Corporate Governance RSS

  Seven Days to Creating an Effective Board 

Navarro-Rubio, José María; Tàpies, Josep
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IESE Prof. Josep Tàpies, together with José María Navarro-Rubio, senior partner at Corporate Consulting, use the Creation account from the biblical book of Genesis to walk readers through the various stages of creating an effective board of directors. Each chapter corresponds to one of seven key steps.

On the first day, a board is created. The board's function is to establish the goals, strategies and objectives of the company and ensure that they are achieved.

This governing body is the bridge between management, who report to the board, and shareholders, to whom management is ultimately held accountable.

The board does not run the company's day-to-day activities, but is still its most important supervisory and decision-making body.

For these roles to be fulfilled properly, the authors recommend having a balance between board members with executive or management responsibility in the company, and those who have no such ties to the company.

On the second day, a chair is chosen. The chair must ensure the board is useful, works well and adds value to the company. He/she must possess organizational, leadership and coordination skills. The chair must seek consensus and be practical.

He/she must work hand in hand with the company's top executive, and devise ways to assess the board's collective and individual contributions.

On the third day, a secretary is appointed. The secretary is the chair's go-to person for preparing and planning board meetings.

The secretary updates members on the agenda, which is created by the chair based on proposals from either the CEO or Managing Director.

Once the meeting concludes, the minutes, consisting of agreements that have been reached, are then transcribed.

On the fourth day, compensation is decided. Every board must establish a policy on how much to pay its members. Preferably, compensation should be aligned with the company's performance, as it does not make much sense for board members to get rich while the company loses money.

The authors argue that a fixed amount should be contingent on each member's dedication. Any differential should be tied to long-term strategic goals. Certainly, no board member should be able to decide his or her own compensation level.

On the fifth day, attendance allowances are paid out. It is important to take full advantage of board members' skills, and ensure the productivity of every board meeting.

As such, the board should have a balanced makeup and reflect the company's character. In choosing outside directors, four essential criteria must be considered: independence, competence, dedication and integrity.

On the sixth day, the chief executive is chosen. One of the board's main tasks is to ensure that the company's CEO is capable and competent. That involves hiring, motivating, retaining, evaluating, improving and, if necessary, replacing this person with the least possible disruption.

The board does not run the company, but rather manages it. The CEO, on the other hand, runs it, but does not govern it.

On the seventh day, the board rested. In order to improve, the board's standards of performance need to be evaluated regularly. Its decision-making abilities, competencies and contributions to the company should be assessed.

This can be achieved through surveys taken by directors and the executive team, competencies analysis, working sessions with the chair and CEO, and face-to-face interviews with directors.

The board's responsibilities need to be clearly defined in order to perform an effective evaluation. An assessment should be done at least once a year, and also every time the company undergoes a major change.

Moreover, it is better to focus the annual evaluation on a single issue and deal with it in depth rather than trying to solve several problems at once, which can make the process lengthy, tedious and superficial. The goal is to come up with proposals for improvement.
This article is based on:  Génesis del consejo
Publisher:  LID Editorial
Year:  2012
Language:  Spanish