Directors and CEOs have a lot on their plate when assessing boardroom challenges. Some issues span across all types of boards like how to handle succession plans, how do you vet new members, and how do you make sure your board is diverse? These problems are important and complicated but what about the issues that plague boards on a very specific level? We wanted to take some time to address the challenges that public boards face versus the challenges private boards face. These challenges have to do with general board governance, public view, and internal struggles.
Public Board Challenges
The number one challenge that the board of a public company faces is the shareholders. The time and energy boards spend on developing the message for the public domain can be exhausting and not very rewarding. The shareholder perspective and rights has slowed down the decision making process for many public boards and made it far more complex. This can increase stress for directors as it presents one more layer of consideration when taking action. Boards can easily become frustrated as they have more information than the shareholders, but they still need to consider their opinions.
To combat this frustration and stress, directors should remember the bigger picture. When it seems like the board is moving too slowly, pause and take a step back. Remember that everyone is there because of the mission and vision of the company. Part of the reason the company exists is because of the shareholders. Taking a break and reaffirming the team will bring emotions to a healthy place where decisions are more easily reached.
Another challenge for public boards is that directors need to be more knowledgeable in more areas than previously required. This is due to the dynamic global economy, political uncertainty, rapidly developing technology, and the fact that mergers and acquisitions are reaching an all-time high. Shareholders expect their board members to be ready for anything and have the experience and confidence to face any challenge which puts a great deal of pressure on directors and CEOs. This could also explain that CEO turnover in public companies is much higher than in private companies.
Board governance policies can accommodate this growing need by implementing sessions where directors and the CEO can learn about new developments in different areas (economy, politics, technology). They should also be learning about the company and how their operations work. This will instill confidence in the board and help board members connect with one another. We have created tools specifically for improvement board dynamics and help board members connect.
Private Board Challenges
Directors of private boards have very different challenges than public boards. Because they do not have to answer to shareholders, private boards often run into problems of board composition. It is essential that boards stay objective and independent, but in private boards this often falls by the wayside. This is due to reduced regulation and less of a sense of transparency. Some private boards will hire independent directors to oversee technical parts of the business to cover any knowledge gap that they might be facing.
One way to avoid the problem of subjectivity is to hire a formal advisory board. These board help private boards get some perspective and assess their decisions. While most private board members would say that advisory boards are a good idea, only 17% of private boards used them last year.
A major challenge that private companies risk is influence. Often times, a CEO will assemble a board of directors that does not challenge their decisions. It is crucial that directors feel comfortable questioning their CEO and holding them to a higher standard. The point of the board is to provide a wider frame of reference that is outside the immediate company. In this case, directors need to communicate with each other and their CEO. Learning how to respectfully disagree is key to finding the best solution and moving forward.
Both public boards and private boards face deep and complex challenges. At Level Five Executive, we always start with the emotional health of the board because it makes facing the rest of the challenge much easier. When the board is united, the storm doesn’t seem as bad and better decisions can be made. For more information, please contact us at [email protected].
Part 3 Dismantling a Lock-In in the Boardroom: An Emotionally Focused Approach to Board Effectiveness