Effective board directors are something I have harped on for a very long time. Having good people at the very top matter. They must be doing their fudiciary duty to protect the company & being that check & balance for shareholders. This is a thread from my experience:
(1) Composition - often we hear about gender diversity. We need to add experience diversity too. People outside the company’s industry, asking the most basic question, from different perspective. Asking why are we doing this is a powerful question, but not asked often enough.
(2) Duties - Board members must know their role is strategic, not operational. They should be asking “how is this company going to look like in 5 years”, rather than “what did you discuss at management commitee last week”.
(3) Obligation - board members have a fiduciary duty to act on behalf of ALL shareholders. Not just the major s/holder. If major s/holder asks to do something stupid, directors must say No. It’s a slippery slope once you start.
(4) Accountability - If something were to happen to the company, the legal accountability lies with the directors. The Board is the one who should ensure oversight of company & management. Directors have access to every all company statements to make an informed decision.
(5) Risk Management - Board should be asking what could go wrong with the company. Often, boards are fed with good news, rarely do they play devil’s advocate and ask why / what. Must be prepared for the unexpected.
(6) Supportive - Best ones I have worked with are those that supported me but were equally tough in expressing their opinions. When CEO loses Board support, that’s it. Board is not there to run the company, more to govern it.
(7) Preparation - the responsibility required of Board members is tremendous. Not many understand that. Opening your Board pack at the meeting does not shout preparedness on your part. Often these people are silent in meetings too.
(8) Evaluation - Just like how we evaluate management performance, there must be mechanism to see how Board members perform every two years. It’s not a position for life. After a while, Board members can develop Stockholm Syndrome too, being love with company, mgmt & themselves.
(9) Learning - There must be willingness to learn. Being Board member means knowing everything across the board but not too deep, and not too technical. Ability to ask right strategic questions (bigger picture) at right time
(10) Stand - Directors should be willing to make an unpopular stand against others when they believe in something, and have that minuted down. Problems start when all directors nod in unison when chairman says something. This goes back to culture, how we pick people for positions
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