Challenges that Corporate Directors Face

While governing corporations is an interesting proposition, directors often have to make difficult choices and trade offs. Some times they have to make judgment calls with minimal information. In the next two posts I discuss some of the challenges governing boards have to deal with.

The challenge of being involved enough in the business to understand its model and be able to supervise without micromanaging or being too involved in operational matters. I want to emphasize the fact that the role of the governing body is to set, approve and monitor execution BUT not to be the executives. If the directors get too hands-on and become heavily involved in operational matters, they can easily get their hands dirty. As a consequence of too much involvement they lose the objectivity required of directors. Unless of course the directors are executive directors. So the governing body has to balance the need for proximity to business dealings with the need to have an arms length relationship with the organization that engenders objectivity. The Board must remain as “external insiders” to achieve this.

A related challenge is that the governing body should be adequately informed for them to be able to make sound decisions and yet as externals they rarely have sufficient information. To complicate matters the Board is dependent on information provided by the very management they are supervising. The net result is that if the governing body does not maintain professional skepticism it can be provided with information that places it in a position where it simply rubber stamps the desires of management. This in my view means that the governing body has no effective control of the organization. It is important for members of the governing body to be sufficiently informed and aware of the industry within which the company operates. A director needs to keep informed from independent sources. I remember one Company had a public relation department that ensured great press coverage keeping the Board happy. Years later disgruntled executives exposed a scheme whereby the PR Department bribed journalists to provide raving reviews.

Non executives directors are by definition not full time staffers and therefore not in constant touch with the organization. This poses the challenge of what to monitor and how exactly to monitor it. They have to be sufficiently in touch to have a feel of what’s happening internally without setting up a spy system. The related challenge is how much access can one have to middle and higher level executives without undermining the role of the CEO.

These challenges are real and need to be navigated in a balanced manner.

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