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Feb 06, 2024
When we agree to serve on a board of directors, we are making a commitment to play an integral role in the successful continuity of an organisation. As board members and corporate leaders, we get to revel in the glory of good times, but we must be prepared to step up to demonstrate thoughtful and meaningful leadership and help our companies prepare for potential tough times whenever necessary.
Board leaders are visionaries and strategic thinkers who know how to execute plans. Having been lucky enough to have truly gifted mentors and 20-plus years of board experience, there are three issues that I would respectfully recommend my fellow corporate directors consider:
(1.) The need to confront legacy leadership and compensation plans that have become dysfunctional or promote the wrong behavior
(2.) Preparing for disruption and constructively challenging continued good news
(3.) Focusing on integrating soft skills into board governance matters
It is always better to uncover issues during good times and proactively address them than to wait for issues to reach a boiling point during a negative business cycle.
Don't postpone confronting legacy leadership and compensation problems
Over time, boards refresh and bring a different perspective to leadership assessment and compensation incentives. Occasionally, boards are confronted with the reality that existing leadership priorities and incentives have become an obstacle to creating long-term value, and that doing things “the way we've always done it” is no longer in the shareholders' best interest. When this happens, it is always better to confront leadership and compensation issues head on-however difficult that may be-rather than to kick the can down the road. While implementing leadership and incentive changes may be disruptive and create a short-term risk, being a good corporate director means being willing to tackle the difficult issues.
Prepare for future disruptions and challenge good news
Use your organisation's experiences during good times to anticipate future disruptions. Boards may tend not to challenge good news and may not ask the tough questions during periods of overall economic growth, but it is important for corporate leaders to be vigilant about process improvement and strategic planning at all times, especially during times of expansion.
When the business cycle is positive and the company is only moderately or satisfactorily positive, this is a good time for boards to question a company's performance. There may be hidden issues to probe and address or there may be emerging threats disrupting the company's markets. Use periods of positive growth to a board's advantage. It is always better to uncover issues during good times and proactively address them than to wait for issues to reach a boiling point during a negative business cycle.
Audit committees have a lot on their plates these days. In addition to risk management, cybersecurity oversight, and their traditional duties, it is also important that they look for signs that a business may not be as healthy as the financials might indicate. Whether it's too much optimism, perverse bonus incentives, or (occasionally) outright fraud, constructively challenging continued good news is part of our role.
Take a holistic approach to board leadership
In board leadership and management, I've learned that the hard stuff tends to be easy and the soft stuff tends to be hard. What I mean is, in many cases, it's often easier to deal with strategic planning, M&A, complex financials, digital literacy, risk management, and etc. than the softer issues of team building, understanding the unhealthy personal motives some people may have, and board/management relations.
When recruiting for leadership positions, don't discount the dynamics of how a board and CEO will work together. Factor in culture, egos, chemistry, diversity, and business ideology when making decisions about board composition. Also, consider the perspectives of thought leaders from both Fortune 500 companies and smaller companies, which have more limited resources and challenges. Having representatives with different backgrounds can help round out a board and create a thriving corporate culture.
One additional point that a wise colleague mentioned is the 'social loafing' behavior phenomenon. This is where individuals do not put their best effort into a discussion because they believe a subject-matter expert is better equipped to do the heavy lifting and is, perhaps, a bit intimidating to others.
How many of us have seen M&A disasters, runaway IT fiascos, or botched business launches, to name a few that, in hindsight, a board contributed to by not encouraging a vibrant discussion?
He serves as the CFO and CIO of multinational corporations in the industrial, energy, healthcare, and hightech industries. With over 25 years of Board-level experience, he currently ser ves on the Board of Westell Technologies Inc., as Board Member and chairs the Audit Committee. He is also the Chairman at Modern Mining Technology Corp. Prior, Mr. Zorko was on the Compensation Committees of Perma Pipe Int'l Holdings, Inc.
Owned by: Institute of Directors, India
Disclaimer: The opinions expressed in the articles/ stories are the personal opinions of the author. IOD/ Editor is not responsible for the accuracy, completeness, suitability, or validity of any information in those articles. The information, facts or opinions expressed in the articles/ speeches do not reflect the views of IOD/ Editor and IOD/ Editor does not assume any responsibility or liability for the same.
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Institute of Directors (IOD) is an apex national association of Corporate Directors under the India's 'Societies Registration Act XXI of 1860'. Currently it is associated with over 30,000 senior executives from Govt, PSU and Private organizations of India and abroad.
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