Pub. 10 2021 Issue 1

The Commun i tyBanker 10 The Definition of a Great Board: 2021 Edition By Alan J. Kaplan, Founder & CEO, Kaplan Partners T he role of a board member of any organization is con- stantly evolving. Economic cycles, leadership transitions, market dynamics, competitive changes, governance activists and even political shifts can impact board composition and best practices in corporate governance seemingly out of the blue. Then add the unexpected challenges of a global pandemic, and the environment changes quickly again. There are certain constants, however, which have proven useful over time as essential elements of the most suc- cessful boards. In defining a great board, we suggest these for your consideration: Governance as a defining characteristic of a high-perform - ing board may feel like stating the obvious. Except the board’s role is precisely that — to govern and not manage. The old saying “nose in, fingers out” still rings true today. Boards exist largely to oversee management on critical issues such as strat- egy, risk, CEO succession and transactions, and to provide sound counsel to the CEO and leadership team. Despite what some directors may still think, the board’s job is to guide and advise management and not to run the business. Risk is a critical aspect of appropriate board oversight and has become increasingly more complex over time. The impact of a “black swan” event like we have recently experi- enced with the global pandemic is a prime example. Boards should be regularly updated on the company’s strategic risks and must ensure that appropriate compliance, controls, and reporting are in place and functioning well across the organization. Engagement as a director is often overlooked. Throughout our firm’s experience advising boards, it is all too common that we encounter directors who are not engaged in govern- ing. Often these Directors do not properly prepare for meet- ings, worry about the time and length of the meeting, and do not partake in constructive conversations. Whether due to overly lengthy board tenure or outdated skills, a lack of con- sistent engagement may drive consideration for offboarding. Accountability . Boards in some organizations do not hold management truly accountable for results, which is a crucial element of governing. Such boards, at times, may find excuses for poor performance or reward management for underperfor- mance or tenure rather than pushing back to explore why goals may not have been achieved. Sometimes there are legitimate reasons why an organization does not perform (external factors; lack of resources; faulty expectations; global pandemic, etc.). Boards need to make sure the company leaders have what is needed to succeed and then hold them accountable to deliver. Talent-Centric. Well-governed organizations have boards that are consistently focused on CEO succession and executive talent development. Some firms are so focused on crafting an awesome strategy that they forget about the other side of the coin — the plan’s execution. Talent is the biggest variable in F E A T U R E