Guiding the Way
Board of Directors Key to Business Success
January 19, 2012
The economic meltdown of the past three years has proven that what the world of business needs more than ever is corporate guidance. More accurately, corporate governance.
When a recent survey by nationally known pollster Zogby Interactive revealed that U.S. bankers are now considered less popular by Americans than their politicians, well, the problems that businesses have with perceived mismanagement and broken trusts are painstakingly clear. A strong board of directors to guide the executive team through difficult decision-making can help companies find success through the ups and downs.
Leading with Experience
Just as any parent knows the value of teaching their children correct principles for success, then adding rules and boundaries to help guide them as they grow, businesses also need nurturing and monitoring. Children can’t do that for themselves, and few young businesses can either. So instead of turning to a parent for guidance, a business or organization needs directors—boards of directors.
Those boards need to remember their roles and stay focused on their responsibility, both to the business owners and their clients. That’s a message that Robert Gross has been preaching for decades. As he states on the website of his company, Robert C. Gross Associates in Salt Lake City, his approach to corporate governance counseling is unique. An experienced mediator, Gross now trains executives, board members and committees to “communicate and lead more effectively.”
“I preach the virtues of any business, of all businesses, using boards of directors for both legal and practical reasons,” Gross says. Already required by state laws for any company that incorporates, he calls boards of directors one of the three important components of a business—along with the owners/shareholders and management.
The key is to make sure that the board is functioning properly.
“Their duty is to serve the owner’s interest, and monitor and oversee the management of the company or corporation,” he says. “Having said that, sadly, as we see in companies that have underperformed or failed, the boards are often functionally beholden to management, the same group that appoints them and pays them.” In other words, sometimes these boards simply rubber stamp a management decision or recommendation.
Selecting the Right Board
Gross, who has worked with both public and privately held companies, sees the difference in the needs and wants of an array of businesses. Most startups are privately held, often with few shareholders who become both board members and management. Public companies tend to go outside the core ownership/management group and bring in board members with expertise in supportive fields. Some of those picks are ceremonial at best, striving to benefit by association with that board member’s history or reputation.
Parts of Gross’ message to clients are clues to choosing the right kinds of directors for their boards. “Over the years, what has happened with many companies is that the chief executive officer, perhaps the owner, also appoints themselves as chairman of the board,” he says. “But that is changing. There’s more of a feeling that the roles should be separate. Many public companies are now electing a ‘lead director’ who has no financial interest in the company. That move toward independence is creating a greater checks-and-balances system in those companies.”
Board members need to share common strengths, such as passion and vision, says Gross. While public companies may be looking for infusion of capital from institutional investors, startups seek long-term players, those with financial acumen and expertise.
“With startups, they need directors who bring specific skill sets to the table,” Gross says. “They want people who understand that they should be engaged and working toward a strong corporate organization. When those requirements are met, then a strong corporate governance can be created.”
His message to all businesses: self-governance is critical to achieving success, both in conduct and in the actions of the business, and its board of directors.
“Ultimately, enhanced boardroom governance involves much more than the adoption of ‘check-the-box’ best practices,” he says. “Integrity in business is grounded to a commitment of doing what’s right, not just doing the right things. It’s based on a foundation of ethics and values that balances risk with reward.”