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The Alchemy of Governance
Competency and chemistry are critical for a successful board
by Joel Koblentz
June 18, 2009
Several years ago when corporate governance was being challenged and, in fact, regulated to step
up, my friend, Dr. Jeffery Sonnenfeld, now at Yale, authored an interesting article in
The Harvard Business Review on how boards should function as a team. Over the years, and
many board search engagements later, I continue to see the wisdom in the team approach to
successfully governing the increasing complexities of public companies.
Today, there is little doubt that publicly traded companies are facing challenges that were
unforeseen and are proving to be largely unforgiving. Two years ago, no one saw the D&R
Syndrome - De-leveraging and Re-regulation.
And few perceived the depth of the issues that even the best run companies now must address.
These challenges, many beyond any company's control, have changed where boards must place
their concentration and efforts but, in my view, haven't changed how a board must function to
provide the alchemy of independence, transparency, and fiduciary responsibilities.
From our clients and from our experience of over two decades of serving boards, we can say,
flat out, that the best boards have to raise the bar on competency by determining which skills,
experiences and know-how their company requires in order to govern in an appropriate manner along
the strategy and value creation models that the board and its company leadership have agreed. It's
no longer enough for a board member to suggest a board candidate with whom they are "comfortable."
And, it is no longer enough for boards to nominate a CEO for consideration, merely because the
individual, although well accomplished, is considered competent by fiat for the challenges that our
client may face.
Our prescription for corporate governance alchemy has two basic dimensions:
The first is
competency.
By competency we mean, that factors of trust, reputation and credibility to opine on a
board's essential matters of shareholder representation are essential. This requires the board's
nominating committee to be tough and to be persuaded that any board candidate nominee will bring
strength to the board and by doing so, increase a board's effectiveness and fitness to govern.
Simply a candidate's functional expertise oftentimes appears more easily transferable than
varied industry experience especially when one, for example, considers a CFO or a retired audit
partner from a public accounting firm for consideration for a company board's audit committee. And
yet, a board may benefit by the experiences of a fellow board member who has faced similar issues
in a different industry sector. Vectoring in on the blend of functions and industry experiences is
becoming a "science" and the expected norm for high functioning boards.
Secondly, it's all about
chemistry.
As I mentioned above, boards are teams. And as teams, every board member should not be
expected to bring sameness to the governance equation. In fact, the best boards encourage
"conversations" drawing in and encouraging differing points of view leading to a wholesome debate
on important issues at important decision points. To make this work, requires a chairman and/or a
lead director who embodies respect, and encourages the views and contributions of his/her fellow
board members. Clearly, not every board member brings a competent point of view on every pending
matter. The board leader's role is to understand and appreciate where and from whom wisdom can be
garnered on any particular issue while preserving decorum and open and frank conversation among all
at the table. In doing so, respect among board members is generally achieved. Even more so, if a
board member fails to contribute, the team will generally impose enough pressure for the
nonperforming board member to step up or to be voted off the island.
Let me leave you with a thought that I will paraphrase from Warren Buffett. When the tide
roles out, we'll see whose wearing a bathing suit. The board is nowhere to hide for less than
competent directors. Those times have passed and our most progressive clients know that those times
are gone forever.
Joel M. Koblentz is a Senior Partner at The Koblentz Group
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