How Directors Should Redesign Their Job

Too many board meetings are show-and-tell affairs rather than deep conversations with management and among the directors themselves. Similarly, too many board members are so deluged with paper or e-mail, much of it arriving right before a board meeting, that it can be difficult to pick out what’s really important. And many directors are seriously disadvantaged because they see themselves as generalists in a world that needs specialists. So say Colin B. Carter, senior adviser to the Boston Consulting Group, and Jay W. Lorsch, a Harvard Business School professor and a member of Corporate Board Member’s Academic Council. How to solve these problems? Redesign the way you do your job, they say in their book, Back to the Drawing Board: Designing Corporate Boards for a Complex World, from which this article is adapted.

The time that the board spends together in meetings is arguably the most important time that directors devote to their duties. In board meetings the whole board is engaged, ideas are contested, and the board develops a collective view, which it then conveys to management. The board meeting is truly the place and time when directors learn most about their company and when they make decisions. The first order of business, then, is thinking through how often the board should meet, how long each meeting should last, and what should be on the agenda.

Today there are signs of a global convergence around eight meetings per year. Spencer Stuart’s 2002 survey places the U.S. board average at seven and a half meetings, while Heidrick & Struggles’ 2003 European survey confirms eight meetings. In other words, eight regular meetings is now the average on both sides of the Atlantic.

While such averages are interesting, they can actually mask the really important question: What is the right numberu00e2u20ac”and lengthu00e2u20ac”of meetings? This depends on the size and complexity of the company and the directors’ definition of their role. As we know, boards can legitimately take different views of what their role should be. Some will be watchdogs and delegate more to management, while others, for a variety of reasons, will want to be more involved. And even with similar roles, a more complex company or one that is in trouble will demand more of the directors’ time.

While we should expect to see significant differences in practice between boardsu00e2u20ac”hopefully based on careful consideration of their role rather than blind adherence to traditionu00e2u20ac”some generalizations give us a good starting point. Monthly meetings, in our experience, can encourage boards to slip into a routine focused on detailed monthly results that is rarely meaningful. Also, they can be a huge imposition on executive and director time. On the other hand, the practice of boards’ overseeing hugely complex companies in just four or five half-day meetings each year seems clearly inadequate. How can a director of anything but the simplest company understand what is happening in such a limited time? For most companies, somewhere between six and nine meetings are necessary to enable board members to stay in touch with one another and their company. Thus the growing convergence around eight meetings per year may be sensible. Of course, other special meetings in person or by telephone can be added to cope with unusual situations such as a major acquisition or the illness of the CEO. And more and more boards are finding it useful to have one multi-day (usually two-day) meeting a year, often to discuss strategic issues in depth.

It’s not just the number of meetings that concerns us. Too often we find that once all the directors have gotten together, not enough time is scheduled for the meeting. Frequently the schedule is the result of tradition rather than careful planning. Adding meetings is hard to do, because it requires extra travel or more frequent interruptions in directors’ other activities. It is obviously easier, given the busy schedules of the directors, to extend the board meetings by a few hours rather than organizing an extra meeting. An hour or two may not seem like much, but think about itu00e2u20ac”an hour added to what has been a four- or five-hour meeting gives the board 20% to 25% more time together.

Some of the larger and more complex companies will find that each meeting, including time allocated for committees to meet, extends into a second day. Boards are beginning to experiment with different schedules. One bank, with operations spread across several continents, has moved from 12 board meetings a year to eight, but each lasts for nearly two days. The first half-day is spent on board committee work, and then the board meeting occupies the afternoon and the morning of the following day. A presentation on some aspect of the bank’s business is always scheduledu00e2u20ac”not for any decisions to be made but rather to allow directors to learn more about a complicated aspect of the business. There is also usually a dinner in the evening, where the guests might include staff, clients, or other industry participants.

Whatever the meeting schedule, the next important issue concerns the meeting agenda. Directors frequently tell us that they spend too little time discussing strategic issues. Typically the agenda is dominated by a review of what has recently happened, routine items, and urgent issues that need approval. As a result, directors strongly complain that they don’t have enough opportunities to think beyond the present and the recent past.

One simple way to deal with this concern is to reserve at least half of every board meeting to focus on two things:

– Major issues affecting the company’s future.

– Discussions (not just presentations) with key executives about the issues facing the company’s major business or businesses.

To identify such major issues, at the start of each year the CEO and the board should agree on the five to 10 key issues that are likely to be at the heart of the company’s success over the next five to 10 years. Most of these issues will emerge from the annual strategy retreat, for boards that hold them. These should then be scheduled in the board calendar for discussion throughout the following year. Management might prepare discussion papers to be read by the directors in advance, so adequate time can be allocated at board meetings to talk about them. Typically these will be important issues that might not otherwise make the board agendas, because there is no crisis that directs the board’s attention to them. They might include topics like the sources of future growth, the company’s performance in developing talent, post-acquisition reviews, analysis of competitor strategies, the state of product development, the future shape of the business portfolio, or the strength of the company’s brands.

Unless a board has concluded that it’s not its role to delve into individual business units, meeting agendas must make room for unrushed discussion about each of the major businesses. In most boards, the time set aside for businesses without problems is all too often cut short because the board meeting runs late or the time allocated to the meeting itself is too little.

When this happens, senior executives who have been asked to discuss their business are kept waiting outside the boardroom, and then are told they have 20 rather than the originally scheduled 40 minutes to talk about an issue that is vital to them. They know they can’t run over time because some of the directors have planes to catch, so they’re forced to slice and dice the material they were hoping to present for consideration. This prevents thoughtful discussion and good decision-making on critical issues, and tends to undercut the motivation of the managers affected. It’s also insulting to them. In our experience, such problems usually occur because the chairman and whoever is helping him plan the agenda try to cram too much into the time available.

While we’re on this point, we should mention that we feel strongly that when an executive is asked to talk about his business, he should be given an hour or more, not just 30 minutes. A serious defect in most boards is that there are too few informal and informed discussions with management other than the CEO. If directors are to truly understand their company, they must spend quality time talking about the major issues with the executives directly involved.

One good approach is to schedule major business reviews on a rolling basis, so that at least once annually each senior executive gets meaningful time in discussion with the board. Again, to save meeting time, the board should read the presentation material beforehand, and only the first few minutes should be spent answering any questions of clarification. Thenu00e2u20ac”and this happens extraordinarily rarely todayu00e2u20ac”the board can spend an hour or more discussing the business with the senior executives responsible for it. The directors will be learning from this interaction, and the executives will benefit from the directors’ advice.

We would like to see less time taken up with the ubiquitous PowerPoint presentations, carefully rehearsed by the executive group, because we feel such show-and-tell sessions don’t allow the directors to really engage in a discussion, nor do they permit the board to assess the caliber of the executive running the business. “Death by PowerPoint” is how one non-executive director described his board’s meetings to us. What most boards badly need is more informal discussion with key executives and among themselves. From our work with boards, it is clear that such discussionsu00e2u20ac”question-and-answer sessions as well as mutual exploration of issuesu00e2u20ac”rarely take place. As more than one director has told us, “We spend so much time listening politely to management presentations that there is no time to discuss strategic issues.”

Smart agenda planners schedule important topics at the beginning of the meeting to make sure they are given adequate time. If time is tight at the end of the meeting, the items “squeezed” are generally the less crucial routine reports. It’s a good idea, though, to vary the sequence, so that the same items don’t get short shrift repeatedly. Some boards obtain more discussion time by dividing meetings into two distinct halves. The first part includes presentations about performance or requiring specific board action, and the second half is spent in more informal discussions with management about important but less pressing topics. The advantage of this approach is that it preserves sacred time for deep discussions between the board and management. Nothing is permitted to interfere with this interaction.

We think 90% of directors’ board work is spent alone reading reports, talking with their colleagues around the board table, or having occasional discussions with small groups of other directors. Hardly any time is spent in conversation with down-the-line managers, visiting plants or key customers, or talking to industry experts about competitors or overseas trends. Yet almost every time a company fails or stumbles, industry experts saw the fall coming before the board did. That’s why we feel strongly that directors should have regular contact with managers and schedule at least occasional meetings with industry analysts and other experts. Many directors tell us that they learn more about the business in casual conversation with managementu00e2u20ac”often during meals or while traveling to company facilitiesu00e2u20ac”than they do in board meetings. While directors should treat external views from industry experts with caution, it’s a mistake not to know what’s being said in the industry. Inviting such outsiders to speak at board meetings can be a good idea.

There is one ground rule that directors should usually follow in talking to management. Most CEOs want to know when such conversations are taking place, and this is not unreasonable. Such contacts should not undermine the CEO’s relationship with subordinates. With that caveat, we are convinced that it is productive for directors to discuss business issues with senior executives on management’s own turf rather than in the boardroom.

Such visits could be part of the orientation of new directors. Indeed, some boards have decided that these meetings are so valuable to new directors that they want to extend them to all board members. Many directors also report that an occasional trip to distant operations, in company with the senior executive group, can not only build knowledge but transform relationships with top executives. While such trips can be criticized as a boondoggle, we believe that they can be an immense help to directors, well worth the time and expense.

Keep in mind that our objective is not to eliminateu00e2u20ac”or even minimizeu00e2u20ac”the CEO as a major source of the board’s information. Boards are dependent on their CEOs for information, for good reason. Instead, we want to expand the directors’ sources of information so they can have a broader view of their company and improve their ability to offer advice, make decisions, and monitor the company’s progress.

Most directors tell us they are overwhelmed with the volume of material they receive but underwhelmed by the content. No wonder they forget much of what they have read between meetings and frustrate executives by asking them to repeat it. To solve this problem, directors must more carefully define the information they needu00e2u20ac”the box below contains 10 must-ask questionsu00e2u20ac”and they need to figure out ways to make it more memorable.

Even when directors are getting the information they feel they need, many have difficulty remembering it from one meeting to the next. That can be such an embarrassing problem that few like to discuss it, yet a sizable minority of CEOs, 40%, doubt that directors remember information they have been given at prior meetings. How comfortable can it be to lead a board-meeting discussion with suspicion in your mind?

We believe that most of the directors who forget things do so not because they are lazy or incompetent but because it’s very difficult not to. The amount of information they need to master is growing rapidly. Markets are changing at an ever-increasing rate. The task of rememberingu00e2u20ac”let alone keeping up with changeu00e2u20ac”is formidable for part-time directors who immediately have to turn their minds to other matters when board meetings are over, and who are often faced with gaps of two months between meetings.

Directors need frameworks to help them capture and hold on to the crucial elements in the flood of information that comes their way. If they do not have a model of the business in their minds, they will struggle to absorb more than a small fraction of the data they get. Most directors receive the traditional financial statements, and separately they also receive a small mountain of information about volumes produced and sold in each business or territory, and the costs associated with these. It really helps if models can be developed that integrate all these numbers so that it is possible to see more clearly those key factors that drive financial outcomes.

Management, particularly the chief financial officer, and the board need to figure out ways to explain and describe how the business model really works. What are the key drivers of success for the company and its component parts? When they understand these well, directors will be able to make better use of the information available to them.

Technology can make the director’s job much easier. A number of boards are beginning to provide their members with rapid access to the information they need. For example, the Australian telephone company Telstra has an information system online for its directors. It includes agendas, minutes, and information for the board and its various committees, announcements made by the company to the stock exchange, news clippings, news summaries, and other matters. It also includes a secure e-mail system for communication between the company and its board members.

A few companies, ahead of the field, are developing intranet-based systems that enable boards to have relevant performance information at their fingertips. Information from a multitude of reports can be reorganized, summarized, and added to a database, and easy-to-use graphic information can be accessed by the directors. They can, if they wish, drill down to get more detail and explore the underlying causalities in the numbers.

These developments offer unprecedented freedom to peruse company data that until now was only available if directors asked for itu00e2u20ac”and if management spent the time needed to compile and organize it. Requests for information from directors can be onerous, and these systems help. On the other hand, some CEOs will worry about directors’ wandering around in management databases. Yet we believe that directors have an obligation to explore data to develop their understanding, and that they must insist that management make it available. In the final analysis, though, the effective use of such data will depend on the directors’ understanding of their company’s underlying business model. Without this, more and rapid data access is likely to lead only to more confusion.

At issue is how directors manage knowledge. There is universal agreement that the core board committees allow a subset of the directors to focus on and learn in great depth about special disciplines such as audit, compensation, and, most recently, governance. The existence of these committees acknowledges the magnitude of the outside director’s task and the need for focus. However, that is where the specialization ends on most boards.

We believe this is a missed opportunity. Boards are “knowledge organizations,” and for such groups the effective response to complexity is to specialize and focus. In that spirit, we believe that each director should be encouraged to build deeper knowledge in a couple of areas that are important to the board’s performance. They should be encouraged to take a topic or issue and focus on it in greater depth. The objective is not only to be better informed, but also to be a better contributor to the discussions among all board members. This deeper focus is not to be confused with executive responsibility. That remains management’s prerogative.

Some boards are experimenting in this direction. Several years ago, one bank allocated seven topicsu00e2u20ac”executive development was oneu00e2u20ac”among its outside directors, and asked each of them to go a little more deeply into the assigned subject. Surprisingly, it was the CEO who proposed this arrangement, in the face of board misgivings about “becoming too involved.” So far, the verdict of both CEO and board is positive. The directors believe they are more knowledgeable. The CEO agrees, and does not feel the directors are interfering with how he runs the company.

In general, we do not support the allocation of specific businesses or functions to individual directors, however. That would duplicate management accountabilities and could cause tension between managers and directors. Rather, we prefer that directors focus on topics that cut across the portfoliou00e2u20ac”for example, the use of technology, executive development, or investment in Asia. The assignments should also have sunset clauses of a year or two, to make sure the board members don’t become too institutionalized. Each director’s task would be to go out of his or her way to become more informed about one such subject. For example, if major investment in Asia is a key issue across the portfolio, the designated director (or even two) might seek to understand which other companies are investing there and with what success, try to build networks of experienced contacts, talk occasionally to consultants and others involved in the region, and so forth. This director might also meet with peers, such as directors of other companies, who are engaged in the region. Similarly, if executive development is the topic, our director might join company executives when they visit other best-practice firms, look at the company’s internal executive-education programs, and certainly spend time talking to executives about their experience in such programs and their perspectives on their careers.

We encourage boards to experiment with this way of increasing their members’ capacity to deal with a wide variety of complex business issues. Our primary intention is to enhance knowledge so that directors can be well informed and even genuinely insightful in their deliberations. But there is an additional and substantial benefitu00e2u20ac”directors will learn more about the company as a whole, even as they explore a narrow slice of it.

They will learn more because they will have a reason to be proactive. The role of most non-executive directors can be very reactive and passive, which seriously limits their incentive and capacity to learn. Their task today is to read and comment on material that has been wholly prepared by other people, usually management. Expecting them to be more focused will help them to engage.

Certain protocols should be observed. Directors need to understand that their purpose is to learn on behalf of their fellow directors, and not to interfere with management. They also need to understand that their responsibility is to inform their board colleagues, including the CEO, about what they have learned.

Some directors may be uncomfortable with the increased accountability or even the additional work inherent in this approach. Some CEOs may fear it as an intrusion onto management’s patch. Other directors may argue that a board’s responsibilities, as well as its accountability, should be shared among all the directors. They argue, therefore, that it is inappropriate to put individual directors in a position where they are regarded as experts to whom the board defers. This is an objection we frequently encounter, but it is hard to reconcile with another widely held viewu00e2u20ac”that it is appropriate to search for new directors to bring special skills onto the board. In conventional board wisdom, it seems appropriate to bring new expertise onto the board, but not to develop and utilize these skills after directors are elected!

Knowledge management, a hot topic for executives in recent years, is a subject that boards now need to consider. Our proposals give boards the opportunity to experiment with new forms of knowledge management. Many directors are concerned about their capacity to keep up with fast-moving business developments, and these pressures are likely to increase. If directors cannot spend much more time on each board, greater focus is the most sensible response.

Directors are continually challenged by the difficulties of learning about their company in the limited time available. That problem is not going to go away, so boards must take every opportunity to rethink and challenge the ways in which they learn about the business. Board processes and activities easily acquire a life of their own and continue as if on autopilot for many years. Good boards will periodically revisit these activities to ask whether they are adding valueu00e2u20ac”which generally will mean “Are they helping us to better understand the important issues facing this company?” If they aren’t helping, it likely is time to return to the drawing board.

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