Boards that Lead : When to Take Charge, When to Partner, and When to Stay Out of the Way

Charan, Ram, Carey, Dennis, Useem, Dennis. 2014. Boards That Lead : When to take charge, when to Partner, and when to stay out of the Way.Boston: Harvard Business Review Press.

In the introduction, the authors list the primary duties of a board--"to select, retain, or dismiss the chief executive, to establish a climate of ethics and integrity, to set the goals and incentives for the executive team, and to pinpoint the company's central idea, risk appetite, and capital structure" (p. 1). With these responsibilities, a board bear a critical portion of the success or failure of an enterprise along with the executive team. The board ideally acts in concert with the management team. The ability of the board to contribute to the enterprise's achievement and partner with management stems from three board attributes--"human dynamics, social architecture, and business leadership" (p. 3).

In line with these goals and with the growing assertiveness of boards, the authors noticed in those that they examined an increase in board functions. "They are taking charge of CEO succession, executive compensation, goal choices, merger decisions, risk tolerance, and other functions that have traditionally been the province of management" (p. 5). As a result, the authors noted the following trends: 90 percent of boards have a lead director, 43 percent of boards have separated the functions of chairman of the board of directors and chief executive officers, the poison pill option has declined to 8 percent, and executive compensation has evolved from fixed pay to "contingent compensation that varies with financial results that directly benefit shareholders" (p. 18).

Traditional obligations for board directors are duties of care and loyalty. The authors define these as, duty of care, "requiring directors to exercise reasonable caution in executing board responsibilities that could harm others if not performed well" (p. 17); and duty of loyalty, requiring that directors exercise good fiduciary judgment on behalf of stockholders" (p. 17).To these obligations, the authors add the "duty of leadership", requiring that directors handle "the increasing complexity of company decisions across virtually every facet of doing business, from sales channels and product categories to price points and product markets" (p. 19). Specifically, the complexity encompasses the overwhelming amount of information must consume and the international nature of business, with its various "regulatory regimes, consumer preferences, and cultural traditions" (p. 19).

From this foundation, the authors delve into the four elements of their board leadership model: (1) strategic decision making, (2) the duties of care and loyalty reinforced with "attention on company strategy, capital allocation, executive succession, management compensation, talent development, and enterprise risk" (p. 21), (3) succession planning, obtaining sufficient information to understand clear the current state to collaborate with executive management when necessary. With these elements, the authors identify four board of director engagement types: "Boards that take charge, boards that partner, boards that monitor, boards that stay out of the way" (p. 22). Because each of these forms of engagement fit within certain circumstances, boards must select the appropriate posture when it is warranted.

The authors offer this checklist.

"Director's checklist for leadership decisions" (p. 24)
"When to take charge
        Central idea
        Selection  of chief executive officer
       Board competence, architecture, and modus operandi
       Ethics and integrity
       Compensation architecture
When to Partner
       Strategy, capital allocation
       Financial goals, shareholder value, stakeholder balance
       Risk appetite
       Resource allocation
       Talent development
       Culture of decisiveness
When to Stay Out of the Way
        Execution
        Operations
        Areas of delegated authority
        Nonstrategic decisions
        Excluded by board charter

 The remainder of the book divides into these sections, Boards that Work, Leading the Leaders, Value Creation. Within Part 1, Boards that Work, the authors discuss, "First things First: Define the Central Idea, Recruit Directors who Build Value, Root Out Dysfunction, Wanted: A Leader of the Board".
Part 2, Leading the Leaders covers CEO Succession: The Ultimate Decision, A Question of Fit, Spotting, Catching, or Existing a Falling CEO. The last, Part 3, Value Creation, addresses Turning Risk into Opportunity, Staying Out of the Way, The Leadership Difference, and A Revised Definition of Corporate Governance.