June 7, 2006
Beverly Behan
Partner, Corporate Governance
Mercer Delta Consulting, New York

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When you think of a “highperforming” or “world-class”
Board:
– What attributes of this Board come to your mind?
– What is such a Board particularly good at?
– What is the relationship like between this Board and the
CEO?
– If you walked into this boardroom, how would it feel?
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Effective Boards
– Include the right people
(composition)
– Develop the right work processes (succession planning, CEO evaluation, strategy, etc.)
–
–
Do the right work (agendas)
Consider the right information
(presentations/pre-reading materials)
– Have the right culture engaged, constructive
(leadership/dynamics)
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Board members can provide an outside perspective on opportunities and risks that management may overlook
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The Board can support, counsel, and challenge the CEO and bring higher levels of performance to the enterprise
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Engaging the Board properly in fiduciary oversight, corporate strategy, and succession can have a significant impact
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Unique characteristics of Boards as teams:
–
–
Partial inclusion
Episodic interaction
–
–
Limited time and information
Membership comprised of leaders
– Unclear or complex authority relationships
– Changing expectations for work
–
–
Aura of formality
Majority of work done in meetings
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The
“Passive”
Board

Functions at discretion of CEO
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Limited activity and participation of Board
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Limited accountability

Ratifying management preferences
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The
“Certifying”
Board

“Certifies” to shareholders that: CEO is doing what
Board expects; management is capable of taking corrective action when needed
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Emphasizes outside/ independent directors; meets independently without the CEO
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Stays informed of current performance; designates external Board members to evaluate CEO

Establishes an orderly succession process
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Is willing and able to change management to be credible to shareholders
The
“Engaged”
Board

“Partners” with CEO to provide insight, advice, and support to CEO and management team on key decisions and implementation

Also recognizes ultimate responsibility to oversee
CEO and company performance; dual role of guiding/supporting as well as judging the CEO

Board meetings characterized by useful, two-way discussions of key issues/decisions facing the company
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Board members need sufficient industry and financial expertise to add value to decisions

Time and emphasis spent on defining role and behaviors required of Board members; boundaries of CEO/
Board responsibility
The
“Intervening”
Board

Typical mode during a “crisis” situation
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Board becomes intensely involved in discussions of key decisions facing the organization and in decision-making

Frequent and intense
Board meetings, often called on short notice
The
“Operating”
Board

Board makes key decisions; management implements

Not uncommon in early “start-ups” where
Board members are selected to “fill gaps” in management experience
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Taking Stock of the
Board
Determine
Required
Engagement
Focus and Scope
Board Leadership
Getting Right
Board Members
Build Processes and Structures
Provide Needed
Information
Shape
Culture of the
Board
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Create
Value-Added
Engagement
Assess Quality of
Engagement
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Policy Review

Focus: Ensuring all appropriate policies are in place and documented
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Fosters institutional memory

Best undertaken by General
Counsel who understands the legal and regulatory environment in which the Board functions
Board Effectiveness

Focus: How effectively the
Board is working together and working with management

Highlights current strengths to build upon these

Identifies opportunities to further enhance Board effectiveness to add greater value for stakeholders, management, Board members

Discusses how policies are being “operationalized” – may identify gaps
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1
Interviews with Steve and Roberto to talk about unique factors impacting the mandate and operation of the Fresno County Employees’ Retirement Association Board
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3
4
Development of an Interview Protocol covering key parameters of Board effectiveness but tailored to reflect the unique mandate and issues of the FCERA Board
Interview Protocol distributed to all Board members and telephone interviews of 45 minutes each are scheduled; interviews may also be conducted with key senior managers who regularly interface with the Board to get their perspectives, if appropriate
Interview feedback is summarized and analyzed. Key themes are developed from the analysis – areas of unique strength/effectiveness, opportunities for further enhancement
Summary Report of the interview feedback is distributed to all Board members for review
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Working session of the Board of FCERA to discuss the Summary Report – agree on areas of strength, discuss areas for enhancement and determine priorities. Discuss alternatives and create an action plan to address those opportunities considered most worthwhile.
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Process Can Also be Used to Develop Board Expectations and Priorities:
Of the Board

Devote the time, energy, and effort to understand the company’s business and prepare for Board meetings
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Open, honest, and constructive feedback. Be respectful in expressing your views, but say what’s on your mind.
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Active engagement and participation

Timely and sound decision-making
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Once a decision is reached, support management in moving forward with it
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Refrain from micromanaging
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Of Management
Honesty, integrity, and the highest ethical standards
No surprises - keep the Board informed of significant issues, transactions, and events. Be honest if there’s a problem.
Come to the Board with a point of view but provide a balanced perspective
–
Pros/cons of alternatives
–
Risks/implications
Run the business effectively
Execute on the strategy
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Process Can Also be Used to Develop Board Expectations and Priorities:
For the Company

Developing ABC’s strategic plans
–
Growth strategy for ABC,
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– including diversification
Capital allocation decisions
–
Growth strategy for the utility business - buy or generate?
–
Growth strategy for the Florida properties
Reputation/communications issues within NE Minnesota
CEO and executive succession planning
For the Board
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Corporate growth strategy engaging and aligning with management
CEO succession planning emergency and long-term
Restructuring Board meetings to make them more effective
Board succession planning
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What are the objectives of the Board of FCERA in undertaking the Board evaluation?
– What would you like to accomplish?
–
–
What would you like to avoid?
What would be the most helpful and productive outcome of this process?
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