Depending on the role you are in today, you may or may not have direct interaction with board members. If you are a CHRO, spending time with the board is probably consuming an increasing part of your life. If you are working below the CHRO level, it’s possible you may have never even met your company’s board members. But you may still be experiencing more board influence than you realize. The issues that boards care about are having a growing and profound effect on how HR people at all levels of the company spend their time.
The board’s role with a company typically includes:
- Representing shareholder interests
- Providing governance and oversight
- Making selection, performance, and compensation decisions about the CEO and other key senior leaders
- Reviewing, shaping, and endorsing strategy
- Offering wisdom and advice
- Balancing between input and consensus.
The first and most fundamental responsibility of the board is to represent the interests of shareholders—those individuals and institutions that invest capital in the company and expect a financial return. In this capacity, board members are expected to play an objective, impartial role in ensuring that company management makes wise, profitable, and risk-appropriate decisions that benefit shareholders.
As an important supplement to protecting shareholder interests, boards are also expected to provide strong governance for and oversight of how the company is run. This role involves ensuring there are rational goal setting, financial, audit, risk management, legal compliance, environmental sustainability, ethics and integrity, and other similar processes and safeguards in place.
Many experts would say that the single most important decision a board makes is selecting the CEO. The board has direct authority and accountability for hiring, assessing, and compensating the CEO, and increasingly, the CEO’s direct reports as well. Boards, and compensation committees in particular, ensure that the senior team is being stretched, they evaluate or oversee the assessment of the senior team’s performance, and they make certain that senior leader compensation is appropriate in light of company and industry competitor performance, economic and market conditions, and delivery of results against goals.
Boards are increasingly becoming involved in discussing, debating, reviewing, and approving company strategy and the operating priorities that underpin strategy. There is a fine line between the board’s role in reviewing and approving strategy, and management’s role in conceiving and executing strategy. This seems to be one of the grayest areas of board involvement and promises to become even less clear over time as boards seek to ensure strong representation of shareholder interests.
One of the most potentially positive—and simultaneously perilous—roles a board can play is providing wisdom, advice, perspective, challenge, and support to the CEO and other key company leaders. The best board members know precisely when to offer insights and counsel. The worst board members regularly overstep their bounds and issue orders and ultimatums.
A key insight about boards is that they are typically a collection of very smart, experienced, and capable individuals who have strong opinions and the willingness to share them.
Therefore, boards are generally much better at providing a collection of inputs than they are at reaching consensus and speaking with a single voice. The chairman of the board, or the lead director, can therefore be important in collating, interpreting, and communicating the collective board input in a manner that is translatable into action for the CEO and other key leaders.
If you found this information valuable, for more on these and other ideas, check out my book, THREE: The Human Resources Emerging Executive, available now. Learn more and preview THREE at www.exexgroup.com/publications/three-book.