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What Goes Into a Good Board of Directors?

April 24, 2023
At the heart of all the tactical issues, the strategic needs are the same.

First quarter is over, and financials are being reported. Board season is in full swing.

What is interesting to me is how all the company boards I serve require different decisions to be made. Yet, at the heart of all the tactical issues, the strategic needs are the same.

Let me explain by starting with the tactical issues at hand:

1. The development of a companywide bonus program

2. The succession of an executive leader into a vice president role

3. A retiring company owner searching for new talent required to grow the business

4. Identifying a new board member with the expertise required for the next business cycle

All of these businesses are in different industries. But do you see the underlying strategic themes? Each business is evolving and growing.

I think of this phenomenon as a business “growing up.” In my case, the companies are transitioning from one generation of owners/leaders to the next. And what got them here will not be what gets them there.

New Beginnings Are Emotional

First, one must acknowledge change. A leadership transition in particular is an emotional process for everyone involved. The leader will likely feel sadness or grief, mourning the loss of something they have worked so hard to build.

The new leader, however, will be excited and nervous for this next stage of life. A retired CEO can play an invaluable role here as a mentor, sounding board and link to critical outside connections. The exiting leader will also have peace of mind knowing that their legacy will continue in good hands. And a good board will help both the exiting CEO and new leader transition into their new roles, managing emotions as well as expectations.

See the Big Picture

Company boards should be strong, high-functioning work groups whose members trust and challenge one another. Board members should engage with senior company leaders on critical issues facing the corporation. But all too often, company leaders simply report out to their board members and do not engage members in strategic discussions.

Sometimes a “good board member” is judged based on their meeting attendance. When, in fact, they should be analyzing complex financial issues and understanding the kinds of risk a company can and should take on in order to evolve and grow.

Team Makeup

Should a board be made of independent members or insiders or both? I have found that a mixture of both is ideal. Insiders are well-informed about what is happening within the company and can help outside members feel more comfortable and plugged in to the reality of what is happening on a day-to-day basis. Outside members, since they are not involved in running the daily business, are able to maintain a birds-eye view, allowing room for strategic thought and risk management. In addition, outsiders are also generally familiar with other industries and can apply this knowledge of best practices to improve business performance.

Yet the real difference between a good board and a bad board is the social system. No matter how talented a group of people may be, they must first trust and respect one another. Then, once members feel psychologically safe, they will feel free to debate and challenge one another on tough, strategic decisions.

But board members who trust each other is not enough. The CEO must also trust his or her board, and be able to report the bad news right alongside the good in a timely manner. The board is there to help the CEO navigate business challenges by providing advice, support and connections. Let’s face it—it is lonely at the top.

Reflection: Is your board of directors helping your company strategically evolve and grow?

Ashleigh Walters was president of Onex Inc. through 2022 and is the author of  Leading with Grit and Grace.

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