Welcome to week three of our Commonsense Governance Principles coverage. We are taking time to go over each of the proposed principles for best practices in board governance and put them in terms of emotional connection. Last week we examined the Board of Directors’ responsibilities and in week one we looked at board composition and internal governance. This week we are actually going to cover two principles because they are each a little shorter and have to do with similar topics – shareholder rights and public reporting. These two elements are basically outlining how you should present the company to the public and how that affects your goals.
This principle explains the importance of scrutinizing your shareholder proxy access and overall rights of shareholders. It is important to review this with your board and make changes to your rules if they are out of date or unhelpful to your company’s goals such as dual voting. As a board, we suggest that you take time in a meeting to discuss shareholder rights. Ask everyone to develop their thoughts on the topic before the meeting and be prepared to fully engage in the discussion during the meeting. Everyone should be expected to participate.
Even if you believe your shareholder rights are in a good place, there might be an unexpected perspective coming from a fellow board member that you have not considered. It is important in this time to avoid dismissing statements such as “that is ridiculous” or “you’re crazy to think that”. These statements will lead to disconnection and are detrimental to board effectiveness. When someone hears a dismissing statement directed at them, they are likely to either push back which causes destructive back and forth arguing or shut down which can slow your board meeting to a halt. By addressing all concerns and having a healthy discussion, the board will be able to make the necessary changes to improve shareholder rights.
Public reporting is basically the face of the company. It’s a controlled message that you are sending your stakeholders and the general public about your company’s current state and future goals. The commonsense principle states that transparency is key and actions taken by the board should be clearly explained in terms of overall strategy and goals. The best way to keep everything clear and consistent is to have one board leader take the reins in delivering the message. Before sharing with the public, any reporting should be covered in a board meeting. A message should be developed by the team so when it is released, the board is united. Every board member should have a say in how decisions are explained and what the company’s goals are.
Public reporting is easy to botch. If the board is dysfunctional, you might see two or three different board members or company leaders sending different messages to the public. This serves to create distrust and only confuses shareholders. A functional board able to explain their decisions much better because their decisions are based on facts and creative solutions instead of the emotional disconnection that plagues many ineffective boards.
Overall, these two principles are easy to follow if your board is connected and you have healthy dynamics. When a board is healthy internally, they are able to face to public with strength and unification. To learn more about improving emotional connection within a board, please contact us at [email protected].
Ten Ways to Unite Your Board During a Hostile Takeover in NACD Directorship Magazine