that Work –  Key Factors

— by James U. Jensen, CEO: ClearWater Governance

February, 2010

A Board that Works should consider these key success factors.

1.   Avoid Groupthink.

The Board must actively avoid “Group Think” mentality. Maintain a demeanor of civility and cordiality with one another and with management. But express genuine healthy skepticism when appropriate.  And when building a Board or when filling a vacancy carefully seek to assure continued diversity.  The Board should be comprised of persons having an array of perspectives, training and experience.  But all Directors should demonstrate skill in identifying issues and weighing dispositive considerations.

2.   The Board’s Legal Duties Trump All Other Considerations.

The Board must identify and address multiple and/or conflicting agendas.  Founders and professional investors may be particularly susceptible to this subterranean influence, but the Board’s legal duties of Loyalty, Care and Due Consideration are paramount.  Directors are fiduciaries charged to protect the interests of others.  Boards that Work will regularly conduct self-evaluation asking if they are well informed on the facts and the alternatives.  They will also insist that actions be tested for effective discharge of their legal duties.

3.   The Board Represents the Shareholders First.

Of course the good Director will show loyalty to the Board. But neither loyalty to the Board as a whole or support of management should overshadow the reality that the Director represents the Shareholders—the owners of the enterprise. Some statistics show that the average holding period for public company shareholders is less than nine months. So the interests of “shareholders as a whole” may be more easily identified in a private company. But, public or private, the Shareholders’ interests should be sought and advanced.   The Board that Works will regularly reassess its appreciation of the Shareholders’ interests and will guard against self-interest.

4.   Choose An Appropriate Board Leadership Approach and Establish the Board Agenda.

Adapt Board leadership methods to the Company’s changing situation.  When a Board uses Committees, the level of delegation and reporting should be clear.  Recently many Boards are moving to separate the role of Board Chairperson from Company CEO.  But whatever structure is used, Board’s need leadership.  Board leadership means a measure of control of the Board agenda.  The use of Board Committees too, requires careful consideration of scope of delegation and need for proper reporting.  The Board that Works will assure itself that its agenda items are addressed and that responsibility and authority for the Board’s decisions are clearly delegated and accounted.

5.   Know the Trade-off Between Board Contribution to Key Decisions and Board Oversight of Key Decisions.

For start-up companies generally and for so-called “Close Corporations” in particular, the level of “work” from the Board may expand to eclipse the potential of honest and candid oversight of the “work” of others. In seeking to add value, a Board that Works should identify its “scope of work.” The complacent Board does too little.  For example, the Board that is determined only to evaluate Management performance without suggesting course corrections may leave too much discretion in the hands of management.  Conversely, a micro-managing Board does too much. The over-reaching Board, for example, will set its own metrics or dashboard—leaving management free to complain that it did not have the authority to make important and timely decisions. The right balance is hard won, so the Board that Works should regularly ask itself, “Do we have the right mix of contribution and oversight for the Company under current conditions?” The Board that Works will remember that a “hard question” is more appropriate than a “soft answer.”

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