Across the Boardroom
June 02, 2008
They may be smart, seasoned executives, but board directors still can—and should—benefit from training.
By Gail Dutton
There's a mystique about governing boards as wise, all-knowing executives, banded together to independently protect shareholders and corporate viability. According to that view, these gurus don't need training. But Stephen Kelly, director of BBC People, doesn't see it that way. The human resources (HR) department, he says, has a significant role in strengthening the board. At the BBC, Kelly takes a subtle approach, coaching executive board members outside the boardroom, presenting a sounding board for the CEO and chairman, and providing insights into the unspoken messages telegraphed around the boardroom. Such quiet coaching can be invaluable, but HR's input is becoming more formal and more obvious.
The notion that governing boards benefit from structured training reached a critical mass soon after the Enron,WorldCom,and Arthur Andersen scandals leapt into the headlines.
In fact, in PricewaterhouseCooper's most recent survey on board education, "What Directors Think," 83 percent of the 1,300 respondents indicated the board should attend educational sessions.
Partnering with HR
Although boards usually stay behind a firewall separating it from daily operations, a few HR execs recognized early on the synergism between HR's strengths and the areas in which governing boards sought training. By forging strategic partnerships, they managed to leverage their expertise for the direct benefit of the board.
The key to successfully involving HR is to use its insights in ways that are relevant, useful, and engaging, so that it is seen as a strategic partner, insists Tina S. Van Dam, acting director, The Governance Center and the Directors' Institute at The Conference Board in New York. "The time is good to focus on pay for performance and executive compensation," she says—areas in which HR has expertise.
"One of the challenges for HR is that we try to get too much in front of the board," the BBC's Kelly says. "Instead, go with fewer things of higher quality." For example, he asks, "Why would the board spend 40 minutes discussing talent management when it could use the time to discuss acquiring another company?" HR can correlate the two. Simply put, talent quality adds significant value to the company and affects its position during any discussion of acquisitions or mergers. Consequently, talent management should be a key interest, along with succession planning and organizational development. "Make those topics interesting and engaging, as a way to open the boardroom doors to HR," he advises.
Whether HR's involvement with the board is strategic or merely logistical "depends upon how broadly HR is defined," and whether HR is viewed as a strategic partner, according to David Larcker, co-director of the Stanford Directors' Forum, director of the corporate Governance Research Program, and co-director of the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford University.
The perception of HR as a strategic partner is crucial to HR's ability to enhance board training. To succeed, HR directors must counter some widely held perceptions—namely, that HR execs tend not to have the same holistic view of the company as other senior management teams, and that they tend to be risk adverse.
There also is some concern that training provided by management—or selected by in-house personnel—could compromise the board's independence. "It does gives board independence a little slant, but not unduly," says Nick Fabrizio, senior consultant, Medical Group Management Associates.
Basics and More
However training is approached, it increasingly is viewed as vital to the health of the company and its governing board. The focus is evolving from basics such as ethics to such issues as enterprise risk management, executive compensation, investor expectations and communications, government practices, and reputation management.
But the need for basic brushups is still there. Integrity Interactive focuses on compliance, ethics, and corporate responsibility—areas, according to business consultant Richard Cellini, VP of Integrity Interactive, in which missteps "can kill or seriously damage a company (or career) overnight."
If you don't believe it, just look at the fallout from the e-mail debacles at HP, which belatedly realized that tracking employees' e-mail usage wasn't a good idea, or the difficulties of former Director of Central Intelligence John Deutch, who, after storing classified documents on an unsecured home computer, received a Presidential pardon.
Issues such as those are clear indications that even seasoned, savvy execs need occasional reminders on basics such as the proper use of computers and the Internet, avoiding conflicts of interest, and inadvertently speaking for the organization, as well as what constitutes anti-trust and fair competition.
At First Pioneer Credit in Enfield, CT, "there's an effort underway for a more refined and structured training system," says general counsel Michael O'Connor. Nowadays, orientation is the first thing new board members do. At this lending co-op for farmers, he says, directors are elected by the co-op members. Board education begins with a one-day basic orientation, followed the next day with more detailed training geared to specific needs. The big education needs for First Pioneer, he says, tend to be more detailed financial training, but it must relate directly to directors' day-to-day responsibilities. A few years ago, for example, a training session featured a simulated review of a credit committee package to help the board better understand the reports for individual loans.
"Training is all funneled through the governance committee," O'Connor says, but "there's a significant overlap between training staff and board members" in such areas as diversity and other typically HR topics. So, First Pioneer often uses the same training organization but different sessions for its staff and its directors.
Even when employees and directors have the same training needs, it's better to have separate sessions, Stanford Directors' Forum's Larcker says. "Directors are usually on the same page," he explains, "so we can discuss more complicated issues and have debate" that isn't possible in groups with more disparate levels of experience.
Some of that training can be handled in-house, using either outside experts or management as speakers. Internal education has the advantage of letting the board focus tightly on its own issues without risk of breaching board confidentiality. External programs, such as the Stanford Directors' Forum, avoid that blur and generally cover fiduciary duties, regulatory issues, recent court decisions, and leading practices. Their advantage is the cross-fertilization of ideas that comes from exposing directors to their counterparts in other industries. And, as Catherine Bromilow, partner and lead,Corporate Governance Group at PricewaterhouseCoopers adds, education through formal, external sessions is easy to document.
Online courses offer another option, letting directors complete necessary training on their own schedules. The strengths, Cellini says, are that the company has a record of what training was taken, test results to document comprehension, and a record of what each director studied.When possible, experts note, a mix of programs and venues is optimal.
Sidebar: Quick Tips
The firewall between boards and the companies they govern tend to be strong, but they're not insurmountable. To help strengthen board members' skills:
• Focus on expertise you can bring to the board. Approach the corporate secretary, chief governance officer, or general counsel to discuss the board's key concerns in terms of the expertise you can bring to specific programs.
• Combine external and internal training for best results.
• Use real-world examples from that company's own experience when you address the board.
• Become the organizational conscience, watching the subtle signals among directors to keep execs apprised of what's going on and focused on what's really important.
• Facilitate dialogue within small groups, perhaps board committees, to address the core issues. Save the seminars for broader training.
|
RSS
