3 8 L E A D E R T O L E A D E R

L E A D E R S H I P P R O C E S S E S A N D P R A C T I C E S

THE COLLECTIVE

LEADERSHIP OF

BOARDSby Ram Charan

Among the starkest contrasts in the leader-ship of corporations today is the differencebetween the typical board in 2006 and thatof a decade ago. The Sarbanes-Oxley Act

of 2002, and the embarrassing failures of governancethat led to its passage, precipitated a noticeablechange in the boardroom atmosphere: directors arespeaking up and acting more independently, whilechief executives are doing more listening and lesstelling. As a result, power in most boardrooms is shift-ing toward a more equal balance.

But the evolving relationship between the CEO andthe board has yet to find its equilibrium in most cases.Vocal directors are no guarantor of effective gover-nance—they can even be a negative. By design, nosingle director has the power to give management or-ders. If each of the eight or so independent directorson a board expresses an opinion on a topic, with noconsensus, how is management to react? For the

CEO, the result is more likely to be a distraction thananything else. Thus, astute directors realize that eventhough they have become more vocal individually,their effectiveness depends on how well they gel as agroup and find their voice collectively.

The process of gelling together takes time. It often re-quires many, many hours of social interaction for agroup’s unity to become evident, but boards typicallyhave only a few hours together, and then won’t meetagain for another month or longer. Conducting so-phisticated, incisive discussions that make the mostof directors’ combined experience and judgments canthus be a challenge. Yet it is the only way for boardsto address the growing number of items on theiragenda—and not only efficiently handle the increas-ing burden of compliance but also make valuable con-tributions in terms of CEO succession, executivecompensation, and strategy. So directors shouldn’tleave the process of gelling together to chance.

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How Boards Can Find Their Collective VoiceA few simple, tested tools and practices—like usinga twelve-month agenda to keep the board focused, fa-cilitating dialogue, leveraging executive sessions, andgetting feedback to the CEO—can help boards geland shape their dialogue and interactions.

One vital area to address is lack of focus. A commonfrustration I hear is that directors feel rushed andleave board meetings knowing they haven’t coveredimportant issues. CEOs sometimes complain that di-rectors seem overly concerned with unnecessary oper-ational details; they, too, want to change the focusof discussions.

Boards such as General Electric’s, a pioneer in corpo-rate governance, use a twelve-month agenda to keepbig-picture issues in focus. The twelve-month agendais not a detailed agenda for each meeting; it’s an out-line of key topics for the coming year. It articulatesand prioritizes those topics and ensures that the boardblocks out sufficient time for them all. The agenda isalso inherently forward-looking, getting boards to an-ticipate issues linked to long-term success rather thanspend all their time monitoring recent performance.A director may be less likely to ask repeated questionsabout a stable business unit’s performance, for exam-ple, knowing that discussions about opportunities foracquisitions are coming.

With a better sense of the subjects for discussion,boards can also take steps to make dialogue more pro-ductive. Great dialogue doesn’t always happen by it-self—it often takes facilitation to move conversationsforward with a purpose and to avoid tangents. Theskill in facilitation is knowing when the time for ques-tions has passed, and in redirecting the dialogue with-out stepping on anyone’s toes. I once heard a leaddirector say, “It’s a good point and well made. Butsome of us don’t agree with you. Let’s move on,” whena director went on too long on a topic. To a person,the group rallied behind the sentiment.

All viewpoints need to be heard, but discussions needto stay on track without bruised egos—all the while

maintaining an informal atmosphere. It requires a del-icate touch to be both challenging and collegial, todraw out debate without creating dysfunction, and toengage management without micromanaging.

On some boards, directors implicitly recognize anddefer to an individual who is both highly respectedand trusted and also blessed with a knack for guidingdialogue. Other boards charge the lead director (orchair of the Governance Committee) with the task offacilitating meetings. Either way, every board needsto have someone with those skills.

A deficit in facilitation can become evident duringexecutive sessions. Without effective facilitation, ex-ecutive sessions can block a board from gelling. Direc-tors are often unsure what to do and say. If conductedskillfully, however, executive sessions can be enor-mously valuable in helping the group gel. In a can-did and trusting atmosphere, directors have a chanceto test their thoughts and insights (“What’s on yourmind?”), and interact with one another. Take, for ex-ample, a director testing an observation like “turnoveramong senior executives seems awfully high.” Itwould be nice to find out whether other directors arepicking up the same signals. Those intuitions oftenlead to spirited discussions. That is how collectivejudgment can be formed.

These discussions shouldn’t go too far into areas inwhich the CEO’s knowledge and presence are impor-tant, however, or that could lead outside directors toform a conclusion prematurely. Those topics shouldgenerate questions to be shared with the CEO. Thegoal is to get ideas and insights onto the table and de-termine which to pursue further.

The CEO should be told the gist of an executive ses-sion in a constructive manner that enables action andfollow-up. The temptation is to be comprehensive andtell the CEO everything that came up, but that canundermine the board-CEO relationship. So too canthe wrong choice of words, the wrong tone, or incon-sistencies in message. One CEO heard from his leaddirector after an executive session but got a differentstory over dinner with a good friend on the board.Boards should be careful to avoid misunderstandings.

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Thus some boards ask two directors to give the feed-back together so they can cross-check the nuanceswith each other. Other boards have the lead directorsummarize the discussion points for the CEO in frontof the whole board. All the directors can then see andhear the CEO’s reaction to the feedback and how itwas presented.

Turning Corporate Governanceinto Competitive AdvantageIncreasingly, boards are intent on finding their col-lective voices. Directors also realize that balancingCEO power is only a part of corporate governance.Boards add significant value to management in otherways, from ensuring robust and long-term successionand leadership processes to linking executive compen-sation to the particular drivers of the firm’s long-termsuccess to ensuring that the strategy is robust and ap-propriate within the changing business environment.

Succession is a particularly valuable board process.Companies like Kmart and Apple (before Steve Jobsreturned in 1997), which have suffered through peri-ods with consecutive failed CEOs, are a testament tothe importance of CEO selection. And the successes ofcompanies like IBM, whose active board selected LouGerstner as CEO in 1993, and McDonald’s, whoseboard was so well prepared that it could twice imple-ment emergency succession plans under tragic circum-stances, make it clear that boards with robust processesadd a lot of value. Succession is a board’s greatest op-portunity, and arguably its most important obligation.

Ten years ago, succession at successful companies waspredominantly CEO controlled. Today, even at manycompanies with very successful CEOs, it is the boardthat is directing the search process, with CEO input.Some boards are coming into their own as collectivebodies in their approach to, and discussions over, suc-cession issues. Directors are learning to build on oneanother’s perspectives, to test their judgments, and towork together. As they come to a consensus, theymake selection decisions with more confidence andbetter results. And they gel together over it, so thecollective voice they find carries over into other areas.

Succession and other board discussions may not havean immediate or obvious payout in terms of shareholdervalue. There can be a long time lag, perhaps years, be-tween a board’s decision, particularly for succession, andwhen the outcomes become clear. Thus it may not beobvious to everyone how boards that have gelled overthe past few years, and those that continue to gel, ben-efit their companies. But the trend is indeed in place.And in another ten years it should be abundantly evi-dent how much value effective boards are adding whentheir directors gel into a collective body.

Ram Charan is a Dallas-based adviser to boards

and CEOs of Fortune 500 companies. His next

book will be “Know-How: The 8 Skills Separating

People Who Perform from Those Who Don’t,”

forthcoming from Crown Business. He is also

coauthor (with Larry Bossidy) of “Confronting

Reality: Doing What Matters to Get Things

Right” and “Execution: The Discipline of Getting

Things Done,” and author of “Boards That

Deliver: Advancing Corporate Governance from

Compliance to Competitive Advantage.”

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