| Boards of directors should use the "Great Recession" | | | | Board to challenge a CEO's compensation or highly |
| as an opportunity to upgrade corporate governance | | | | desired M&A transaction when the CEO is sitting in |
| practices. Though they should not bear full | | | | the room? Though theoretically possible and required |
| responsibility for the recent economic meltdown, | | | | per a board's mandate, this is socially very difficult to |
| given the importance of their role, as well as the | | | | do. Further, meeting practices and interactions |
| many leaders that sit on boards, they should grab | | | | themselves should be re-assessed, with the question |
| the mandate for change. Specifically, many boards of | | | | being whether quarterly meetings and committee |
| directors need to become more knowledgeable and | | | | meetings are truly adequate to perform the critical |
| engaged. This can be done by a change in board | | | | functions of boards. |
| member composition and qualifications, by leveraging | | | | The good news is addressing these issues is relatively |
| the use of external advisors and reports, by adapting | | | | straightforward. Specifically, boards can do all or |
| new meeting practices, or preferably, by all three. | | | | some of the following: |
| For starters, boards tend to be composed of | | | | 1. Hire a team of independent analysts or consultants |
| executives or other leaders that are experienced, | | | | that is charged with providing reports on a company. |
| have been very successful, and are well-known, at | | | | This should be done at least annually and over a |
| least in their specific area of expertise. They | | | | number of sessions so that the analytic team can get |
| sometimes sit on multiple boards. These people, | | | | to know the company well. The team should focus |
| though qualified, are very busy and sought after by | | | | on strategic risks and opportunities, use internal and |
| many. They may bring prestige to a company, but | | | | external sources, and maintain an independent status. |
| are time-challenged and may not spend significant | | | | These external advisors are valuable in that they |
| time on the director job. In today's complex world, | | | | provide both information as well as support for Board |
| experience does not preclude the need to work hard | | | | members in going against a managerial decision. |
| to be effective at most anything. Yet members with | | | | 2. Promote the adoption of the recent proposal by a |
| the typical board member profile may find it | | | | number of Harvard Business School students to |
| challenging with their already packed schedules to | | | | make board membership a profession that will require |
| devote significant amounts of time to their board | | | | education and a degree. Qualified board members will |
| role. | | | | then make a career out of sitting on boards, making |
| Boards may also be composed of financial players | | | | it more likely that they will do the homework, get |
| that provide funding - those that work in private | | | | the information they need, ask the tough questions, |
| equity, venture capital, and at other financial firms. | | | | and so on as the job will be their priority. |
| These players are some of the smartest people I | | | | 3. Hire more diverse board members. Boards should |
| know, but generally, are most experienced in finance, | | | | recruit more diverse members in terms of gender, |
| as opposed to operations or other managerial | | | | nationality, and background. This does not mean |
| functions. On the positive side, they may spend more | | | | getting rid of experienced members or financial |
| time as they often have a team of analysts that can | | | | players. Rather, a strong board would have a diverse |
| dig into data. But they often lack operational | | | | group of members, each bringing unique capabilities to |
| experience, and when they bring in outsiders to help | | | | the table. |
| with operational or strategic issues, they also may fall | | | | 4. Change board meeting practices. Specifically, I |
| into the "experienced-but-time-challenged" category. | | | | agree with Warren Buffet's view that |
| Board members are often homogeneous in terms of | | | | non-management board members should meet |
| background, gender, and nationality. This | | | | separately more frequently in order to ensure that |
| homogeneity has been called out as a culprit for the | | | | their views are not overly influenced by |
| financial crisis, as there were many leaders with similar | | | | management's and to make addressing sensitive |
| views and those with differing opinions were either | | | | issues of interest to management more socially |
| not around or not heard, as they were too much of | | | | doable. |
| a minority. Board members are also frequently part | | | | There are companies that are well-governed today |
| of a professional or social network, for instance, | | | | as well as companies that have already have |
| former classmates or colleagues. This can make | | | | implemented some of the changes recommended |
| expressing differing views challenging, as it could | | | | above or are exploring other governance |
| strain relationships that bring other social or | | | | improvements. This is all great, but it is not enough. |
| professional benefits. | | | | Boards should act now to step-up their performance. |
| Further, information packages are generally prepared | | | | Victoria Miller Nam is the President and Founder of |
| by company management, whereas boards represent | | | | VMN Advisors Inc., a consulting and advisory firm |
| shareholder interests. Per classic finance theory, | | | | based in Seoul, Korea. For more information or to |
| these two interests at times conflict, making the | | | | contact Ms. Miller Nam, please visit |
| source of the information potentially biased. | | | | Copyright 2010 VMN Advisors Inc. All rights reserved. |
| Finally, meeting practices are problematic. How is a | | | | |