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Don't start something you can't finish Peer review? Most of your directors' time is spent in the air Figuring out what a board of directors should look like and how it should work with management is a tricky task about which few agree. Different companies have different needs; some call for an active board, others for a quieter role. Given the growing performance pressure from shareholders, CEOs should devote some thought to the role that their board plays. Corporations in the United States generally fall into three camps on this issue. Many CEOs prefer their boards to play a strictly advisory role. Crises and external events drive a second group of CEOs to strengthen their boards, at least enough to satisfy their shareholders. Unfortunately, they sometimes have to do this in a hurry, which can do more harm than good, particularly if the board members themselves are resistant to change. Then there is a third group: proactive CEOs looking for another way to improve company performance who can see the long-term benefits of an independent, involved board. For many companies, this third path is attractive, yet frightening. It takes a strong CEO to oversee the creation of an active, value-adding board of directors. Achieving improvements in board performance can take time - perhaps years. And once a CEO embarks on this process, he or she had better see it through. Board and shareholders may read any mid-course wavering as a sign of weakness or uncertain resolve. Before moving forward, most CEOs will want to be sure of the answers to a few key questions. To begin with, are major shareholders raising questions about your governance practices? If you are not under scrutiny today, how likely is it, given current trends, that you will be tomorrow? Even if your company is performing well and your shareholders seem satisfied, it may still be wise to explore whether now is the time to begin building a stronger board: * Is it worth going the extra mile to ensure that shareholders remain happy about the way your company is governed? * Is the company itself getting full value from the board? * Do you want directors who act as thought partners over the major issues facing the business? If so, can you count on your board to give a fully informed and objective opinion? * Is the board's perception of your performance in tune with your own? If not, are you concerned about where that perception might lead if the company's performance took a turn for the worse? * Are you prepared to spend a good deal of your time over the next year or more in leading a governance change effort? Can you weather any resistance you encounter from board members? CEOs who decide to build a more independent board can maximize the return on their effort by focusing on improving core board processes, which fall into four groups: board governance, management development and compensation, corporate strategy and performance, and business values and ethical oversight. Though there is nothing surprising about any of these categories, the details of how some of the best boards interpret and execute these responsibilities can be revealing. Success lies above all in a board's taking full, independent responsibility and accountability for the smooth functioning of each of the core processes. This should probably be the province of dedicated board committees, which must be guided by a clear charter, staffed by directors who will commit the time and effort required, and chaired by a strong outside director who will exercise skillful and energetic leadership. Governance Redesigning the governance process to foster a board's independence from management can involve some challenging steps, such as adjusting the composition of the board or establishing formal mechanisms for evaluating its effectiveness [ILLUSTRATION FOR EXHIBIT 1 OMITTED]. As well as these tough, long-term steps, which are discussed below, there are also some relatively easy measures that can produce [TABULAR DATA FOR EXHIBIT 1 OMITTED] performance improvements almost immediately. …
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