What's Needed: "A Mixed Bag of Personalities"
from
May/June 2002
by Randy Myers
Edward Lawler, the author of a shelf of volumes about how and why organizations work and how they could work better, interviewed 100 company directors and surveyed 1,000 more for his 35th book,
Corporate Boards: New Strategies for Adding Value at the Top
. Some of what the directors told him and co-authors Jay Conger and David Finegold isn’t that surprising: Good directors work very hard; some directors are very lazy. But the authors also found that boards composed of a variety of personalities have a broader and therefore more effective reach. And, Lawler says, in times of crisis those boards may serve shareholders better than the CEOs do. Lawler, who’s also a professor of management and organization at the Marshall School of Business at the University of Southern California, spoke with
Corporate Board Member
’s Randy Myers.
What personal characteristics make for effective board members?
When we asked board members themselves that question, they pointed to expertise, knowledge of the industry, and simply having the time to be a board member. But the one characteristic that came out on top was a willingness to challenge management. That suggested to me that some boards are reluctant to make such a challenge and are always looking for a director with the guts to stand up in meetings and take on the managers.
Are you suggesting that directors should be confrontational by nature?
The goal is more to create a board with the right personal characteristics than to find the single ideal board member. For example, when we surveyed directors, one of the issues we looked at was how active board members were in meetings. Most of the boards that felt best about themselves were those that had a mixed bag of personalities. Some members were quite active in meetings. Others were generally quiet but were very good outside meetings, in terms of coaching and talking to the CEO, serving as a valuable resource to senior management, or being active on committees.
Do some people have personality traits that make them unsuitable for corporate boards?
Yes. Lazy ones. There are a number of directors who don’t do their homework, who aren’t available for discussions outside of meetings, who come to meetings unprepared and, when they do show up, are always on their cell phone or stepping out of the meeting for one reason or another. Obviously, simply not showing up for board or committee meetings is another characteristic of someone who shouldn’t be a director.
How can boards make sure they get the right mix of people and personalities?
One of the things that some companies have done is prepare a skills matrix for their board. Instead of just looking at how many directors there are—which is useful, because as groups become large they become difficult to manage—they also look at what expertise needs to be represented on the board, such as technical, financial, or group process. They list those needs on one side of the matrix and list their existing board members on the other side, and figure out what each director brings to the board in terms of expertise. Then, when it’s time to add new board members, they can ask the appropriate questions of candidates because they know exactly the expertise that the board needs.
What personal characteristics should be represented on that matrix?
As I’ve said, a willingness to challenge management is important. Another criterion is a board member’s availability in the event of an emergency. It is very helpful to have some of the board who can, with predictability, be reached, show up on short notice, and perhaps even put several weeks into the job if needed. A director who’s the CEO of another corporation, as many are, may not be free to do that. So it’s nice to have a few professional board members who do have that freedom. Often they’re retired CEOs who choose not to serve on a lot of boards.
How can board members assess the personalities of prospective new members?
That’s certainly something they need to do, because boards need the right chemistry. Adding a new director is very much a subjective process and goes beyond the addition of expertise, and it’s something that you can’t leave entirely to a search firm. It requires the personal involvement of the board, although that doesn’t have to mean group interviews with board candidates. It can be done as a series of one-on-one or two-on-one interviews, maybe even over the phone.
Are many companies putting these ideas into practice?
I think it’s happening more often, but not, perhaps, as frequently as it should. To some degree the search firms do it, but it’s hard to get this onto the agenda of existing board members for whom time is already at a premium.
Are there other obstacles to incorporating personal characteristics into a search for new board members?
Boards in the U.S. historically haven’t put much importance on the group process and interpersonal factors. They tend to pick members based on their status and what they can bring the board from a technical point of view, without considering the overall fit. What’s ironic about this is that when you start talking to board members about how effective they are, most of their complaints revolve around the group process and the interpersonal behavior of each other. Yet somehow it’s not on the agenda to talk about that publicly, or get professional help. Boards will call in consultants for legal and financial issues, but they’re reluctant to do so for help in how they function as a group.
Are boards getting better? And if they are, where do you see improvement?
They’ve gone from a D to a C in the last decade or so. The improvement has come largely in the area of having more outsiders, but there’s also been some improvement in the clarification of their role as being accountable for shareholder value. This has been forced on them by a number of things, including the corporate-governance principles supported by institutional investors such as TIAA-CREF and CalPERS [the California Public Employees’ Retirement System], media coverage, and concern about legal liabilities. But a C still leaves a lot of room for improvement.
What should they do first?
One of the most pressing needs is for a true outside leader of the board, which is almost always the case at companies in the U.K. but still pretty rare here. This person could be an outside chair or a lead director, but either way it’s somebody who can provide leadership to the non-executive or non-manager directors.
Is there any evidence that an independent board with a balanced mix of talents and traits and a strong leader does better by shareholders than one that’s a rubber stamp for a gifted CEO?
That’s a difficult question. Yes, board effectiveness and corporate effectiveness seem to be related to financial performance as measured by total shareholder return, but only slightly. In practice, the gifted CEO might be more effective in calm seas, while the board might be more effective in times of crisis. A board is a lot like a fire department. For much of the time, it just needs to be ready and waiting. But when a crisis strikes or a major issue arises, it’s very helpful to have a board that knows what to do and how to do it.
