Effective Boards (July 2012)

The difference in company performance between one with an effective Board of Directors and one that is not effective can be dramatic.   In the short run, it may seem like it is easier to have a lax board but in the long run, it will be far more difficult when the company faces the music of underperforming. 

Boards that are demanding can have a dramatic impact on the performance of the company.  That said, board members need to do more than just ask questions or make superficial comments (one of my favorites was that management should try to leverage current customers by doing more business with them --- as though management hadn’t thought of trying to have a deeper relationship with current customers).   But board members who can offer more than superficial comments and ask intelligent, probing questions can add value particularly when they have a deep knowledge of the industry or marketplace.  

I recently had the experience of working with two companies at the same time but with very different boards.   Management of the company with the stronger board took action, reluctantly at first, but quickly embraced the direction the board wanted to go.   The change in profitability, literally within months, has been dramatic.   The company is in a far better spot because of the board.  There are times that despite the best efforts of the management team, they need the insights of those who can step back and “see the forest from the trees”.    Board members may have a broader perspective and can sometimes leverage knowledge of different companies and different Board interactions.  

At the same time, I am working with another company with a lax board that seems to take a “wait and see” approach.  While company results are not getting worse, they are also not getting better.  Underperformance (just like superior performance) is cumulative.  The longer a company underperforms the weaker its position both financially and otherwise.   

If you don’t have a board or if you find that your board is ineffective it is up to management to do something about it.  Add board members that are effective and who add value.  Ask those who aren’t effective to change their ways or remove them from the board.   Just as the board can demand change from management so too can management demand change from its board members.  

 
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your cash is flowing.  know where.^®    

Ken Homza   

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