A recent issue of McKinsey Quarterly (June 2011) features an article by Simon C.Y. Wong on boards of directors, in which Wong focuses on boards that work well already, but could benefit from growing to the next level.
Wong writes about governing boards in for-profit corporations, but much of what he says can be applied to the boards of independent schools. The point of reference (for research) for Wong was the financial crisis of 2008-09; he looked at board deficiencies, identified by external inquiries, that exacerbated the tumult. It wasn't that boards of financial companies weren't (supposedly) engaged in their normal work, but, according to the inquiries, the way in which they conducted their business was insufficient: guiding strategy, risk management, structuring executive pay, managing succession planning, and other essential tasks.
Yet, these boards would claim that they were employing best practices, Wong proffers. Their processes would underscore the application of best practices.
Wong submits that, in addition to employing best practices, what can set a great board apart--and help that board to be ready for the unforeseen--is attention to "human dynamics." From his perspective, it boils down to three things:
(1) directors who "think and act like owners". Wong argues that, to be effective stewards, directors need to think and act like owners of the institution. As one chairman of a large firm states, "Directors with an ownership mind-set [...] have passion for the [institution], look long term, and take personal (as distinguished from legal) responsibility for the [institution]." Wong suggests that those charged with identifying new directors should look for "energy, a 'can do' attitude, and an independent mind."
Wong offers a handful of questions to ask these potential recruits (I've adapted them, slightly):
- how should directors be involved in the development of strategy?
- what type of information would you need to discharge your responsibilities effectively and how would you obtain it?
- in your previous board roles, in which areas did you have the greatest impact?
- in a group setting, when have you taken a stance against the prevailing majority view and what was the outcome?
Wong opines that "it is a clear warning sign when a candidate cannot mention an occasion when she or he disagreed with management. [...] boards that operate to their potential are characterized by constant tensions, coupled with mutual esteem between management and [...] directors."
An owner's mindset "also requires," says Wong, "directors to possess a strong understanding of the industry [education, in our case], so that they can challenge management effectively. Often, they don't have that kind of knowledge."
(2) CEOs with a collaborative mind-set. In short, there needs to be appropriate sharing of information between a CEO and his/her board of directors. A board "should look for collaborative traits when selecting a new CEO," says Wong. He suggests that a board "should spend time understanding how a candidate who is a sitting CEO at anotherinstitution] interacts with its board. And a board should avoid, at all costs, candidates who give the impression that they see [the institution] as an entity to be 'managed' rather than a body to which they are accountable."
Wong proposes that collaboration should be built into the CEO's job description. He cites one example of a board that, in its annual review of the CEO's performance, includes "questions about the sufficiency of the information the CEO provided and how well the CEO got along with the other directors. The purpose is to signal to the chief executive that these issues are important to the board [...]."
As he points out, though, collaboration goes both ways, and it is based on trust, which is built "over time through repeated encounters." Boards' behavior is equally as important. They [board members] must demonstrate "an ability to add value and not to micromanage the executive team." This point is best illustrated by the CEO of a company in the UK who says that, "the test is whether executives [CEOs] consider board counsel on matters within management's areas of responsibility as advice which they can accept or ignore. If they feel that they must follow it, the line has been crossed."
(3) a board that guards its authority and independence. "Although few board directors like to say so, an increasingly successful CEO is one of the biggest threats to the board's authority [...]. Tell-tale signs include less robust questioning of management's proposals and a readiness by the board to agree to unreasonable demands [...]. Some boards realize the extent to which they have relinquished their authority only when the CEO changes or something goes wrong, such as a crisis or scandal."
Wong suggests that boards need to be on top of leadership development and succession planning, so that they're not 'held hostage' with unreasonable demands. Additionally, when recruiting new board members, all directors need to support the appointments, which shows that each director respects the other: a necessary balance. Term limits for directors also need to be in place, so as to ensure the inflow of new ideas and perspectives. Again, attention to this realm of board operations contributes to the constructive tension that characterizes truly successful boards, per Wong.
Observations from the Independent School World
What I, an independent school educator, find so interesting about Wong's article is that more attention is given to the board than to the CEO. In independent schools, we (faculty, staff, most administrators) tend to become quite uneasy when contemplating how much power a board should have. Yet, I think it's safe to say that most faculty and staff (and some administrators) do not truly understand the dynamics involved with headship and board membership. Plenty of folks think they do, but their understanding is superficial only; and that's OK.
In the end, we're looking at balance. It is a necessity. There are things the Head (CEO) needs to do, and there are things that board members need to do. It's a relationship, always with the best interests of the school in mind. Wong's advice listed above is equally as valid for boards of independent schools: trustees need to think as owners (meaning that they need to think about the long-term health and position of the school), promote collaboration between themselves and the Head, yet be sure that they retain their authority and independence (they hire and evaluate the Head, and not the other way around).