What is the role of the board of directors? Some say it is to protect the shareholders’ value. In other words, they are there to ensure the money of investors continues to grow. Others say the board is there to oversee the CEO and make sure he or she constantly and profitably grows the business. Perhaps the board is there to ensure allstakeholders are taken care of – staff, management, customers, vendors, investors, government, community and media.
In addition to taking care of stakeholders, they are there to oversee corporate governance, develop strategy and hold the CEO accountable. The most effective boards dedicate time to get to know the business, key customers, government officials, and staff and management. They can even serve as mentors to key executives, including the CEO. While serving in this capacity, the board sets the pace for the entire organization.
In essence, the board is the top of the chart. They hire the CEO, create her compensation package and determine whether or not she is meeting the needs of the enterprise’s growth strategy. If not, they help her acquire the necessary training or resources. If that does not work, she is replaced.
When a board functions well, they set the pace for corporate culture. In fact, it could be said the culture on the board is a microcosm of the macro. For example, the board is there to oversee. However, if they get too involved in operations, like telling managers and the CEO what to do, they are micromanaging. In turn, the CEO and other managers will most likely micromanage their direct reports. That can create dysfunction. The best employees will leave. Those who stay may become “yes-men”. In that environment, people tend to avoid taking initiative for fear of doing something wrong. As a result, many opportunities are lost and the blame game begins.
On the other end of the spectrum, there is no accountability. The board rubber stamps whatever the CEO says. In those cases, the board members may be “yes-men”. While it may appear the board simply trusts the CEO, the rubber stamp culture can expose the corporation to dangerous risks and undesirable behavior.
From a healthy perspective, it is acceptable for board members to meet with an employee. That meeting serves more as a discovery of the inner workings and corporate culture. Relying solely on CEO reports can cause the board to be blindsided. Therefore, there is a somewhat delicate balance of engagement and hands off by the board. At the same time, you want board members to be actively involved with major shareholders. Through those meetings, the director can ensure investors they have their finger on the pulse of the company. That opens the door for investors to infuse additional capital into the company. And it ultimately sets the pace for an empowering, transparent and accountable culture that filters down to the rest of the enterprise.
What do you think? I would love to hear your feedback. And I’m open to ideas. Or if you want to write me about a specific topic, let me know.