I continue my review of The Handbook of Board Governance: A Comprehensive Guide for Public, Private, and Not-for-Profit Board Member. With the current post, I provide comments on Part 2 of the book, What Makes for a Good Board? See prior introductory comments and those on Part 1. I suspect the book will soon be the most popular collection of articles of current interest in the field of corporate governance.
The Handbook of Board Governance: Director Independence, Competency, and Behavior
Dr. Richard Leblanc‘s chapter focuses on the above three elements that make an effective director. Regulations require independence but not industry expertise; both are important elements. Leblanc cites ways director independence is commonly compromised and how independence ‘of mind’ can be enhanced. He then applies most of the same principles to choosing external advisors. Throughout the chapter he employees useful exhibits that reinforce the text with bullet points, tables, etc. for quick reference.
Director competency matrices have become relatively commonplace, although not ubiquitous. Leblanc not only provides a sample and scale, he reminds readers that being a CEO is an experience, not a competency and experience is not synonymous with competency. A sample board diversity matrix is also presented with measurable objectives for age, gender, ethnicity and geography.
Director behavior is the last topic in Leblanc’s chapter. Of course, each board needs to define how its directors are to act, subject to self- and peer-assessment but Leblanc’s ten behaviors is a good starting place:
- Independent Judgment
- Organizational Loyalty
- Capacity to Challenge
- Willingness to Act
- Conceptual Thinking Skills
- Communication Skills
- Teamwork Skills
- Influence Skills
That’s just one list of many. Leblanc’s examples and commentary on each adds color and depth. Under the UK’s Corporate Governance Code, director reviews are required to be facilitated by an independent provider every two or three years. Great advice for boards elsewhere as well. As Leblanc reminds readers:
Proxy access and other renewal reforms are the direct result of boards steadfastly resisting director recruitment on the basis of competencies, the removal of underperforming directors; and the lack of boardroom refreshment, diversification, and renewal.
The Handbook of Board Governance: The Criticality of Board Director Team Intelligence (TQ) in Economic Value Creation
Have you ever done the moon landing team-building exercise? You and your team must select which items are most important in helping your crew reach the rendezvous point. In theory, the exercise shows how the group’s answers are better than any single individual member of the group. Of course, success depends in being able to draw out and evaluate each member’s potential contribution.
Solange Charas focuses on how to leverage the knowledge and experience of diverse teams to harness their TQ… encouraging conflict in a psychologically safe environment to focus on value-creating governance initiatives.
Classical economics assumes perfect information but we all know through out everyday experience that information is asymmetric. A key task of directors is to minimize information asymmetry in the boardroom through healthy dynamics.
The Handbook of Board Governance: Lessons from the Banking Crisis – Leadership and Effective Board Behaviors
Dr. Mary Halton studies Irish and Canadian banks in light of the 2007-2008 global financial crisis to get a better understanding of effective director behavior. The attitude of the CEO and the board chair toward the board is of critical importance to a productive board process. Halton provides several examples of both constructive and damaging behavior.
Regarding board norms, there is a fine line between being disruptive and constructive. Trust around the table is the critical factor but that depends on the quality and flow of information. Halton reviews issues around board meetings, board size and balance. Irish directors influenced each other through informal sessions, whereas Canadian’s place more emphasis on in-camera or executive sessions. Halton sees benefits to the in-camera sessions, which are seen as a more legitimate mechanism to vet ideas and build agreement without management present.
The Handbook of Board Governance: The Challenge of Director Misconduct
Holly J. Gregory‘s chapter is a must read for every director who must ensure they, as well as other board members, follow the law and any reasonable norms of the company.
A company’s ability to protect nonpublic (often proprietary and strategic) information and to control the timing of disclosures is impeded if individual directors unilaterally determine when and what confidential information to disclose.
Of course, each board must set out their own expectations but many will find Gregory’s list of ‘valued behaviors’ an excellent place to begin. A director’s resignation can trigger an obligation to file under Item 5.02(a) of Form 8-K. The disclosure is to include a description of the disagreement and correspondence the director about their resignation or refusal to stand for reelection must be filed as an exhibit. Gregory provides good advice on how director misconduct should be addressed, reminding boards they can minimize such risks by identifying norms, conducting regular evaluations and ensuring proper training.