MOST BOOKS on corporate strategy focus on leadership, CEOs and innovation. Rarely does any book talk of the role played by the board of directors—something which is taken to be more of a necessity than of value. Boards That Lead is different, as it talks in great detail about the potential power of the board, which can actually make or break an organisation. It espouses the importance of the board of directors and while a lot of it deals with what directors ought to do, there are several examples to show how they have made a difference in the past. The authors—Ram Charan, Dennis Carey and Michael Useem—each an expert and practitioner in the field, throw a lot of insights on how companies can benefit from having boards that work rather than just exist.
Usually, boards are seen as being necessary and often turn out to be ornamental bodies, running through chores laid out by statute. The authors base their case on how boards function in the US. There is basically a checklist for all directors drawn by the authors on three broad areas: where they can make a difference, where they should be involved and where they should step aside. The boards should delegate, say the authors, most of the operating decisions to the top management, but should retain a guiding voice in 11 areas—directly in five ‘decision areas’ and ‘partner with the chief executive’ in six others—leaving all else to the top management. While such proactive leadership of these 11 areas is essential, knowing when to stop is equally vital because any case of micro-management could lead to strangulation and come in the way of progress. Interestingly, the authors explain how the right person should be heading the team through the unlikely example of the first successful climb of the Everest, when the leader was changed to get in the right person. Hillary and Norgay would never have been the chosen ones if Eric Shipton—who had a flair for climbing and would probably have been the first—had not been replaced at the last moment. For the climb, John Hunt was the so-called CEO, an untutored amateur and a professional manager. His strategy was to get in an army of climbers, sherpas, rations, yaks, etc, and he decided that the final climb would be by those who climbed well and were in the high camp—quite impersonal. It worked. Issues like selecting the CEO, maintenance of ethics, overseeing the compensation structure and ensuring competence of board members are necessary and every board should get involved in these. A partnership is required for strategising, setting goals, assessing risk appetite, resource allocation, talent development and creating a culture of decisiveness. Here, there has to be constant conversation with the management, especially the CEO, to ensure that the future path is known and understood. The authors, however, are quite certain that board members should stay out of execution, operations, delegation of executive authority and non-strategic decisions. This is where boards need to introspect and see whether they are doing what they are supposed to do. Quite clearly, the path laid out sounds compelling and logical. By putting them under a checklist, the authors actually lay a template, which needs to be pursued if it is not naturally imbibed by members. They also point out that the directors chosen should be those who add value and should not be there merely because of their stature—past or present. This is interesting in the context of India, as the tendency often has been for quite a number of boards to prefer to pick people who have reputed names in the industry, but may not add value, as they could be out of touch with the industry. The authors also warn against having dysfunctional directors who, at times, would tend to create disturbances in functioning to prove themselves. However, they do not quite spell out effective ways of taking them off the board. There are no solutions offered as to what should be done when things do not work. This is the problem with a number of boards of companies where directors are there to just add glamour in the annual reports, but otherwise end up toeing the line, especially when the chief executive is very strong in so-called professional companies or is the promoter who holds the reins by owning the company. Similarly, there are a lot of pages spent on the selection of CEOs. Given the recent discussion on the appointment of heads of organisations in India in both private and public sectors, one is not sure if these rules are really followed. This holds especially when an outsider is brought in through a short-listing process where there is opacity. The authors do not touch on this aspect, though they weave their story around that perscriptive. In the same vein, they tell board members to look out for a falling CEO and also work on creating a succession plan. But rarely do we have cases where CEOs are asked to leave before their tenure. And succession planning is never the priority with CEOs who are constantly looking for reappointment. We have had several reports and committees that talk of ideal rules of corporate governance and the authors here provide a checklist for these. They pose some questions at the end—which is probably the crux. The questions that have to be answered by the board would decide whether it wants to lead or just monitor operations. The latter is the easier option. Does it have the experience and diversity to put value on the table? Does it ensure careful selection of the board leader? Does it ensure that the right executives are in place? Does the board ensure a rapport between executives and directors? Does the board directly engage directors in business opportunities? And finally, does the board ensure the right tenor at the top? These are questions that have to be jointly answered by both the directors and the management. But that is possible only if both sets of professionals are genuinely concerned about the future of the company. That, in short, is the crux.
Usually, boards are seen as being necessary and often turn out to be ornamental bodies, running through chores laid out by statute. The authors base their case on how boards function in the US. There is basically a checklist for all directors drawn by the authors on three broad areas: where they can make a difference, where they should be involved and where they should step aside. The boards should delegate, say the authors, most of the operating decisions to the top management, but should retain a guiding voice in 11 areas—directly in five ‘decision areas’ and ‘partner with the chief executive’ in six others—leaving all else to the top management. While such proactive leadership of these 11 areas is essential, knowing when to stop is equally vital because any case of micro-management could lead to strangulation and come in the way of progress. Interestingly, the authors explain how the right person should be heading the team through the unlikely example of the first successful climb of the Everest, when the leader was changed to get in the right person. Hillary and Norgay would never have been the chosen ones if Eric Shipton—who had a flair for climbing and would probably have been the first—had not been replaced at the last moment. For the climb, John Hunt was the so-called CEO, an untutored amateur and a professional manager. His strategy was to get in an army of climbers, sherpas, rations, yaks, etc, and he decided that the final climb would be by those who climbed well and were in the high camp—quite impersonal. It worked. Issues like selecting the CEO, maintenance of ethics, overseeing the compensation structure and ensuring competence of board members are necessary and every board should get involved in these. A partnership is required for strategising, setting goals, assessing risk appetite, resource allocation, talent development and creating a culture of decisiveness. Here, there has to be constant conversation with the management, especially the CEO, to ensure that the future path is known and understood. The authors, however, are quite certain that board members should stay out of execution, operations, delegation of executive authority and non-strategic decisions. This is where boards need to introspect and see whether they are doing what they are supposed to do. Quite clearly, the path laid out sounds compelling and logical. By putting them under a checklist, the authors actually lay a template, which needs to be pursued if it is not naturally imbibed by members. They also point out that the directors chosen should be those who add value and should not be there merely because of their stature—past or present. This is interesting in the context of India, as the tendency often has been for quite a number of boards to prefer to pick people who have reputed names in the industry, but may not add value, as they could be out of touch with the industry. The authors also warn against having dysfunctional directors who, at times, would tend to create disturbances in functioning to prove themselves. However, they do not quite spell out effective ways of taking them off the board. There are no solutions offered as to what should be done when things do not work. This is the problem with a number of boards of companies where directors are there to just add glamour in the annual reports, but otherwise end up toeing the line, especially when the chief executive is very strong in so-called professional companies or is the promoter who holds the reins by owning the company. Similarly, there are a lot of pages spent on the selection of CEOs. Given the recent discussion on the appointment of heads of organisations in India in both private and public sectors, one is not sure if these rules are really followed. This holds especially when an outsider is brought in through a short-listing process where there is opacity. The authors do not touch on this aspect, though they weave their story around that perscriptive. In the same vein, they tell board members to look out for a falling CEO and also work on creating a succession plan. But rarely do we have cases where CEOs are asked to leave before their tenure. And succession planning is never the priority with CEOs who are constantly looking for reappointment. We have had several reports and committees that talk of ideal rules of corporate governance and the authors here provide a checklist for these. They pose some questions at the end—which is probably the crux. The questions that have to be answered by the board would decide whether it wants to lead or just monitor operations. The latter is the easier option. Does it have the experience and diversity to put value on the table? Does it ensure careful selection of the board leader? Does it ensure that the right executives are in place? Does the board ensure a rapport between executives and directors? Does the board directly engage directors in business opportunities? And finally, does the board ensure the right tenor at the top? These are questions that have to be jointly answered by both the directors and the management. But that is possible only if both sets of professionals are genuinely concerned about the future of the company. That, in short, is the crux.
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