The Covid-19 crisis is unlike anything we’ve seen before. Not only is this pandemic unprecedented; it’s having a different impact on different industries. While some organizations have been forced to a near standstill, others are forced to increase productivity under pressure to survive. One item remains constant: having a seasoned board is more important now than ever before.
While there is no “one-size-fits-all” solution to assembling an exceptional board, even exceptional businesses need one. However, most private companies do not have functioning boards.
Having served as an outside director on numerous boards during periods of crisis, I believe that assembling the right board is like finding the right pair of shoes. You need a good fit with the right degree of support and responsiveness to accomplish your goals. Just as you would hike the Appalachian Trail in different shoes than you’d choose to run the Boston Marathon, the right board enables your business’s optimal agility across industry-specific terrain.
It’s never too late to assemble the best possible board. If this pandemic has taught us anything, it’s that the next black swan event is always on the horizon, and learning from the current crisis is the first step to prepare for the next crisis.
Here are some ideas to help form or restructure your company’s board right now.
It’s important to understand different types of boards and how they may benefit your business. While public companies are required to have boards, private companies are only required to on paper. Owners often wait until their business faces an unforeseen hurdle that forces them to seek outside help. The higher the hurdle, the more perspective needed to clear it. Put simply, the more your business is hurting, the more you need a board.
A board of directors with fiduciary responsibilities is not the same as an advisory board. A board of directors is responsible for governance, oversight, financial management, risk management and management succession. Though advisory boards may perform similar functions, they have no fiduciary duty to the company, and therefore have flexibility in how they’re assembled. There are three common types of advisory boards.
Consulting boards, usually for businesses with under $50 million in revenue, meet irregularly to address temporally pressing issues. Growing businesses may graduate to junior advisory boards, which consistently address more existential issues related to market structure, long-term planning and crisis management. Companies with hundreds of millions in revenue ultimately require full advisory boards, which intervene on even more complex issues, such as succession planning and performance evaluation.
Private and family business owners are often tempted to seek sporadic and informal advice from personal friends, lawyers and bankers. These types of “golf course” boards may suffice for a time, but a major catalyst like a capital event or sudden executive change – not to mention a global pandemic – will almost always reveal them to be insufficient.
The right board will ultimately become a big driver in the value of your business because it functions to protect the business as an asset. The right governance solution for your business may not have or even need all of the bells and whistles, but it does have the core values of objectivity, oversight and complementary expertise. Businesses with appropriate governance do better than businesses that go it alone.
The Art Of Designing A Board
Because even a full board cannot include every conceivable skill and expertise, selecting the best possible board is an art. This requires establishing the seats you need to fill first, then recruiting the best fit candidates. Sometimes, CEOs become enamored with a personality first, then try to fit that personality on the board; these scenarios rarely result in long-term success.
Board members must be able to maintain objectivity in all circumstances; this is their primary responsibility. Your board will quickly lose its effectiveness if members cannot offer their honest opinions. A good board member is able to tactfully disagree with ownership and offer alternative solutions without fear of being replaced. They have mastered the art of disagreeing without being disagreeable.
Though assembling a board requires careful thought and insight, there is a relatively simple litmus test for its sustainability: in a well-functioning board, colleagues are able to have a visceral disagreement, then immediately look forward to going out to lunch with each other.
How Boards Navigate Crises
One of a board’s most valuable functions is navigating crises. Different voices and opinions naturally have a stabilizing effect. They yield more rational thought and reduce panic. They also bring a diversity of knowledge, experiences and resources to the table. Since crises like Covid-19 often affect management personally, boards are responsible for preventing emotion from clouding sound business judgement.
As management focuses on handling short-term logistical adaptations to issues such as social distancing regulations and supply chain disruptions, boards should be able to keep the business’s long-term mission in sight. A board should be able to preserve a business’s competitive advantage through digital transformation and customer experience initiatives, while monitoring industry competition – even as management is still busy putting out fires.
Having a diverse board with at least one member who has crisis management experience is vital. Though Covid-19 resists comparison to past catastrophes in many ways, members who have navigated events such as 9/11 and the 2008 financial crisis have experience overcoming uncertainty that is valuable during any black swan event.
Your board members should have accumulated enough battle scars to say, “Here’s what we have learned in the past. Here’s what you need to think about now and into the future.” At the end of the day, you want your company’s board to be filled with people you know will be able to handle the unknown, because they’ve done it before.