BoardBench Companies, LLC | 5 River Road, Suite 245, Wilton, CT 06897 USA | P. 203.493.0080
Nancy May, President and CEO of BoardBench Companies Cited in Forbes
as one of America’s governance experts.
Kenneth V. Handal JD, renowned turnaround General Counsel, joins the BoardBench Companies, Board.
Breaking Up Is Hard To Do.
The new year, and setting resolutions, such as improving oneself, arrive together. For me this includes taking stock of all the top of mind individuals in my life and business. Relationships with those who have helped me along, have been good friends and allies, and the ones who have my trust, I nurture and support. Those who have been especially irksome, even toxic, I move aside. This process can be difficult, and takes more courage than one might think. However, cutting through tough emotional attachments and letting go, if done right, can be quite cleansing. It also opens new pathways to higher rewards and returns. If you've never done this before, give it a try. You may feel as though a ton of bricks has been lifted off your shoulders.
The same holds true for boards. Directors who lack relevance, show blatant conflicts of interest, seem tuned out, fall asleep or text during meetings, test the patience of their colleagues (rare, but almost all directors like to vent about them), drag down the rest of the board. While these directors may seem to be only annoying, in reality they can be quite harmful to a board. In some cases, it’s not the deliberate intent of the directors: the business, industry, and/or company may have just evolved beyond their capabilities. Time marches on, edges dull, interests fade. An INSEAD study reported that the professionals serving in the same roles tend to have performance declines after about eight years.
That said, when the time comes, how do you cut the cords? It’s not like a board can just stop calling or taking calls from a director and hope (s)he just goes away. To do this well, you need to have a process already in place, one that finds and deals with the facts, preserves respect, avoids the emotional aspects, and gets the job done right. Here are some thoughts:
Plan for this!
Everyone who comes onto a board, eventually comes off. Simply, put, it will happen to all of us, but there are good and bad ways for this to happen. The board and its members need to exercise the same due care in planning their own staffing (needs assessment, recruitment, training, succession, and parting) as they do with every other board responsibility. The key is to have a clear, unambiguous set of expectations for each board member, from the get go. The board also need to be of one mind when it comes to understanding the company’s strategy and the skills that will be needed to get the firm there. After that, a regular performance evaluation process and schedule needs to be set up to encourage improvement. Once these are in place, the board should give thought to a standard process for dealing with the unpleasant issue of director removal.
Get your facts straight.
In reality, it doesn’t take long for engaged directors to form an impression of how well their fellow board members are contributing. Of course, emotions can color impressions, which can cloud judgment. For example, is that director who constantly challenges the group being disruptive or really pulling everyone out of their comfort zone with new perspectives? Is that popular member, who always goes with the flow, really contributing any value to the discussions? Many formal or ad hoc director evaluations have been initiated merely to justify removing a nuisance, rather than strengthening the group. When that's the intent, the real non-performers may be overlooked, and the message others hear is "get along or get going.” If you need to trim sub-optimal members or even real non-performers, you need to know exactly what's not being done, and who is not doing it. Regularly scheduled, well thought-out evaluations, performed both internally and by periodically using objective outside experts, can also remove much of the emotion from the process. The key here is getting a straightforward assessment of what each board member is really contributing, and whether their particular styles, attitudes, abilities, and interactions help the board make better decisions overall for the company. Of course, an evaluation may show that no one is doing his or her job. In which case, it's not a director performance issue, but a board structure situation.
So, now you've all gone through one or more regular performance assessments, and even if the responses were not perfectly candid, there's ample evidence that some changes need to be made. What next? First off, is everyone (or almost everyone) on the same page with this? Does the information in front of us, clearly show that one or more directors are not doing or acting as everyone else needs them to? With what we know, about whom we have, should we continue on, or is it time to look for better? This is when emotional finger pointing can happen. Of course, that has to be headed off, or better yet, avoided altogether. Still, leading the process and discussion about the evaluation's results require strong moral fiber, professional care, and a high level of EQ to keep the discussion levelheaded and productive. Hopefully you've selected your chair or lead director with those characteristics in mind. Otherwise, your most respected member should be stepping up at this point to lead the discussion. The key is to stay focused on why everyone is (or should be) there in the first place: to do what's best for the company. Remember, cooperation is much better than coercion.
It is not always the case that everyone will agree. And some will not go quietly into that good night. It takes guts to have an honest and direct conversation about asking a colleague who doesn't want to leave, to step down. But if the facts are clear, and the majority opinion understands and backs it, what do you next? The Honorable Sanford (Sandy) Cloud, Jr. Lead Director of Northeast Utilities and an Independent Director at Phoenix Companies, believes that when it's time for a director to step down, "the conversation can be challenging, but is important for the strategic direction of the company, otherwise we (directors) are not fulfilling our responsibility for the shareholders and stakeholders of the company." He adds: "this is a very sensitive business and the conversation needs to happen one-on-one to properly ease the process of exiting."
But who will do it? If a chairman or lead director is uncomfortable in having these types of discussions, an independent advisor, or the Chief Human Resource Officer (CHRO), or General Counsel and Corporate Secretary (GC/CS), if they have the correct EQ, can support the process. Kevin Silva, Chief Human Resource Officer (CHRO) at the insurance giant VOYA Financial Services, who's worked with boards through all phases of governance life cycles, shares that "removing a director is the last step in a failed process. " In many cases, a well-seasoned CHRO can help guide the board through the 'parting' process.
However, if one can draw on the expertise of management or outsiders for support, counsel, and guidance in conducting the conversation, it's probably best not to involve them directly in "pulling the trigger." Independent directors need to be viewed as independent, in all phases of their service. So, even when it's time to go, this is best dealt with independent director to independent director. But, the most levelheaded, respected member should be the one to handle the conversation.
It's important to note,: as Harvey Pitt former Chair of the SEC stated: "removal of a director must still be done in an organized way and in a manner to persuade a whole set of constituencies that it was fair, legal, logical, and in the best interest of the shareholders."
Do the next steps, too.
Of course, once you've parted ways with a member, it's not enough to just start looking for another. After all, you need to know that you are not going to do the same thing over again hoping for different results. Many questions need to be asked and answered, to get at why the 'parting' occurred in the first place. In some cases, it is simple, the business changed, and the board and some of its members needed to move on. This is not necessarily a failure, so much as an evolution. What's important is to understand what's different and how much more change may be needed.
If the situation arose from bringing on the 'wrong' person, it may be time to scrutinize the board's recruiting and vetting processes. Another important set of questions should center around what we're not seeing. Do others - analysts, activists, institutional investors, and the like, have different perspectives on the quality and appropriateness of those sitting beside us at the table? Maybe it's time to give their viewpoints another look. After all, there is no one board member who can succeed on every single board out there.
So you see, breaking up is often hard to do. But someone always has to do it. Kinda like board work.
BoardBench Companies, LLC | 5 River Road, Suite 245, Wilton, CT 06897 USA | P. 203.493.0080