The Problems with Boards

Boardroom Consultants' Roger Kenny talks about dysfunctional directors, the role of third parties, and what today's companies need

by William J. Holstein

Boards of directors can become dysfunctional for a number or reasons: if members lack the right skills, don't prepare for board meetings, or seek to dominate the proceedings, says Roger Kenny, president of New York-based Boardroom Consultants, a unit of Slayton Search Partners. Doing the job of a director requires a delicate balance between being more assertive than in the past but not so assertive as to undermine management, he adds.

Here are edited excerpts from a recent conversation:

Overall, are boards of large, publicly traded companies managing themselves better than they were in the Enron era?

A lot of incredible things have happened. Five years ago, we didn't always have a leader of the board. Ten years ago, we didn't have executive sessions on boards without the chief executive officer being present. Fifteen years ago, we didn't have governance committees. All that has happened.

So what goes wrong on a board?

There are always a couple of directors on each board who need some help or some feedback. The worst thing a board member can do today is not be prepared, because then all the reading material has to be re-presented to the board. That cuts into the time they have for dialogue, and they have to have dialogue or die as a board.

Sometimes they have the wrong leader and it's hard to change that leadership. If you have a nonexecutive chair, which is becoming more of a trend, that person not only manages the board, but also manages the agenda and the meetings, separate from the CEO. It's hard to give that person critical feedback.

Another problem is that strong directors can cross the line and not stay at the strategic level.

Do some directors simply lack the skills to be effective?

You have some directors who have been on the board a long time and they've made wonderful contributions, but they may not be the right person to be sitting in that chair today because the board may need something entirely different. You may need directors who understand strategy or directors who understand CEO succession. The board may need people with experience with the Internet or technology or marketing. And they probably need a lot more international people on U.S. boards since global sales are becoming an increasingly large part of the business.

Or in some cases, you have board members who don't know enough about the company and the industry. There may have been an inadequate amount of preparation for directors. The job of educating new directors is often delegated to the general counsel or corporate secretary. It's all done in one day and that's not enough. There needs to be a number of more concentrated education sessions so that they have a clearer understanding.

Isn't it pretty shocking to have directors who don't understand the strategy of their companies?

You'll remember the three aging white men addressing Congress about Enron? They couldn't articulate the strategy of Enron and they were directors.

At the opposite end of the spectrum are directors who are too intrusive?

There's a close correlation between the board members who cross the line and those who are disrespectful to management. That's very serious and that needs to be corrected. Some directors hold their views very strongly and they try to intimidate other directors. Even worse, they have trouble moving on to the next subject.

You may have a loquacious director, the fellow who's so articulate he feels he has to expound on every subject, sometimes even on both sides of the subject. I've had to give this kind of feedback: "Sir, here is what your board is telling you. Your fellow directors love you, but you're so articulate that you intimidate them."

Why do boards turn to outside consultants such as yourself for assessments?

It takes a third party to give independent directors the kind of feedback they need.