CEO Stories: Beverly Behan, Board Advisor.Net
Governance expert and author Beverly Behan talks about how directors can add value to their boards, how new board members can distinguish themselves, and some of the pitfalls directors should look out for.
FROM COUNTRY CLUB TO ACCOUNTABILITY
Corporate boards have evolved significantly in the last 20 years, from the time when directors often served on multiple boards and might have been picked for marquee value rather than industry-specific knowledge or subject-matter expertise. Now companies are looking for directors to add value for all stakeholders, including employees. And the composition of boards is key to their success – in terms of expertise and increasingly, diversity.
ROLE OF DIRECTORS
Directors need to understand their ability to add value also depends on their ability to have power and influence in the boardroom itself. That comes from understanding that governance is a team sport, and that board members have two primary roles: watchdog and sounding board. It’s also critical that board members, who are often accustomed to having great authority at the companies at which they worked, understand that they are there to govern, not to manage.
DEVELOPING BOARDROOM STARS
The drive to increase the number of diverse board members is a unique opportunity not only for companies, but for this new group of directors to wield influence from the get-go. One method for maximizing the success of new board members is to pair them with more experienced board directors, who can help them understand the nuances of the company and the board. And for the new directors, Behan advises there is no substitute for work ethic: learning the business and being prepared for board meetings. While Behan acknowledges such basics are “not sexy,” they’re often overlooked and critical for new members to make their mark early.
Read Full Transcript
POC: I’m Patricia O’Connell and welcome to CEO Stories for This is Capitalism. Today I am joined by Beverly Behan who is a governance expert and also the author of several best– selling books on this subject, including Great Companies Deserve Great Boards and her most recent book, Becoming A Boardroom Star. Beverly, thanks for joining us today on This is Capitalism: CEO Stories.
BB: Thanks so much, Patricia, it’s my pleasure to be with you.
POC: Bev, you’ve worked with I think you said more than 200 boards over the last 20 years, boards in the United States, boards from all over the world. What are things that are common to almost all boards?
BB: Well, boards have evolved a great deal since the fall of Enron around 20 years ago. At that time and in the late 20th century, many boards were largely a country club. I mean, being on a board in those days was considered an honor. And really not much was expected of boards. We used to make a joke that people that serve on boards are very impressive, a lot of them are key– name directors, but they are kind of like the hood ornament on a Mercedes Benz or a Jaguar – they are nice to look at but functionally not very effective.
POC: Was that even true for publicly traded companies?
BB: Absolutely it was, Patricia. In fact, that’s what shocked me when I first got interested in boards as a young attorney in my thirties was that these were public companies and I was involved with IPOs but I had personally been involved in– house at a large company up in Canada with very impressive people on the board and really it was a country club. It’s a long story of how that board devolved and how that company devolved.
And the good news is, we have very much evolved over the last 20 years. Directors have never worked harder than I think they are working today. I think they are… You, being on a board, not only is a privilege but is a real job and an important job not only to protect the company, the people that work at the company, the people that invest in the company, but also to try to leverage their expertise to guide the company through some tough times.
POC: You said that it used to be considered an honor and of course it still is an honor to be asked to be on a board because you are being picked for your expertise, which the company should be able to leverage. But it is a real obligation to fellow board members, to shareholders. But who are the other stakeholders that boards really have an obligation to?
BB: Well, that’s an open debate but in my opinion, employees of the company are clearly a stakeholder.
The other thing too is when you think about it, we talk a lot about corporate culture and the tone at the top and how important that is, the board sets the ultimate tone at the top at any company. They choose the chief executive officer, they approve the strategic direction of the company, major deals, major things, and that impacts the company and the people that work at that company. So I would consider the employees an extremely important stakeholder group.
POC: How does a board member really bring value to the role?
BB: There’s two, I think, real jobs of a board member. The first is what I call a bit of a watchdog role. So they are there to sort of… you know, management comes and says, “Hey, we want to do this and to protect the stakeholders,” the board members question that. And they say, “Gee, you are showing a very aggressive timeline to recruit this investment of several hundred million dollars, I’m going to question some of that.”
Or, “You want to start a new product, we don’t really have the sales infrastructure that I can see for that. “
So that is the watchdog role is to really raise some of the tough and important questions and challenges to management. I think it is perhaps the board’s most important role but there is another role where I think a lot of boards add tremendous role to companies and that is what I call a sounding board role.
Because if you look at the people that sit on boards, they typically are and should be chosen because they have really impressive expertise and success in the business world or other relevant skills. It could be technology, it could be finance, what have you, and to really leverage that so that they are not only challenging management but providing guidance and advice to management, drawing on all of that expertise they bring to the board table. I think that is critically important and that is where I think boards can add a little more value going forward even than they are today.
POC: What advice would you give to companies that are looking to recruit new board members or maybe it’s the first time actually having a formal board, whether it’s a private company or a public company?
BB: Well, there are so many components in that. It’s such a great question, Patricia. I think board composition is probably the single most important factor in board effectiveness. Now to say, “Oh, we’ve put a great team of directors around the table and so we have done our job,” that’s not really it. There’s another seven levers to essentially pull, which I talk about in Great Companies – and others – to get the most out of that board.
But the most fundamental and important factor is the composition of the board. So you want to be very thoughtful in how you are choosing the backgrounds and expertise you want at the board table because you want people at your board table that have relevant experience to the issues they’re going to be weighing in on in terms of the agenda items the board is going to confront.
POC: Is that the same as having industry experience?
BB: Well, I don’t think a board comprised entirely of industry experts is a good thing. But my own point of view is you should have at least one and maybe even two people with industry expertise at your board table.
Now every board is a little bit unique. In fact, interestingly, there is a new tool that I have started using in the last few years on board succession planning called Board 2.0 and it is a way to kind of look forward and design the optimal composition of the board. And yes, industry experience is typically an important factor because when you don’t come from the industry, you don’t know it quite as cold as someone who does.
And particularly if you want to challenge management, somebody from the industry knows it so well that they have a lot of credibility. They also tend to be the people that management finds a lot of value from is their directors with industry experience.
But you also want some operating experience. You know, you could have an industry expert that has perhaps a finance or legal background, you certainly want people that have run comparable- sized organizations because they are familiar with the scope of those companies and the decisions and the impact of those major decisions on those companies. So, if you are running a global company, you probably don’t just want people at the board with regional expertise or have never really done business outside the United States.
Finance is really important. You need to have at least someone on the board that qualifies as a Sarbanes-Oxley financial expert probably to chair your audit committee. But most boards have two or three people with different finance backgrounds. So, some might have private equity, and sometimes that’s because they are investors, they might have a retired Big Four partner, that sort of thing.
Technology is becoming really important to have at the board table because IT is really strategic for most companies now. And you want somebody at the board table that can not only call time out on a tech presentation – because very often these are huge investments in terms of technology – and to have someone there who can really step up on those issues has become increasingly important. And then the rest of the board seats kind of vary depending on the strategic direction of the company or various other factors.
And, on top of all of that, you want to consider diversity. So you want to make sure that you’ve got the skills and expertise at your board table that allow your directors to effectively challenge and question management, provide some input and sounding board and guidance to management, and that you have diversity, as well, and diverse perspectives coming into that dialogue.
POC: And your book, Becoming a Boardroom Star, correct me if I’m wrong, but I think one of the reasons you wrote that was really with the idea of helping newly recruited board members really learn how to be the best directors they could be because maybe they didn’t have experience from having been a director before. There is the idea that once you’ve been a director, you’re probably always going to find a seat somewhere.
BB: Yeah. Really, Becoming a Boardroom Star came from… In the last I would say 12 to 18 months we have seen unprecedented recruitment of diverse board candidates and many of those new directors have never been on a board before. And I started getting a lot of calls from personal friends who were African American, Asian American, women, and they were being recruited to a board for the first time.
They were excited about being directors, they really liked the company, they liked the management team and they all had the same question when they called me up. They said, “I want to be a really great director on this board. I want to understand what are some of the pitfalls I need to watch out for and what are some of the things that I need to be aware of in order to really be a good director.”
I started providing some advice to my friends that were going onto boards. And much of that advice came from my work. In the almost 200 boards I have worked with now, a lot of my work has been board evaluations and director evaluations. And when I do those, I don’t use box ticking surveys, I interview people.
And from those thousands of interviews, literally, with directors around the world, it’s allowed me to pinpoint what are some of the things that really make a difference in terms of the board members they hold in high regard and that they really view as their stars, and what are some of the things that detract from a director’s performance and regard and credibility? And that was really where the book came from.
POC: Can you tell us some of the things that really do help make a director stand out? Regardless of why they were recruited, they are at the table now. So what can they do to help be a great boardroom addition, to be a boardroom star?
BB: Well, I think it starts with really learning about the business and if you come from the industry, clearly you have a leg up. But active executives, someone who perhaps is a chief financial officer or a chief legal officer today, can’t go on the board of a competitive company. That’s a conflict. So a lot of people who are active executives, and we’ve seen quite a bit of that recruiting in the search for diverse candidates, they are going on the board of a company in an industry they are not familiar with.
So the first thing you want to do is really make an effort to learn about the business. And that applies also even if you’re going on the board of a nonprofit organization, to learn as much as you can about any organization that you’re going to be governing.
Now most boards will have sort of a director-orientation program. And that is a lot better than things were 20 years ago where they just hand you a binder and say “show up at the next meeting” but a lot of times it’s a pretty once-over-lightly. And the traditional approach was to kind of do executives on parade, where you’d spend 45 minutes with each of the people in the C- suite and then you were kind of done.
Well, I would really encourage board members – new board members – to really think about what would they like to learn more about during their first year on the board and make an effort to go a little bit above and beyond what might simply be offered in that director orientation. That might be a site visit to see a particular manufacturing plant or a farming operation or a laboratory, whatever it is, particularly if you’re new to the industry. Many people will tell me “The business really came to life for me when I walked through the mill,” or “Where I stood on the docks in Los Angeles and saw the intricacies and complexities of our logistics.”
So, I think that’s really important is to sort of take in hand your own learning about the business because that is the foundation for really being a boardroom star is that you know the organization you’re governing. You’re never going to know it as well as somebody who is a career veteran but I really think there is opportunity space there.
The second thing I would say is work ethic. And that is not a terribly sexy thing, but everyone can tell if somebody has done the work or not. Have you taken the time well in advance of the board meeting to go through the board materials, really think about them, develop some thoughtful questions?
Someone who has done that, it’s very evident versus somebody who has maybe been pawing through the board books in the Uber on the drive to the board meeting
POC: Well, I would imagine also if you are coming on as a new director and you’re really intent on being that boardroom star and doing your work, it probably helps other people up their game. If there are people who haven’t been doing as much work as they should be, all the sudden they feel maybe a little competitive pressure.
BB: I think that’s a really good point. Because norms of the board are driven by behaviors on the board and very often when you inject new people into the board it changes the board’s norms. It can change it in a good way just as you’ve described and that’s the way I would like to see this great new blood that’s coming into the boardrooms across the company have an impact.
The other thing though that someone who has never been on a board before often struggles with is the line between governance and management. When you’re on a board, it is not your job to run the company. It’s your job to oversee the people that are running the company and that is different and it’s a nuance. And that, I find, is one of the biggest challenges for new directors.
There’s these very cute little sayings, you know – “Nose in, fingers out.” You’re in the middle of a very complex discussion about an important issue, that sort of cute definition doesn’t work.
What I find works really well –and I have suggested to some people that are newcomers on boards to actually ask for this – is some boards have a board buddy program where they will pair up a new director with one of their current boardroom stars, an incumbent director. And the original idea was that this pair would have a meeting sort of after the board materials came out, just as they’re getting ready for the meeting, and the incumbent could tell the newbie, “Hey, here’s some of the politics and some of the history of some of these issues in order to give you the lay of the land.” That in itself is very valuable for any new director.
But what I have noticed in the last five years is that people who hadn’t been on boards before were using that dialogue with the incumbent director to test out some of their questions. So, they would say, “Well in this item, I want to ask this or I want to ask that.” And the incumbent would say, “Yeah, great questions, you’re in a governance level.” Or they might say, “Nah, you’re micromanaging and let me explain to you why, let’s see if we can reframe that.”
And in my experience it only took about four or five of these meetings before the new director had really mastered that governance-management line and that’s a skill that they could use for the rest of their board career.
POC: When you talk about the rest of their board career, you are not necessarily talking about their service at that company, that they could leave that board and go onto another board?
BB: As people retire, sometimes they’ll take on more than one. Back in the old days of the country club, I think we had a couple of directors in the U.S. who were sitting on like 12 boards. We don’t see that anymore but it’s not uncommon to see a director sit on two or three boards.
So if you’re an active executive, typically your own company will only allow you to sit on one external board. But at the end of your career at that company, sometimes they’ll let you take on another one and as you retire you may become what is called a professional director.
POC: How do you know it’s time to perhaps leave one company and maybe seek out a board role at a different company?
BB: Something I talk about a little bit in the book is often you will look at an issue that comes on the board agenda and sometimes you’ll have a very strong feeling about it.
Let’s say it’s they are going to move the company’s headquarters from the town where it is, where it has provided a lot of economic stimulus, and they want to move closer to an urban center so they can attract say talent with greater tech expertise, or whatever it is that they’re having trouble with, in this town.
Maybe you’re a long-standing resident of the town and you feel strongly that you don’t want this headquarters to move. So you make your case. But here’s the thing, at the end of the day the board votes and they vote to move the headquarters.
Now you are left with only two decisions when you find yourself in a position where the view that you would advocate is not the decision the board makes. If you feel strongly enough about it, you need to resign from the board because you don’t support that decision.
But if you don’t feel that strongly about it and you want to continue to serve on the board, you really have only one choice and that is to support the board’s decision going forward. Where a lot of directors get into trouble is they continue to revisit this issue. It becomes kind of a pet issue. They go looking for problems with the headquarters move, they start talking to executives, trying to find what’s going wrong with the headquarters move. And eventually they become a problem director and it really undercuts the decision of the board.
Because governance is a team sport. And it’s challenging sometimes for people who are senior executives to make that transition in that respect as well. Because top executives are often used to making decisions, right? “We’re going to do this this way” – what have you. In the boardroom, it’s a group decision and the real power in the boardroom is influence and the ability to have influence and impact.
So part of the reason I wrote Boardroom Star as well is that it’s a way of new directors and all directors really increasing their influence and impact in the boardroom and avoiding some of the things that detract from that.
POC: How long is it going to take before we really see the influence of the new blood that is being recruited, whether it’s people of color, a move to have more women, diversity in terms of even just different points of view? How long is it going to take before we really see the effects of this?
BB: I think it depends on the director themselves. Some directors I think are really going to step up and have influence almost from the first day and hopefully very positive influence. So, you know, just as you said, just bringing some new people into the board, it tends to change the dynamics of the board. So I think we’re gonna hopefully see some positive influence quickly.
But there are also some directors that are reticent, particularly if they don’t come from the industry, it’s their first board, they’re going to hold back for a while, they don’t want to make mistakes. So, they’re gonna take a little more time, perhaps, to start to weigh in.
What I think is really important though in terms of diversifying boards – yes, it is very important to recruit diverse candidates to boards – but it’s to make sure that they’re really having impact. And so those were some of the things we talked about earlier – things like understanding the business, bringing a work ethic to bear, understanding the line between governance and management, avoiding some of these pitfalls like getting overly wed to a particular decision that you keep revisiting it. And that is how you start to grow your influence and impact in the boardroom.
POC: And that’s really where you can then also really have an impact on the company overall and work to the benefit of all the stakeholders.
BB: Exactly. And boards are a group. And in any group norm there’s those who… if there is an important decision, everybody looks at one or two people and those are the people that they feel have a lot of credibility. When those people weigh in, they have good things to say. And so it does take some time to establish that and you can also detract from that very quickly too. So those are some of the differences in terms of boardroom norms than you might see perhaps on an executive team.
POC: In the last 20 months many groups of all kinds have been meeting virtually rather than in person. And for a lot of these people who are just joining boards now, they may not have had the experience of an in-person board meeting yet.
BB: I think it has certainly had an impact on the dynamics of the board. I think boards have done a great job in terms of navigating through video conferencing throughout the pandemic so I actually give boards great credit for stepping up that way. But it is different to be in a room and sit across from people and have an in-person meeting than it is on the net.
That all said, when I think of orientation in particular, director orientation, the fact that directors are now conversant with video conferencing can open the door to some things that were never possible in say 2019. So, for example, I’m a big proponent of site visits and during the height of the lockdowns – warehouses, you couldn’t go in there, you couldn’t go to the sites, and so people used video.
And all of a sudden directors who were new could sit in their home office and take a video tour of the dock in Los Angeles or whatever it was. To some extent that doesn’t replace actually walking through the facility itself but it opened that up. And what was interesting is many of the other directors said, “Hey, now that you’ve made this video of the dock in Los Angeles, I’d like to see it too.” And it opens things up.
It also opens up board evaluations, which I think are a really underutilized tool. They’re certainly the best tool I have ever found to get more value from a board, to take a board from good to great, to keep a great board vibrant. And in most cases they are still using an approach I used in 1996 when I did my very first board evaluation. And I think the video-conferencing capabilities of directors will allow many boards to migrate that process into an interview-based board evaluation process that I think could add a lot more value for them than some of the approaches a lot of boards are taking right now.
POC: Do you think in 2022 we’ll see more boards meeting in person?
BB: Yeah. I’m already seeing that. I mean, a number of my clients are saying, hey, we just had our first in-person board meeting. They talk about how it was great to be able to manage through with video conferencing but they are really enjoying the opportunity to get back together in person. So yes, I do think we’re going to see that. What’s interesting though, Patricia, is will every board meeting be in person, or if a board has say six or seven meetings a year will they only meet in person quarterly and stay on video conferencing?
Another I think interesting factor is board committees traditionally would meet, say, the day before or the morning of, very early morning of the board meeting because everybody had flown in, everybody was together in one place for the board meeting and so that’s how their committee meetings would go.
What video conferencing has allowed many board committees to do is to meet say even a week before the board meeting. And there’s been a luxury to that and I think it will be interesting to see what boards do about their board committee meetings in terms of keeping some of those on video.
POC: Well Bev, you’ll have to keep us posted down the line about what is happening now that we’re getting back to a new different. I was going to say a new normal but a new different with meetings and how it is affecting boards.
But in the meantime, thanks so much for joining us and giving us your great insights. I think it’s valuable for companies as well as for directors to hear everything that you’ve had to say because great companies need great boards and board people want to do the best job that they can for the companies they serve.
BB: Well thanks so much for having me, Patricia, it’s a real pleasure.
POC: You can find out more about Beverly Behan and where to buy her books at Board Advisors.net. As always, I’m Patricia O’Connell for This Is Capitalism: CEO Stories and thanks for listening.
About the Series: Featured stories from the intersection of the free market and entrepreneurial success. Here we speak with leading CEOs, academics, philanthropists and up and comers on their contributions and perspectives on the American economy.
About Patricia O’Connell: Patricia O’Connell serves as Editor in Chief of “This Is Capitalism,” a content site sponsored by Stephens Inc., and is host of the site’s podcast series, “CEO Stories.” Patricia, a former editor at BusinessWeek and a New York Times best-selling author, brings her experience as a journalist and her passion for storytelling to “This Is Capitalism.”