The effective boardroom director
Being an effective boardroom director is getting increasingly difficult. Boards and directors continue to be under intense scrutiny – from shareholders and employees, investors and media as well as other stakeholders.
Unfortunately, while an organisation may be successful, it is only when problems arise that directors come under the microscope.
Accepting that their job will come under this scrutiny, it is beholden on boardroom directors to be clear about their responsibilities. Directors need to understand the scope of both their influence and their liability. They need to carefully consider whether and how they approach their job as a director.
Here are six topics that you need to review and clearly understand in order to become an effective boardroom director.
Having the right strategy is key to the eventual success of a company. It is the foundation on which the company will grow and expand and therefore impacts on everything that the company does as a business. While much of the strategic direction will be implemented by the CEO and their management team, the strategy for the business should be formulated at boardroom level. This requires each of the boardroom directors to thoroughly understand the company, the sector, the competitive landscape, trends and risks. With the correct information, the board can help to develop the strategic plan for the business, thus enhancing shareholder value, which is where the board should be focused.
Risks abound, and they will come at you from all directions, some you will know about in advance, others will come at you out of the blue. Some will be minor and not have much of an effect on the business but some may have a major impact on the business, causing a crisis. While many boards have committees to monitor these possible risks, the ultimate responsibility lies with each director and the board as a whole. You therefore, as a director, need to get a full grapes of the existing and possible risks to the business.
There are a range of standard disclosure documents that every board has to provide and make available to stakeholders. These include financial statements, filings and other documents that provide further information about the running of the company. As a board member you therefore need to understand what documents need to be sent to which stakeholders. To make matters more complex, the volume and content of the stakeholder documentation will vary on numerous factors – private versus public companies, startups versus enterprise and everything in between. As a director, you need to get to know exactly what is required and when.
If you are not careful, you can be inundated with, and overwhelmed by data. There is a myriad of information points that you can get from an expanding business. These can include financials, product process, human resources, staff updates and other equally important information. It becomes your job to make sure that you understand what is required for you to do your job as a director while avoiding data overload with “noise”. Find out what key metrics allow you to help the board make it’s decision and get to these intimately. Looking for trends enables you to track and fend off concerns and issues. Spend time to choose which metrics are key to business measurement and success.
Executive compensation, because it is such a personal topic, is fraught with danger. You need to be able to attract the very best talent to the business. However, this talent will come at a price, and this price will depend on where you are in the development of the company. As a boardroom director, you will need to understand how to effectively evaluate how to approach the compensation process – as an independent director, you will be required to make important decisions around this very personal, very sensitive matter. And remember, your compensation decisions may be visible to stakeholders so you need to be able to justify every penny spent.
While regulatory compliance and remaining within the law is an accepted foundation in every boardroom, it is vitally important to create a culture that is ethically correct in order to harmonise the organisation. Setting the right tone, from the boardroom through to the senior managers and then flowing through the company is essential to ensure that the ethical corporate values are understood. Demonstrating your own ethics is part of this process.