Corporate boards fail for all kinds of reasons. Some boards lack the appropriate skillsets or experience around the table. Some boards are expertly composed but insufficiently engaged or committed. Others appear to be independent custodians with both hands on the wheel but preexisting relationships with other board members or with management denigrate their objective oversight.
More often than not, though, boardroom performance is affected by something more elusive — a board member’s courage to speak their mind. Courage is a big word. It’s much easier said or promised, than done. Unfortunately, an outdated emphasis on collegiality left over from the days of ceremonial, rubber-stamp boards sometimes impedes courageous directors rather than encourages them.
Reasonable people will differ about the merits of Donald Trump’s presidential candidacy, and many will understandably express concern about the care with which he speaks. But few would disagree that Trump has the courage to speak his mind. Say what you will about “The Donald,” but lots of boards could use a director with his courage.
Here are five examples of how a Trump-like ability to speak one’s mind can define boardroom efficacy:
Speak up. Boardrooms are often complex environments susceptible to egos, insecurities, and politics. Saying things that are unpopular with your peers is rarely easy or comfortable. It’s one thing to think that something is preferable or ill-advised, but when no one constructively says so, stasis reigns supreme. Sometimes it comes down to someone simply having the courage to declare, “I don’t understand.”
Changing course. Today’s global business landscape bears little resemblance to what previous generations of corporate board members faced. Just ask some former officers and directors of Kodak. Timely, meticulous product road maps, operating budgets, and strategic planning have never been more important, and the resulting expectations have never been more relentlessly dissected by the Street. Admitting those plans are flawed sooner versus later takes courage.
Succession. Hiring and firing the CEO is a basic tenet of corporate governance. But ask any board member and they’ll tell you that the more nuanced succession hurdle is what to do about underperforming board members. Corporate boards are loaded with dead weight in part because asking an otherwise-respected peer to step down is hard — it requires courage.
Longer-term interests. Creating value for shareholders takes years, not quarters. Today’s capital markets ecosystem makes that harder than ever. Directors must have the courage together with management to position companies for future success.
Tone at the top. U.S. Attorney Preet Bharara says that organizations either have cultures of “profound integrity” or they don’t. Directors must have the courage to always choose and demand rectitude.
Spend enough time in corporate boardrooms and you’ll see that friendly banter, passive questioning, and acquiescence are still unfortunately the norm. It’s one of the reasons there is $200 billion under management by activist investors.
For those who think that courage in the boardroom is overrated, let your minds drift back to 2005 or so. What if there had been a few more directors with the courage to admonish their boardroom peers: “Wait, so let me get this straight. You’re asking our shareholders to wager this century-old company’s entire future upon hopelessly complicated derivative instruments that no one understands? We can’t do that; it’s the dumbest thing I’ve ever heard!”
Adam J. Epstein is the founder of Third Creek Advisors and author of The Perfect Corporate Board: A Handbook for Mastering the Unique Challenges of Small-Cap Companies (New York: McGraw Hill, 2012).