Reinventing the Board Part II: The Role of the Chair in Increasing Board Effectiveness

11/15/11Follow @geshwiler

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simple reason: management can’t manage the meeting when the board is questioning management.

Here’s how board meetings usually spiral out of control. Everything is fine for the first few slides, hour, or even until nearly the end of the meeting. Then, the CEO or another member of management mentions some piece of bad news. Or, a board member asks a pointed question where management hesitates or stumbles. A flow of further questions ensues from other board members. The discussion may—or may not—be important or relevant to the company’s situation.

The CEO tries to regain control of the discussion, but now there’s blood in the water. The board members intuitively or explicitly expect management is trying to shut down the discussion because there’s something even worse lurking underneath. Debate continues until everyone is exhausted or runs out of time, and board members and management leave feeling frustrated. In the worst cases, the non-management board members set up a subsequent conference call to discuss what they view as wrong with management and what must really be going on.

The CEO needs a lifeline. This is when the effective chair “bangs the gavel.” With their independence from management, they have the credibility to say the current discussion is unproductive, will reduce time for other important topics, or should be tabled for the time being and revisited when appropriate.

Even if a board is fortunate enough to avoid this type of downward spiral, the chair can improve discussion by drawing out more quiet board members and helping elucidate contrarian perspectives that might bring vital insight. Facilitating broad discussion should help the company, not hurt it. And, as a result, the chair should always be actively listening to the discussion and talking less. Some of the best chairs are silent for most of the meeting.

Managing Board Terms: It’s also awkward for the CEO to manage who is on the board, since the board decides who is CEO and sets their compensation. Trying to influence the board’s composition can be perceived as trying to stack the deck in management’s favor. Some shareholders, particularly institutional investors, may have rights to appoint directors as well. The independent chair is in the best position to facilitate the annual review process discussed in my prior article and coordinate with other parties to evolve each board member’s role or change the makeup of directors.

Ultimately, it’s a joint process between the chair and the CEO not only to manage board composition but also to set the agenda and manage the meetings. Both parties need to have frequent and open communications, reciprocity, and consideration—and a close, but not personal, relationship.

Frequently Asked Questions about the Role of the Chair

As I’ve discussed the role of the chair with board members and CEOs, I’ve frequently been asked the following questions. They mostly revolve around concerns that a chair is “taking over” from a CEO or somehow undercuts the CEO’s authority. To the contrary, the role of the non-executive chair is a subtle one, wielding more influence than power. If the job is done right, they help a CEO to be more effective and shine.

Does the chairperson have to have that title?

No, chair can be by common consent and sometimes is called the “lead director.”

Does the company need to list the chairperson on the website?

No, and particularly for early stage companies, doing so can create confusion with outsiders about who really is in charge.

Does the company need to have the role spelled out in its corporate documents, specifically its voting agreement or charter?

No, the chair or lead director role can-and probably should-be informal, with the chairperson selected based on respect from the other board members and management, rather than an named in a formal appointment.

James Geshwiler, a managing director at CommonAngels for more than 10 years, has financed over 40 software and Internet companies and worked with them through over 100 rounds of investment and related changes in boards of directors. [Editor's note: CommonAngels is the lead investor in Xconomy.] Follow @geshwiler

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  • http://www.ceolearningnetwork.com Martin Coyne

    Jim,
    Overall, very astute and accurate comments. From my experience as a director on companies in multiple stages of evolution and sectors, I’m struck by the importance of board leadership which can be formal or informal. Strong board leadership provides focus, important support for the CEO and the company while enabling all to reach full potential. A strong board leader also proactively addresses many of the issues in your previous post of 10/3/11 and can help avoid the pitfalls you discuss.
    Excellent summary for all CEOs and directors to read and heed.
    Marty

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