Boards That Lead
Boards That Lead

Boards That Lead

Directors need to know when to take charge, when to partner, and when to stay out of the way. (Location 48)

terms, we worry more about whether the board leader can help direct the board in setting strategy and gauging risk in concert with the CEO, and whether the directors’ talent and collective chemistry make the board a substantive player at the table. (Location 71)

They are sworn to protect and advance the enterprise, to ensure that it does what is best for customers and investors. Yet their wisdom and guidance are still too often closeted in the boardroom. (Location 98)

They are taking charge of CEO succession, executive compensation, goal choices, merger decisions, risk tolerance, and other functions that have traditionally been the province of management. (Location 101)

That does not mean directors should wade into micromanagement, but it does require directors to educate and interest themselves in company strategy, risk management, and talent development. (Location 127)

them—they initially filled their boards with family members, wealthy investors, and a liberal sprinkling of FOFs—friends of the founder. Not perfect overseers, but many if not most of them held a personal stake in the firm’s commercial success and they predictably worked to achieve and protect it. (Location 259)

Inevitably, investor demands for more independent boards that would be accountable to them, paid like them, and fiduciaries for them gave rise to litigation. (Location 294)

These and related trends have helped boards become far more effective monitors of management than they were a decade ago, and in doing so they inadvertently strengthened the board’s leadership hand. (Location 326)

• In building the leadership at the top, executives are increasingly furnishing directors with the information from both inside and outside the firm required to reach strategic decisions, and directors are increasingly conveying their strategic intent to guide executives in taking clear-eyed actions. (Location 372)

We believe that executive leadership can be mastered and that a leader’s checklist can focus mastery on the most vital principles for navigating through virtually any leadership challenge. We have similarly come to conclude that much the same kind of director’s checklist can be important for boards to lead as well. (Location 396)

Companies vary greatly in how they specifically work to enhance the board’s hand, customizing their architectures and practices around their own specific histories and mind-sets. (Location 425)

emanate. The central idea references why the company exists, whom it serves, how it should be nurtured, why it will flourish, how it will make money and manage risk, and where it must be going if it is to sustain a competitive presence and achieve its broader purpose. (Location 442)

Boards need to be sure the central idea is clear and compelling and that every board member understands it. (Location 446)

Creating a new telecom company is a capital-intensive sport. It can take years from the time a license is first obtained to produce profitable revenues. Yet, despite the daunting task of securing short-term cash to build a telecom, an unknown entrepreneur, Sunil Bharti Mittal, decided that he would create an entry as fast as possible to become a dominant provider. (Location 459)

Note how clear-eyed yet ambitious this central idea is, with measurable goals implied along with implementing actions, strategic alliances, and defined objectives. (Location 484)

months. Airtel directors served as a sounding board for the central idea, working with executives to clarify, crystallize, and cultivate it. They did so in both formal boardroom dialogue and informal give-and-take at Mittal’s home. (Location 487)

The central idea and its strategy alone, though, would not have carried the day. What also gave the idea sustainable advantage was a corresponding set of execution components—vetted by directors, though not created by them—that others could not so readily replicate. (Location 491)

At issue is a long-standing and deep-rooted American corporate norm that such a separation would cast a shadow on the CEO’s authority within the company and credibility with the investors. (Location 1236)

A damaging consequence was HP’s continued inability to install the right chief executive, in stark contrast to IBM’s succession experience. (Location 1268)

Technology archrival IBM, a model of CEO stability and succession, forced out none. (Location 1270)

He has founded a venture capital firm, built and led several enterprises, and joined the boards of a number of firms, some private, others public. (Location 1296)

The board leader “is the ombudsman between the CEO and the board,” Crandall said. “You have to know how to work well with all the independent personalities in the room. And you have to make sure that anyone who has something to say has the opportunity to do so without being clipped.” (Location 1298)

Being a board leader demands capacities that we typically associate with individual and team leadership at the highest level, including an ability to think strategically, communicate persuasively, and act decisively. (Location 1307)

Collaboration depends on speaking the language and appreciating the management concerns facing any chief executive. (Location 1326)

Strength and effectiveness as a board leader are also expressed by the ability to hold back so that intelligent conversation can flow and collaboration can result. (Location 1339)

“is that someone with a strong personality may inhibit open and honest discussion among board members.” She stressed that a board leader’s primary obligation is to make certain that all directors had an opportunity to contribute to the firm’s collective dialogue. (Location 1346)

Directors, she warned, “should feel free to ask questions and get additional information if needed, but they should not ‘direct’ the management team. (Location 1351)

“the lead director’s job” is to set up a process so that further discussion with the CEO can take place in executive session. (Location 1353)

“So much about being an effective lead director has to do with your ability to establish relationships and work well in the context of the DNA of a particular board.” (Location 1364)

Yet another factor defining the board leader is a sense of comfort in one’s own skin and place in life, with nothing yet to prove or still to achieve, most often the product of a long and successful career as a corporate leader in one’s own right— (Location 1379)

“The chair has to be totally straightforward and honest,” he added. “You can’t have someone in the board leader position who wants the CEO’s job.” (Location 1387)

Board leaders can anticipate at least one major crisis during their tenure—an oil spill, a product recall, a failed takeover. (Location 1391)

Rising to the task of board leader is like any other challenge—far harder and more impactful in bad times than good. (Location 1393)

Updating the CEO after every executive session of the board can help ensure that no skeletons remain in the closet. (Location 1425)

The board leader, they said, had come to serve above all as a collaborator with other directors and the chief executive on strategy formulation, as well as on functions that the CEO had historically embraced alone, including setting board agendas, focusing the CEO and directors on the right issues, recruiting new directors, and assessing company risk. (Location 1458)

ensuring that a succession plan is in place for both the CEO and the board leader; and above all, bringing directors into a working relationship with the chief executive and top management team. (Location 1472)

Virtually every team—whether a rowing crew seeking a championship or a company executing a strategy—requires a capable leader. (Location 1529)

has found that succession planning is not rewarded sufficiently by many boards, partly because it is not readily quantifiable. (Location 1540)

an exceptional ability to strategize and execute, an appreciation for the power of current and future technologies, and an experienced hand in harnessing complexity. (Location 1584)

CEO-ready, prepared to run the enterprise from the first day for the long term—in other words, both a sprinter and a marathoner. (Location 1585)

First, the governing board actively directed the process. Three highly experienced directors took charge, but all board members pitched in to help. (Location 1610)

Seasoned boardroom troopers, they had learned to operate collaboratively. “A number of us had been together on that board for quite some time,” Hockaday said, and since “we were all used to working together,” the informal norms and social architecture guiding the (Location 1615)

search process “just happened naturally.” (Location 1617)

Good succession habits start early in a new chief executive’s tenure and go well below the top of the organization, particularly in a large firm. (Location 1633)

On the premise that, in Buckley’s own words, “great companies produce great leaders, and you don’t get one without the other,” one of his earliest decisions, taken in consultation with the directors, (Location 1639)

chain, it does not produce the desired effect when applied to management development in R& (Location 1645)

“Creativity is random, like the weather, not a linear process.” Management development in such a company should not be one-track or single-minded. “If there were a precise process for management development and succession, everyone would be doing it, and everyone would be average.” (Location 1648)

As a second component, Buckley slowed management rotation around the company to ensure that managers would stay in key positions long enough to experience both success and failure. (Location 1653)

was “putting local people in charge of local operations, but with enough rotational space to be able to move great people to other positions around the world. (Location 1656)

More generally, directors had to devote more attention to the talent in the ranks. He was also concerned about the effect that federal legislation, listing requirements, and rating agencies might have on management development. (Location 1659)

Rather than waiting for the chief executive to bring the succession issue to the boardroom, directors are increasingly opting for preemptive ownership of (Location 1749)

chief executive to identify and prepare their home-grown candidates. (Location 1782)

the directors took one more hard look at the CEO requirements and sought to learn how well each of the final candidates would fit. (Location 1787)

The questions focused on how the executive would modify the company’s strategy; what forces were most likely to affect the company, including changing markets and community expectations; how the executive would enhance shareholder value; and whom the executive would recruit around him or her to optimize the decision-making process. (Location 1789)

The directors informed Mackenzie that he would take the helm on May 10, 2013, and they gave him detailed guidance on what was expected of their new captain. They worked with him to identify strategic priorities and immediate areas for focus and delivery. (Location 1795)

His announced goal: to outperform his previous employer in revenue growth, operating margins, and cash generation. To that end, he increased product prices, toughened supplier terms, and tightened labor discipline in the stores. (Location 1969)

But store associates and retail consumers began complaining that retail floor services had deteriorated. (Location 1972)

Despite great financial results at the outset, Retailer’s stock price took a tailspin compared with that of its main rival. (Location 1973)

Operating executive Robert Graves had been with the company for only five years but had successfully turned around a money-bleeding business unit, a restructuring during which he displayed an exceptional talent for strategic thinking and execution. (Location 1983)

but boards too often focus on candidate capabilities first, and leadership requirements second, when what is needed is the reverse: leadership requirements first, then candidate capabilities. (Location 2002)

Identifying the two or three position requirements and the two or three candidate capabilities around which the strategic fit would be tightest was vital but also inherently challenging because of the complexity on both sides of the equation. (Location 2036)

but the essence of most is to seek convergence on the several criteria that best define a strategic match-up in a given case. (Location 2044)

Blackstone had found that chief executives of its portfolio companies departed or were replaced long before the five-year mark. (Location 2047)

Building on the premise that, in the words of Blackstone’s Ogg, the difference between a “good” deal and a “great” deal often came down to the quality of management, the Leadership Committee’s task has been to reach discerning judgments regarding the quality of the company’s top people and organizational architecture. (Location 2054)

Ogg contends that the Leadership Committee’s own sourcing and judgment on whether the CEO has the right talent to lead the enterprise is more predictive of performance than any other factor. (Location 2057)

In cases where there is too little fit, incoming CEOs may be great performers elsewhere but doomed from the start, poorly suited for the new position in the first place. (Location 2061)

As directors increasingly join executives at the leadership table, getting that fit right—ensuring it is strategic—will increasingly serve as a defining measure of a board’s leadership. (Location 2065)

warning signals were noticed early by at least one or two directors but were commonly not shared with fellow directors. (Location 2082)

Perhaps most inhibiting of all, they knew that the CEO often retained avid defenders among the other directors. (Location 2086)

In our view, leadership at the top requires just the opposite mind-set, with directors acting quickly on troubling news even if their concerns ultimately prove to be false warnings. (Location 2091)

An unflinching focus on a CEO’s perceived shortcomings, however, first requires a readiness to recognize the emergent facts. (Location 2094)

Consider the case of a long-serving chief operating officer at one major firm, a ten-year veteran.7 She had developed deep personal relationships with major customers and negotiated well with its key suppliers, both of enormous value to the company’s operations. (Location 2148)

The veteran had performed brilliantly in strategic planning and a range of functional assignments. By finally giving him major P&L responsibility, the chief executive theorized, the staff manager would gain the line experience necessary to prospectively follow as the CEO’s successor. (Location 2171)

His analytic talents just needed the complementary line skills to round out the complete executive package. (Location 2179)

is fraught with learning obstacles that might have been surmounted by proper mentoring from the chief executive. But the CEO in this case had no penchant and scant time for the careful coaching that was required. (Location 2180)

In under twenty-four months, the division under the guardianship of the former staff executive nose-dived, cash drained, and the company staggered. (Location 2184)

Yet in fast-paced industries, that can be too long; prolonged remakes can push companies perilously close to the edge. Even in slow-moving industries, a several-month delay can prove serious. (Location 2244)

Coaching the CEO back from the edge proved providential. With the lead director’s guidance, the chief executive brought in a new director for company strategy, sharpened his strategy story for both directors and investors, worked on the gaps in his thinking, and ultimately carried the company to the commanding heights of the industry. The company’s initial public offering proved attractive, (Location 2294)

From research and experience, we know that corporate leadership is more than a single layer deep. The top management team’s leadership is as vital as that of the top executive alone—if not more so. (Location 2305)

high, and that was before Razr sales. The Razr went on sale later that year and was a big hit. For the next three years, the mobile-phone business grew sales, earnings, and market share, and gross margins doubled. (Location 2399)

Companies compete intensely around products, but equally around talent. That makes quality at the top a prime responsibility of the board—one of its callings—and the center point is the board’s decision on retaining, reviving, or relieving the chief executive. (Location 2430)

“I firmly believe that people spend too much time on quantification,” warned Krakowiak. “They want that to be the answer because it is simple. But I’m not sure that quantification is the sign of a robust ERM system. It is a false crutch.” (Location 2538)

One particularly dangerous blind spot in risk assessment that the board, CEO, and chief risk officer had to be wary of was the low-probability but high-consequence event. “It is the one-in-a-hundred event that can kill you,” said Krakowiak. (Location 2543)

this was a tough call, the directors’ collective wisdom had historically been invaluable in similar situations, and the decision would touch on the company’s core value of customer service.2 (Location 2759)

After several months of study, the staff reported to the board that consolidation had left the diamond industry without the capacity to absorb the sharply rising investment flows. With this analysis in front of them, the directors decided to keep the diamonds fund open but expand its boundaries to include companies that mined other precious stones, metals, or even coal. (Location 2781)

complex decisions entailing even relatively modest resources can usefully be taken to the board if they are of strategic significance because they touch on the firm’s central idea, business strategy, or core values. (Location 2798)

Even we who run the company, spending all of our time doing this, have enough of a problem knowing how it really operates, and it’s absurd to think that directors with the little time they have can really make intelligent decisions.” (Location 2849)