It is only natural that successful senior executives will look forward to the day when they are invited to join the board. While there are fewer more powerful signals of professional recognition, there are also fewer greater personal challenges in consolidating a reputation in life. In many instances the transition in roles from senior executive to member of the board will come as a profound shock. Failure to deal with this transition will inevitably be a source of personal disappointment and will not pass unnoticed by other boardroom colleagues.
Often, the very attributes that may have underpinned success as an executive, such as the energetic exercise of authority, can be the very traits that derail additional success in the boardroom. The problem invariably centres on an individual’s appreciation of the fundamental differences between task and role and how these are exposed in a boardroom environment. Success comes only when the newly appointed director learns to adopt the right behaviour when performing the tasks of a board member. Ronald Reagan is often described, probably unfairly, as a man of no great intellect but it is very likely that he will command a well respected reputation as President of the United States. With his background as a Hollywood star, he was a person who naturally understood the need to perform the role of President and with his subsequent selection of able ministers he is now perceived to have done an outstanding job.
Joining the board has been likened to being thrown in at the deep end. What is not immediately obvious is that there is unlikely to be any prospect of a gradual entry through the shallow end. It may be an unavoidable reality.
The personal challenges involved in making a successful transition into the boardroom which have significant behavioural aspects are accompanied by some equally significant changes to issues of exposure. Directors are exposed in a number of important ways.
There is the professional exposure to performance issues. Failure to perform as expected will not only dent a sense personal satisfaction but it will quickly alarm colleagues and lead to expressions of unconcealed disappointment. This is only to be expected at the top team table where politics are ever-present and few concessions may be made during a period of transition. A good chairman should be alert to this and orchestrate the early contributions of a new appointee but this happy situation may well not emerge. Professional exposure can strike at any time and even after a long period of service on the board. The UK banking crisis of 2008-09 was essentially about professional ineptitude and, arguably, the dangers of having professional salesmen take on banking risks. The miscreants may never work again.
The legal exposure of directors now expands inexorably. Apart from issues of compliance and good governance, which are supervised by various regulatory authorities, there is an increasing movement to pursue criminal charges as a consequence of events such as the capsize of The Herald of Free Enterprise at Zeebrugge and the Paddington and Hatfield train crashes. Corporate manslaughter convictions may be a reality in the near future.
Quite separately, the financial exposure of directors can easily end in court, too. Limited liability is essentially a shareholder protection and will not shield directors from litigation for damages. Some protection for some corporate failures may be afforded through indemnities that are part of many service contracts but there will be none to protect against fraud or trading when illiquid.
Finally, there is the issue of personal exposure. Questions of integrity, competence, and judgement will be at the core of many boardroom issues. These all affect personal reputation and, indeed, reputation is one of the most powerful weapons that can be deployed by a director. It can transcend all others. How, for example, would one challenge Warren Buffet about views on corporate performance and investment with his reputation at Berkshire Hathaway? Bernard Madoff may have been just as difficult to challenge while he continued to deliver outstanding, if mysterious, returns but his subsequent conviction for fraud has moved all his perspectives into the dustbin. Personal failure may well be the most crushing to bear.
In view of the depth and complexity of exposure issues, it is wise to assume that the accountability of directors is total. There are no hiding places and the general public wants it that way. Excuses invented to shift the burden of responsibility are remarkably weak and transparent and will never prevail. Look at the furore over MPs’ expenses in early 2009. Public opinion was enraged as much by the realisation that MPs seemed to suggest that it was not their fault, because they had followed the rules, as it was enraged by any other aspect. Avoiding accountability will be doomed to failure as catching up is only a matter of time.
Some aspects of accountability in the boardroom are collective. Nothing demonstrates the importance of understanding role more than this. On the one hand a director should at all times be objective and independent in terms of opinion, yet, when it comes to issues of fidelity and accountability there will be a need for collective responsibility, too. Reconciling apparently conflicting principles, such as individual versus collective responsibilities, is one of the joys of boardroom membership! Accepting the concept of total accountability has critical implications for behaviour. It will require a willingness to resign at a moment’s notice, without compensation, if a situation warrants it on performance or issues of principle. In less dramatic circumstances, responsibility may be shared to present a united front outside the boardroom. Less obviously, but more frequently, the board must accept responsibility for the activities of an organisation, whether they had any direct involvement or not. Whilst executives can punish subordinates for failure and remain detached, the board has to accept that failure is usually a reflection of its inability to create an environment that delivers success.
When functional heads become directors there is often a tendency for them to assume that their principal role is to represent the best interests of their function or department at all times. This could not be further apart from what is needed. Representational responsibilities will always be there, of course, but they should never dominate to the exclusion of all else. A new member of the board should seek to become familiar with all aspects of the business. In times of trouble, the law will not discriminate on grounds of expertise or corporate responsibilities when seeking to apportion blame. A new member of the board should also aspire to becoming as capable as any other member in advocating issues outside the strict confines of their own functional portfolio. The trap of pursuing a narrow functionally-driven agenda in an effort to secure some political ascendancy is a major source of boardroom conflict and ineffectiveness.
When joining the board a new appointee will probably have to embrace two new concepts: trusteeship and stewardship. Trusteeship is an active role in corporate affairs, whereby a portfolio of responsibilities is accepted, and it forms the basis of board membership. As a trustee, the objective should be to serve the best interests of the organisation at all times during one’s term of service and then to pass on the portfolio to a successor when stepping down. A good trustee will ensure that the portfolio is passed on in better shape that when it was inherited. Stewardship is the equivalent of trusteeship in a voluntary organisation. Here the role will be passive but much more demanding in terms of transparency. As Henry Kissinger is reputed to have commented when at the State Department, “the politics in academia are much more vicious, as the stakes are so low”. Trusteeship, although active, is not an executive role. It does not confer authority. This will contrast with any retained executive responsibilities outside the board and will be at the very heart of the transition challenges faced by new directors.
The role of a board member demands an independent contribution based on honesty, objectivity, and best judgement. This contribution has to be made, however, within a framework of collective responsibility. A co-operative style only emerges when there is a powerful bond of trust between members of the board. This may not be a reality nor even possible in many instances. Trust is the result of a constant, natural, and consistent pattern of ethical behaviour in the boardroom. Ethical behaviour is itself the result of adopting a value system which is honest and legal, and which prevails, for example, over all other considerations when unfair or illegal advantage is being justified for short-term expediency. The specific pattern of ethical behaviour in an organisation is a critical component of that most elusive but very real phenomenon known as corporate culture.
The boardroom is a natural arena for taking a strategic perspective. This is far more relevant than having command of operational detail despite the tendency of all people to retreat into the comfort zone of their own expertise when difficult situations arise. One of the Chairmen of British Steel, the very celebrated “Black Bob” Scholey, would enjoy sorting out blast furnace problems at Scunthorpe on the phone in the middle of board meetings and would even take off his jacket and roll up his sleeves! However, he would see its funny side and then reflect on the simplicities of former responsibilities. Strategy is the process of positioning an organisation for future commercial and competitive advantage. It requires a deep understanding of both internal and external affairs and the factors which affect them. Exercising influence over strategic issues is not a simple matter of command. Usually, many strategic issues are outside the control of the organisation and may be subject to very limited influence. The strategic mindset will be more concerned about establishing options for the future and understanding the potential impact of both predictable and surprise events. Successful senior executives are often master tacticians but when faced with their role on the board many will struggle badly with strategic concepts where tangible outputs may not emerge.
Master tacticians will, inevitably, be competent managers. However, it takes leadership to deliver strategic impact. According to the Oxford English Dictionary, leadership is the ability to guide by persuasion. It demands the articulation of an argument for action that is so compelling that other people will objectively see its merits and be prepared to act on it. There are few higher accomplishments than the ability to do this. Leadership, however, is abdicated when, as often happens, management seeks only to exert influence through its vested authority. Winston Churchill as wartime Prime Minister was generally regarded as an inspired leader despite a reputation for advancing wild schemes. The historian Andrew Roberts in his book Masters and Commanders observes that Churchill never once went against the advice of Field Marshall Sir Alan Brooke, the man responsible for war strategy, if he failed to convince him of an argument. In contrast, Franklin Roosevelt as President frequently overruled his Chief of Staff, General George Marshall, if he saw political advantage. Churchill is seen today as an outstanding war leader and Roosevelt is seen increasingly as a canny machine politician. Interestingly, Roberts believes that Roosevelt’s behaviour meant that he might have had the greater political impact because, amongst other things, he failed to understand and address the post-war threat posed by Stalin.
The transition faced by a senior executive when taking up a first boardroom appointment as a director is multi-dimensional. This is summarised for reference in Appendix 1. The differences are deep, subtle, and demanding. It will take time for them to be familiarised and fully absorbed by new directors. The issues are all essentially behavioural and concern the concept of role. Many new boardroom appointees will benefit from mentoring as they struggle with the unfamiliar, suffer the brutal equality that comes with the natural scepticism for reputations that all high achievers seem to project, and smoulder at their inability to win arguments at the first attempt. All new boardroom appointees are urged to make constant reference to Appendix 1. Whenever frustration emerges, the chances are you will not be behaving according to the demands of the role.
Horror stories of the problems of making a successful transition are legion. New board appointments can be made to feel belittled and unwelcome as they get caught in the crossfire when powerful people pursue their personal agenda. The chairman of a major construction company was forced by his board to engage, for the first time in the history of the company, professionally qualified executive directors for the finance and human relations functions. The new HR director arrived feeling very positive and enthusiastic to make his contribution but he failed, for some time, to appreciate the chairman’s indifference to his appointment and his refusal to welcome the new arrivals in the way that he should have. The new directors, who were very capable and well qualified, were made to feel, in the words of the HR director, like “new kids on the block”. They both went through a very unhappy and unfulfilled period until the chairman was eventually removed. Sometimes the problems can be self-inflicted. When non-executive directors were appointed, for the first time, to a large building contractor one of these new board members, in order to sound convincing in a business where he had little direct experience, fell into the practice of talking at great length about his perspective on operational issues. This was not only a tiresome prospect for his colleagues but it effectively prevented the board from discharging its role as the primary decision making body of the company. The new non-executives had not been prepared for their new roles and the company had made no plans to maximise the impact the new appointments might have. The board only became effective again after the chairman intervened to cure the delinquent director of his desire to justify his appointment.
What characterises life in the boardroom? It is useful to paint a picture of the scene. Above all, it is important to recognise that it is a political arena. It could not be otherwise and this is perfectly respectable. It should be a forum for constructive compromise. Uncertainties will be the norm. Most surprise events jolt the boardroom, first and foremost. Surprises, by definition, will come with an army of unknowns. The job of the board is to remove the fog with logical and objective analyses and assessments. Ambiguities will be ever present. The boardroom is the place where all the different and conflicting forces that affect an organisation have to balanced, offset, and resolved. Ambiguity is inevitable when the separate interests of the organisation inconveniently fail to coincide.
Evidence, which is the critical ingredient for the application of reason, logic and the exercise of judgement, will often be scarce. Many attempts to provide evidence will turn out to be little more than hearsay when subjected to critical examination. Popular myth is a powerful reality in many organisations and it is often the responsible for many of the strategic mistakes made by a board. Believing that the destiny of Jaguar Cars was to continue the tradition of the E-type led the company down all sorts of false trails as it tried to define and then fund an appropriate F-type. Its success with the XJ series seemed to be almost incidental while chasing other spectres and the company was left badly prepared to exploit the very market it had created. It took the hard-headedness of Ford to define and produce the subsequent X series and introduce volume production disciplines.
Opinions around the boardroom table will often be divided. Indeed, if this is never so the organisation will be in real trouble! Real opinion may be very difficult to establish at first as many people like to see where others stand before expressing any final views or commitments. Loyalties, which will be ever present but which should not be allowed to intrude on issues of judgement, will be continuously tested in formal and informal ways. In all discussions, human nature will ensure that all participants are constantly assessing where others stand in terms of argument and personal support. Unfortunately, few serious issues ever result in options that are clear-cut. Uncertainty is at the heart of all aspects of life and serious endeavour. Being able to live with uncertainty and mitigate its effects is the hallmark of a true leader.
Finally, conflict of interests will abound and should demand recognition and immediate resolution. These situations, which can be plainly unethical or even border on the fraudulent, can provide some of the biggest and most emotional challenges for a board. Such is life at the top!
The duty of the board is to provide leadership, although this often happens by default. It should attempt to be decisive, unanimous in its call to action, and clear in its communication of intent. It is not only pragmatic, but perfectly honourable, to provide leadership through a process of constructive compromise. Facts and evidence should be well researched, be made freely available, and presented with full transparency. While this is second nature to an objective scientist or a senior military commander, businessmen and politicians tend not to be so rigorous.
The ability to draw valid conclusions separates the wise man from the fool. This is the single most important intellectual attribute in a leader. Sound conclusions are rooted in the analysis of evidence and the absence of evidence will undermine the validity of any conclusions drawn. Falsely drawn conclusions will result in errors of judgement and as such are serious affairs. Once conclusions are drawn they must be given unwavering support and only changed in the light of new or remarkable evidence. This is why compromise is vital when planning action. Agreed action should be the objective output of all boardroom discussion. Action itself should be driven by evidence-based conclusions but it should also reflect the realities of politics, funding constraints, and timeliness. Werner von Braun, the German rocket scientist who masterminded the US mission to put a man on the moon and have him return safely, realised that a successful space programme would be so expensive that it could never be justified as a the unified entity it demanded to be. Instead, he chipped away for years with small budget appropriations to put the fundamentals in place and was never too worried about diversions for military objectives if it meant keeping the overall initiative alive.
When faced with the question as to what he would do with a completely funded programme he was able to convince President Kennedy that it would be possible to have a successful mission to the moon within the decade following Kennedy’s inauguration. He compromised in a sensible way at every turn until he could strike and secure his principal objective. Action must always recognise physical realities and political constraints but sound compromise must always avoid taking the path of least resistance or anything that invalidates the policies of the organisation. The western democracies have always taken great pride in the freedoms they offer the individual. It then comes not only as a shock when agencies provide evidence of torture during the interrogation of prisoners-of-war or suspected terrorists but it also quickly undermines international standings and hard won reputations.
The process of compromise is susceptible to conscious and unconscious abuse. Strong personalities, of whom there will be a majority in any boardroom, tend to see life in terms of getting their own way. This is often a simple manifestation of the supreme belief they have in their own judgement. Such people will always deploy the most powerful weapons they have at their disposal to win an argument. They will call in perceived debts for the past support they may have offered. If the debt of support is not recognised, they may then question loyalties or infer moral obligations. Powerful people will not shrink from threatening sanctions, often with a brutal or personal edge, to get their own way. The shock effect of this behaviour when it is experienced for the first time can be shattering for the unsuspecting. This is part of the game to test resolve. A failure to be cajoled by threats may well be followed by a charm offensive and the offer of favours. This can be even more dangerous and distasteful. When a director succumbs to these tactics they become immediately exposed to the continual application of pressure as later issues are raised. Other members of the board will simply resort to the tactic of dividing the opposition to win the day. This is often very effective and may only be evident in retrospect. Who can say that modern management knows nothing about Caesar’s Gallic Wars even though Latin was lost with the demise of grammar schools! The prevailing sentiment in modern management in reaching a compromise often seems to be that if it is not illegal then it is certainly not unfair.
The only effective weapons to combat unwanted entreaties and pressures are integrity, judgement, and courage. A demand for courage can be daunting. Jim Hacker, the principal character in the television series Yes, Minister!, happily justified any colourful reference to his decisiveness except when it was described as courageous. The biggest psychological damage that may be experienced when under pressure in the boardroom is often when one falls into self-deception about an issue or when one acts against one’s better judgement. Once damaged in this way a director may be permanently debilitated on the board and end up becoming subservient to the agenda or to a more powerful colleague.
The demands of making a realistic and honourable compromise can throw the most surprising characters in their first boardroom appointments. Macho-style managers can be particularly vulnerable. For a plc board director, authority comes from reputation, respect, and the ability to influence others. The head of operations of a large plc had finally been appointed to the board after many years with the company. He had worked hard as a manager, learning how best to report to his seniors, how to keep them happy, how to impress them, and how to play their politics. He was acutely aware that it would not be an easy matter to get his former masters to treat him as an equal. He planned to mark his territory well and assert his new status at his first boardroom appearance. The big day arrived and he launched into a well-rehearsed monologue on what he planned to do. The board questioned his plans and challenged some of his underlying assumptions. While this was normal fare for the boardroom the new director misinterpreted the questioning as criticism. Believing that the right response was to show that he could “stand-up” to his new colleagues he became both defensive and aggressive. The meeting got off “on the wrong foot” and his first contribution left a largely negative impression. This display of aggressive and intractable behaviour set the tone for the coming months and his entire transition was made very much more difficult as a result.
The personal challenges in being a director, particularly of a public company, are onerous and substantial. The territory will initially be unfamiliar and new appointees will be exposed to the prospect of failures of a kind never before experienced. An appointment to the board may look like proper recognition for past contributions and achievements but it will come with new risks for professional and intellectual reputations. The best reasons for stepping up to the challenge will probably be around some desire to make a difference for the better. The rewards may be financially attractive, too, but real satisfaction will probably come from a new sense of power and achievement. Beware! This can be a powerful drug.