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Updated: February 4, 2014 08:17 IST

Changing profile of company boards

R. Devarajan
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BOARDS THAT LEAD: Ram Charan, Dennis Carey, Michael Useem
BOARDS THAT LEAD: Ram Charan, Dennis Carey, Michael Useem

The board of directors of a company has the legal and fiduciary responsibility to ensure that the company always adheres to its chartered requirements. The board must function within the framework of its mission mandate, which will outline the broad objectives of the organisation, and its basic operating procedures. While board members will thus guide the organisation, the Chief Executive Officer (CEO) will perform managerial duties. He will manage an executive team that will run the company.

In today’s global business environment, success is driven by the talent, vision, and leadership acumen of the CEO and his executives; whereas board members standing too tall on their own soapbox may unconsciously twist the arm and inhibit the free flow of ideas of the CEO. At best, a director must function only as an advisor and mentor to the CEO. There must be no attempt — covert or otherwise — to usurp the authority of the CEO.

A successful CEO will build an effective bond with the directors through his personal and informal interaction with them. He must enlist the support of a board especially occupied by such directors whose talents may be different from, but complementary to, his own portfolio of skills. The board and the CEO must mutually recognise, respect, and reinforce the operating domain of one another.

The primary role of a board is not only to govern, but also pre-empt and forestall managerial opportunism, should it surface at any time, either intentionally or inadvertently. When circumstances may warrant and necessitate a hands-on approach, a director must not demur to get involved — for instance, during crisis management.

It is imperative that the CEO and the board function as allies and cohesive partners, who perform reciprocal roles focused on accomplishing organisational objectives. The CEO and the directors are on the same side of the fence. They are not competing, but collaborating with each other. The board is responsible for setting targets and establishing policies that will translate the corporate mission into measurable goals. The CEO is responsible for achieving such targets in the most cost-effective and participative manner.

Balancing responsibilities

However, there is an unfortunate possibility that sometimes the board members may feel that they are being sidelined and disempowered by an intransigent and recalcitrant CEO. An equally distraught situation may arise when the CEO may perceive the board as a monkey on his back due to excessive monitoring and micromanagement.

In law, the board has the ultimate authority and accountability. But in effect, the CEO has the immediate responsibility to get things done. Therefore, a win-win scenario will demand the perception and practice of shared obligation between the two, as opposed to “your Job” and “my job” attitude.

The book under notice says it all: “The time has come for boards to rebalance their responsibilities. Directors need to know when to take charge, when to [just] partner, and when to stay out of the way.” The book explains how this ought to be done in the best interest of everybody; and in the process, how to maintain the right chemistry with the CEO.

Engaged leadership

The book further maps out an emergent model of corporate leadership — one which is increasingly defined by the actions of both the CEO and the directors. “We identify a distinctive social architecture that is now required of companies, if directors are to lead the enterprise along with executives, not just stand guard over it. This calls for a different kind of vigilance in the boardroom, a deeper kind of relationship between directors and executives, and a new kind of leadership from both.”

The authors of the book, a distinguished triumvirate in management, have had the advantage of “a front-row seat” when observing the difference between “boards that are well run [by the CEO] and led [by the directors]……..and those that are far less so.” It is, hence, no wonder that the book does” focus attention on building more engaged leadership in the boardroom.”

The treatment of the subject matter is exceptionally pragmatic — proceeding from practice to precept; and illustrating a theory by furnishing the most pertinent example. Every chapter is replete with real-life stories, each one demonstrating and emphasising the need for the board to lead from the front.

The book has been structured into three parts, preceded by an introductory chapter dealing with the evolution of the director from a ceremonial role, into being a monitor, and eventually as an active leader in the organisation.

Another unique feature of the book is “The Director’s Checklist” appearing at the end of every chapter; and also, a compendium of all the lists at the end of the tome. The raison d’etre being that “A set of enduring checklist principles can furnish directors with a road map for leading through the most challenging moments that boards inevitably confront.”

The first part of the book defines “the central idea of a corporation ... and how its absence can cause a company to flounder;” how mission-critical it is to get the most effective directors on the board; and then, the flip side – dealing with ineffective and dysfunctional directors; and lastly, a template for the role of the managing director – his personal qualities and professional excellence.

The second part of the volume talks about selection of the CEO; how to optimize between job description and persona grata; and in the event of a mismatch, how to resolve the issue.

How directors can help in value addition to the company is the sum and substance of the last part. It explains how to turn risks into opportunities; how a director must let and leave the CEO to do his job – “minding without meddling”.

BOARDS THAT LEAD: Ram Charan, Dennis Carey, Michael Useem; Harvard Business Review Press, 4378/1, Ansari Road, Daryaganj, New Delhi-110070. Rs. 995.

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