Highly effective Boards enhance the effectiveness of their organizations in many ways including selecting a highly effective CEO, providing guidance and advice to the CEO, making sure the organization is acting in the best interests of shareholders/stakeholders, reviewing and approving major plans and initiatives, compensation, audit results, risk, etc.
In the U.S., companies and not-for-profit organizations are incorporated at the state level. The incorporation laws vary greatly by state with some states being significantly more lax in its requirements and compliance. It is this reason that many companies incorporate in Delaware.
Activist investor Carl Icahn and Jeffrey Sonnenfeld, the Senior Associate Dean for Executive Programs & Lester Crown Professor in the Practice of Management at Yale University are two of the more vocal critics of dysfunctional Boards. They talk often about the failures and impact of dysfunctional Boards.
While some Boards are highly effective, many are only marginally effective or not effective at all. There are many reasons why some Boards are dysfunctional.
Here are some of the more common reasons for Boards being dysfunctional:
- The Board selecting/keeping an ineffective CEO
- The Board not holding the CEO accountable
- Not challenging and/or not supporting the CEO when appropriate to do so
- The Board not receiving important information about all internal and external aspects of the organization
- The CEO not executing the Board’s decisions or doing so ineffectively
- Board committees (Compensation and Audit Committees, etc.) not effectively doing their job
- Leaks of confidential information
- Conflicting agendas between Board members and/or between the Board and the CEO
- Individual Board members having a conflict of interest between their own external interests and the organization’s interests
- Lack of respect and trust between the Board and the CEO
- Hostile Board meetings
- Disorderly and disorganized Board meetings avoiding important issues/agenda items while dealing with low priority issues
- Avoiding making important decisions
- The Board not learning about internal and external risks at all, or not on a timely basis, and not addressing the risks
- Secret Meetings between some Board members with or without the CEO
- Personal and Political Agendas having priority over the organization’s and shareholders’ agendas and interests
- Employees not trusting the Board
- One or more dominating Board members
- Board members who do not actively participate in Board meetings
- Board members who do not do adequate preparation before Board meetings and who are disengaged from the organization
Key questions about your organization’s Board
- How effective is your organization’s Board?
- How is your Board positively and negatively impacting your organization?
- Which of the above reasons for Boards being dysfunctional apply to your organization?