Clues to Board Ineffectiveness

The Harvard Business Review published a provocative article last week about the shortcomings of board directors in today’s post financial crisis environment. The article was written by Roger Martin, dean of the Rotman School of Management at the University of Toronto. Mr. Martin is a frequent writer and expert in the field of Design Thinking. According to Mr. Martin, the following are six indicators of a bad board member.

1) They complain about how hard Sarbanes-Oxley has made it to be a director. Guess what? It has also become hard to be an investor. And hard to be a public company auditor and a capital markets regulator. It’s hard all over. If your directors complain that they don’t have time on the board to talk about strategy and succession and other important management issues because the formal SOX procedures have crowded that out, you have mice not men (or women) on the board. Every person in every organization has the personal choice to be a value-added contributor or turn into a useless bureaucrat. Directors have that choice; nobody is putting a gun to their heads. If they complain, they are likely to be useless to you.

2) They complain about how the fees for being a director aren’t high enough to compensate for the onerous work involved. You don’t want a director on the board because they think it is great money. If they complain about the money, it is because they are obsessed about making money by being on boards and want it to be a lucrative gig. If they think it is great money, they won’t do anything to rock the boat and risk losing that gig.

3) They are paid in the top tertile of peer boards. Boards set their own compensation. If board members set their compensation significantly above the median of peer boards, they want to make the board a lucrative gig and that is a bad thing, per the point above.

4) They express excessive pride over being on the board. This is likely to mean that they are enamored with the prestige of being on the board. If that prestige is important to their sense of self then they won’t do anything to rock the boat and risk losing the prestige associated with being on the board.

5) They express enthusiasm for the enjoyable social atmosphere on the board. This means they will be incline to avoid doing anything to rock the boat because that will reduce the enjoyment of the atmosphere on the board.

6) They express enthusiasm for the personal growth opportunities the board provides them. That is lovely for them, not for you.

As we continue to emerge from the rubble of the Great Recession, more companies will need to reflect on the effectiveness of their boards and, more importantly, their individual board members.

About Wheelhouse Advisors
Wheelhouse Advisors LLC is the publisher of The ERM Current™, an online publication and blog dedicated to providing the latest updates on current trends in Enterprise Risk Management & Control. Wheelhouse Advisors provides cost-effective Enterprise Risk Management & Control solutions to both large and mid-size corporations. To learn more about Wheelhouse Advisors, please visit our web site at www.WheelhouseAdvisors.com.

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