Richard M. Furr, Ph.D. and Lana J. Furr
Furr Resources, Inc.

Think about the conversations that occur between good directors in the parking lots after the meetings:

• “Can you believe Bob came in unprepared again, dozed through the meeting then asked a question we had already discussed while he was dozing. That’s been going on for months now and, when I asked Frank (the Chairman), he just didn’t want to address it now because he hoped it would work itself out.”
• “Frank (the Chairman) had his mind made up again, didn’t he? What a game. I don’t know why he even asked me to be on the board. He has shaped the dynamics of the board not to question anything he thinks needs to be done even though he asks for our reaction to proposals. I’m concerned about losing Sandy (the CEO). She seems pretty fed up too.”
• “I thought we were supposed to talk about our strategic plan today. After Sandy (the CEO) went through management’s proposed strategic plan, Frank (the Chairman) started asking detailed questions about tactical things and got all of the detailed people on the board going with him. You and I tried to get it back to the strategic level where Sandy would also like our thoughts, but Frank doesn’t seem to recognize that. He takes it where he wants it to go.”
• “Given our projected growth rate and new business frontiers we are expecting from our strategy, that discussion you and I tried to start about competencies we need to recruit to the board just falls on deaf ears. We are on the nominating committee but Frank (the Chairman) just seems to want to recruit the same kind of people he always has---his golf buddies. All they seem to want to talk about is which golf resort we can go to for our next retreat. I’m not sure how we managed to be on the board but we have to do something.”
• “I know we need to do an evaluation of the board and the directors but that simple questionnaire Frank (the Chairman) brought in just doesn’t give us what we need to do a good job and get some of our issues on the table. He wants to take the simple way out just to say to people we have done it. He doesn’t want to change anything.”

This is first of two articles that will address the evolving role of the Chairman and what happens when the role outgrows the person who is the Chairman. This first article will focus on the leadership role of the Chairman beyond what has traditionally been viewed as the role. These leadership responsibilities are becoming increasingly important as demands from stakeholders and good directors raise the bar on their expectations of boards and their practices of corporate governance. The second article will focus on the effects on the performance of a board when the personality of the Chairman is played out in the boardroom so it is clear the person does not fit the role requirements.

Our intent with this series is to assist Chairmen, aspiring Chairmen and good directors in recognizing that they should look carefully at the leadership of the board. The board and its Chairman should be purposeful in ensuring the board has the leadership necessary to create and sustain good governance and corporate performance for many years to come. The wrong Chairman who remains in the role can set back the organization for many years to come and even threaten its very survival.

The Role of the Chairman
Today more boards reluctantly evaluate themselves, the directors and committees because it has come to be expected by regulators and investors who are comforted by good governance. But few boards evaluate the effectiveness of the Chairman even though the impact of the Chairman on the board’s effectiveness ranges from outstandingly positive through neglect and leaderlessness to a board blindly following a domineering, self serving Chairman. The popular business press is filled with articles of organizations with good and poor examples of board leadership at the Chairman level. However, boards rarely put into their governance practices the means of evaluating and ensuring good board leadership in the role of the Chairman with the same rigor that they now apply to CEO, board and director evaluation. Only the best of the Chairmen are even likely to welcome this practice as another step toward good governance.

It is the Chairman’s leadership behavior that affects the board’s effectiveness -- what the Chairman does or does not do, and the way s/he does it, that affects director behavior and board performance. Leadership is about action, not position. The board is a social system containing a mix of personalities and relationships that even extend beyond the boardroom into the community and other business relationships. What Chairmen sometimes appear to forget is that directors can see when the Chairman, like the Emperor, has no clothes—they just do not tell the Chairman. Instead, the social system adapts, often in dysfunctional ways, until the Chairman leaves or a crisis forces the Chairman out. By then, serious damage is often done to the organization. Max DePree in The Art of Leadership said, “The first responsibility of a leader is to define reality.” The Chairman, many of whom fancy themselves to be “realists”, must be aware of his strengths and weaknesses and capable of listening to feedback so he knows the reality his leadership is creating for the board.

Good leadership enables the board to attract, retain and leverage the talent of strong directors. Weak board leadership causes good directors to be concerned about the liabilities inherent in the board’s practices as it operates with weak directors. In the end, weak leadership often causes strong directors to exit the board leaving the board in the hands of its weakest directors.

The role of the board is not merely about compliance and oversight. It is about adding value to corporate performance. Even directors fume about politicians who want to raise their pay when their performance as a political body does not merit what they earn now, much less an increase. However, when it comes to justifying their own pay or rewards based on performance by the board, they do not seem to make the same connections. Investors certainly think about performance especially when the performance is flat or in a tail spin and wonder, “Where is the board.”

We will address here the responsibilities of the role of Chairman in ensuring a superior board that is a strategic asset in creating and sustaining corporate performance and in ensuring the best in corporate governance for stakeholders. Leading the board on that path is the Chairman’s role. Anthony Dadovano said, “A good leader is not the person who does things right, but the person who finds the right things to do.” We would add—and sees that they are done.

THE CHAIRMAN’S RESPONSIBILITIES
At the end of the day the Chairman’s role is to lead a team—the board. We view a team as:

• a small group of people possessing the necessary expertise,
• striving toward a common vision, purpose, and goal,
• with equal stakeholdership and commitment,
• using a common process and holding themselves mutually accountable.

At the board level all of these components of a team must be carefully built, maintained and evolved over time to align with the vision and strategy of the organization as it evolves. A good board is not static in its competencies. There are key responsibilities of the Chairman beyond scheduling and chairing meetings, oversight in financial, fiduciary and risk management areas, seeing the board has the information it needs in a timely manner and serving as liaison with management and the board. These have been reviewed frequently.

Beyond these essential and traditional responsibilities, the responsibilities that make a difference in board performance are about developing and leading the board, its talent, practices, facilitating deliberation and creating the context in which effective deliberation and decision-making will occur. The purpose of doing this is to ensure the organization thrives in the future beyond its current leadership.

The more specific leadership responsibilities of the Chairman are:

Ensure an Effective Strategic Planning Process
We often ask directors, “Do you know the vision for the organization? They answer, “Yes, I think so.” When asked, “What do you understand the vision to be and the strategic initiatives to achieve that vision? the group of directors will frequently be all over the map in what they report. The board as a team, along with executive leadership, needs to have a clear and shared picture of the vision for the organization AND of the strategy to achieve that vision.

It is up to the chairman to see that there is an effective process for the board to provide strategic input to management’s own thinking about the vision and strategy by representing shareholders and an external perspective. The Chairman must be able to facilitate a strategic level discussion, have the vision to see implications for the organization and manage effectively executive defensiveness that may occur when its thinking is respectfully challenged.

The Chairman needs to ensure that the board does not merely “rubber stamp” management’s plan without understanding it and its implications for the future of the organization. Also, the Chairman needs to see that the discussion stays at the strategic level rather than an in-the-weeds discussion of management’s strategic plan. Finally, the Chairman needs to respect the time demands on directors while assuring that the directors understand the time commitment they are expected to make in order to have quality discussions, including planning retreats as required.

Takes Responsibility for the Board’s Composition and Development
An “A” Team has to have “A” players. As the organization grows, market and regulatory conditions change, competition changes, and stakeholders demand more, the board must anticipate and deal with more complexity. As with management, sometimes the organization outgrows its leaders---including its directors--- and they need to be changed.

The Chairman must assume the key responsibility for seeing that the board will have the caliber of talent it will need to do its job in the future. This requires evolving its own portfolio of competencies, and, if necessary, making room on the board to do so. The Chairman must also ensure that directors take seriously their responsibility to seek and use developmental resources to be an “A” director. Walter Lippmann once said, “The final test of a leader is that he leaves behind him in other men the conviction and the will to carry on.” Would add ---and the competencies.

To do this, the chair must be able to see the link between the evolving vision and strategy of the organization and the talent level needed on the board to fulfill its role. This may mean the Chairman should have conversations with directors, expecting them to get some form of development or education or discussing plans for directors to step down from the board to make room for recruitment of other directors with competencies aligned with the vision and strategy.

It may also mean the Chairman needs to get the board to challenge the appropriateness of its practices or policies that limit its ability to manage effectively the evolving the competency portfolio of the board. This might include challenging Grandfather clauses that allow directors to remain on the board until they are great, great grandfathers or term limit or retirement policies that do not work or are not enforced.

Leader of the Board’s Culture
While the board may have agree on a vision and strategy, have necessary talent, and comply with regulatory and legal expectations and accountability checks, the conditions that affect how the board works together as a social system strongly shapes the effectiveness of its contributions and decision-making. The Chairman must be willing to take charge, say what needs to be said (albeit tactfully) and continuously ensure that the culture of the board expects and nourishes effective dynamics that shape good dialog, contribution and decision-making. As Casey Stengel said, “Gettin’ good players is easy. Gettin’ ‘em to play together is the hard part.”

To do this the Chairman must have the authentic respect of colleagues on the board. This respect is earned by prior performance, trust, demonstrated approaches to team leadership, integrity and fair process. Respect is important in dealing with all constituencies with which the Chairman naturally must deal. S/he must use this credibility to convey expectations in words, in modeling, and in asserting consequences where the culture is violated or ignored.

Engages the Board Regularly in Assessing and Developing its Performance
A key to improved effectiveness is for the board to reflect regularly on how well it is doing its job and for directors to reflect on their contributions to the work of the board. Feedback is central to awareness, learning and changing behavior. Most directors have not wanted to do this while the good ones have been advocates for it even without it having been regulated. The Chairman needs to set the tone and standard for ensuring this occurs and is done in an effective and quality manner in order to get the outcomes the process is designed to achieve—performance-improving change.

That said, the Chairman needs to see that the board sets the bar at least as high for itself as it does for executive management. The Chairman needs to ensure that adequate time is given to this process that development goals are set and that follow through occurs.

Communicates Expectations to Directors and Manages Director Performance
Being a director should not be a free ride just as being hired in an executive role is not a free ride. A director should know what the board expects in terms of ongoing requirements. Directors should be expected to fulfill those requirements to the standards set by the board. The Chairman must be an effective, clear and firm communicator of the standards set by the board and sees that they are reviewed periodically.

Additionally, the Chairman must be willing to set aside personal relationships with directors who may not be meeting expectations and see that the director understands what is expected and gets a chance to meet those expectations. If this fails to work, the Chairman must see that the director is asked to relinquish the board seat.

Ensures Effective Committee Structure and Committee Leadership Succession
To create the time the board needs to fulfill its strategic and fiduciary roles, it needs to make appropriate use of a consent agenda and make effective use of its committee structure. The Chairman must ensure that such a structure is in position, the roles of the committees are clear, the committees are properly staffed with the competencies needed to do their work, that the committee leadership is effective, that the committees have and use effective processes in their work and that the effectiveness of committees is evaluated.

The Chairman should also ensure that there is appropriate leadership succession depth on the board to adequately staff the committee Chairman roles and that serving as a committee Chairman is viewed as a development ground for candidates for board chairmanship. Succession planning for the board leadership positions is critical, just as it is in management, and it is a key part of the Chairman’s responsibility.

Establishes and Facilitates Processes for the Board to do Its Work
The Chairman should see that the board has defined and agreed on the processes it will use to do its work. These practices should be drawn from consideration of “best practices” of effective boards, rather than tradition, habit and custom—i.e. we’ve always done it this way. Once defined, it is the role of the Chairman to model the practices and lead the board in their application.

Hires and Oversees Independent Advisors as Needed
Occasionally the board may need to have access to its own professional counsel separate from that directly retained by the organization e.g. its own legal, accounting or other counsel. It is up to the Chairman to see that the board gets that counsel and to oversee the work of that counsel.

The Chairman must be able to see when this is advisable and have the courage to advocate for it within the board. The Chairman must also be able ensure that the counsel understands what is required to meet the board’s needs.

Ensures the Succession Planning and CEO Evaluation Process Occurs
The Chairman oversees the process of CEO expectation-setting and evaluation and ensures that they are sufficiently comprehensive to be meaningful and effective for both the CEO and the board. Also, the Chairman cannot allow the board to shy away from this responsibility out of being either in awe or in fear of the CEO.

The Chairman must assure that the organization has an effective succession planning process. The board must be aware of positions critical to strategic success and the organization’s plans for attracting and retaining talent critical to strategic success. The Chairman also needs to facilitate the board’s understanding and comfort with the readiness and depth of talent in the talent pipeline to handle future requirements.

Ensures All Remedial Actions Required by Regulatory Bodies Are Handled
A key role of the Chairman is to ensure that any remedial action required by regulators is handled effectively, professionally and in a timely manner. This may require seeing that the board has its own review process. The Chairman needs to see that regulators are comfortable with the facts and spirit of the process and outcomes.

Serves as an Articulate and Informed Spokesperson to all Constituencies
The Chairman must be able to represent the organization creditably to all internal and external constituencies. This credibility comes from preparation, fairly and honestly representing his opinions and descriptions and appearing professional in his/her presence and delivery of messages.

Summary of the Role
The role of the Chairman today and in the future is much more than scheduling and chairing meetings and reviewing financial information so we have given more attention here to what we see as the major responsibilities. These primary responsibilities have to do with ensuring the board has the talent to do its job, operates in an effective board culture and creates conditions for that team to fulfill its role with the tools and process necessary to do it. These are areas in which many boards are missing the leadership needed to create the best corporate governance.

Boards give so much of their attention to compliance issues that, even though met, do not build a superior performing board. Certainly the demands of compliance are significant and must be done. But what the board is led to do beyond compliance is what differentiates a high performing board from a mediocre board. As Michael Jordan has said, “Talent wins games, but teamwork and intelligence wins championships.” The Chairman has to have the intelligence to see what needs to be done, the courage to do it and the wisdom to know when it is time for another leader to assume the mantel of leadership.

The Chairman’s Personality; Does it fit the Role or Not; So What?
For the board to operate effectively, it needs the Chairman to fulfill the role as we have described above. It is hard to find someone who can handle effectively all the responsibilities of Chairman. A Chinese proverb says, “An army of a thousand is easy to find, but, ah, how difficult to find a general.” There are countless examples of boards that do not function optimally because the personality of the Chairman systematically limits his/her effectiveness in that role. We have seen this result in practices that actually endanger the organization’s very survival. More commonly, it results in a mediocre performance from the board, frustration among the best directors and a CEO whose hands are tied and who is inclined to leave if the situation appears to have no end in sight.

It is also important to recognize that at different times in an organization’s life it needs different things from its leaders---including the Chairman. This means that a board needs to be able recognize what it needs in its leadership at a particular time and have developed good succession options for the role of Chairman.

A good Chairman recognizes when it is time to relinquish the chair to someone else as the needs of the organization evolve or that they need to evolve how they fulfill the role and not keep doing what they have always done.

When Andy Grove moved up to Chairman’s role at Intel, he found it required significant personal change on his part. He said, “The most important tinkering I had to do was with me. Their concern was my tendency to speak up too much, to suck all the oxygen out of the room.”

If the Chairman does not recognize this, the directors need to be savvy and courageous enough to “call the question” instead of riding the same horse until it drops. Not recognizing and addressing when the Chairman needs to change is often risking the very future of the organization. This can be a wrenching experience as organizations like Disney, Coca Cola and many others have discovered when they went too long and did not proactively create a policy and practice for addressing the matter.

Good directors usually recognize when the Chairman is not fulfilling the role effectively but it often becomes a growing “lump under the carpet” when it is not recognized by the Chairman on his/her own and there is no evaluation or feedback process that gets it on the table as a matter to address. The board evaluates itself, the directors and the CEO. Who let’s the Chairman know about effects s/he creates in the board’s performance? How long will marginal or worse performance by the Chairman be allowed to continue and at what costs to the organization and its future?