Boards That Lead
By Ram Charan, Dennis Carey and Michael Useem
(Harvard Business Review Press, 300 pages, $40.50)
The various corporate debacles of the past decade have led to calls for reforms to boards of directors, with tougher rules and regulations. But three insiders – business counsellor Ram Charan, Korn/Ferry International vice-chairman Dennis Carey, and Wharton School management professor Michael Useem – believe we need to be concerned instead with human dynamics and the social architecture of the board itself.
They want to see more engaged leadership in the boardroom, not only in the executive suite. "Governing boards should take more active leadership of the enterprise, not just monitor its management," they write in Boards That Lead.
They argue that directors are often the most valuable but least utilized resource a company has. Smart, experienced and dedicated individuals sign on to help the organization. But their wisdom and guidance are barely touched. Instead, they argue, directors should pay more attention to strategy, capital allocation, executive succession, management compensation, talent development and risk.
In their opening chapter, the authors tell the behind-the-scenes story of how Apple director Edgar Woolard came to realize that then-chief executive officer Gilbert Amelio wasn't a good fit for the job, began to look (with Mr. Charan) for a possible acquirer to rescue the company, and instead wooed Steve Jobs back to the helm in what has been called one of the greatest business decisions of all time.
They also recount how Motorola's board picked an inappropriate CEO in the early 1990s, then removed his successor not understanding that he had actually managed to set the company on course for its best performance ever. The encore, as the authors put it, was choosing a successor who couldn't capitalize on that success. In the end, the company was split in two and its once-glorious mobility mobile phone operation acquired at a bargain price by Google.
From their decades of watching more than 80 fumbling CEOs, the authors state that in each case warning signals were noticed early by at least one or two board members but were not shared with fellow directors. Having helped to pick the CEO, directors were hesitant to acknowledge their concerns, worried that any action would end the individual's career. "In our view, leadership at the top requires just the opposite mindset, with directors acting quickly on troubling news, even if their concerns ultimately prove to be false warnings," they write.
That doesn't mean a hasty firing, but a determination to be honest and get the facts. Three indicators to watch for in a CEO are lack of a clear strategy, failure to execute, and wrong people calls. Directors will often complain about the failure of CEOs to enunciate a clear strategy but the authors believe the most common warning signal is failure to execute. It usually stems from a combination of the individual's lack of clear focus on a few dominant priorities, dislike of follow through, and underanticipation of unintended consequences when plans go awry.
Executives lead through others, so it's important to watch leaders on that score. The board should be wary if a chief executive officer becomes overly reliant on the decision-making of a single senior officer – particularly when that individual has shortcomings and his or her role is preventing others from rising to the occasion. Another issue can be a CEO who is captive to one or more special advisers who filter or choke off diverse views flowing up from the ranks.
Directors are urged to ensure that executive sessions of the board include candid discussions of CEO behaviour and performance. The board leader – presiding director, lead director, or non-executive chairman if the CEO holds the chairman's position – can draw out concerns in private sessions with no executives present. But the board leader must make sure the discussion revolves around problem solving, not just piling on the CEO.
They also advise boards to make the chief executive officer's annual evaluation and feedback more tangibly useful. Often it's just focused on financial metrics and ignores strategic thinking, incisive decision making, and other capacities required from the top dog. The board also needs to learn about the top management team – not just the CEO's direct reports, but digging down a layer or two.
At the same time, they warn board leaders to exercise caution and engage all directors in any decision to relieve or revive a faltering CEO. "A rush to judgment on a failing CEO during a challenging period carries the same risks as aborting a takeoff when an aircraft is already halfway down the runway," they write. Sometimes it will be better to stay with an imperfect performer and revive his or her leadership when in a mess than to give the CEO the boot.
This is a wise and comprehensive book. The authors know boardrooms, and share a lot of what they have seen outside the public eye. They are particularly strong in setting out the role and activities of a lead director. And each section of the book includes a short checklist for directors to follow, compiled at the end into what they call "The Complete Director's Checklists."
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The Watchdog That Didn't Bark (Columbia University Press, 362 pages, $27.31) by Columbia Journalism Review writer Dean Starkman looks at the financial crisis and the failure of investigative journalism.
Harvey Schachter is a Battersea, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online work-life column Balance. E-mail Harvey Schachter