March 3, 2011

Call to Action: Boards of Directors

Dr. Jeffrey Gandz

Dr. Jeffrey Gandz Professor, Managing Director Program Design - Executive Development Ivey Business School March 3, 2011 South China Morning Post Ivey's recommendations on what boards should do post-financial crisis.

One of the critical lessons to be learned from the financial and economic crisis of 2007-09 is that boards of directors should not allow a CEO to be the only conduit of corporate information, nor should the CEO be the sole assessor of risks facing the corporation.

Boards should improve their understanding of the strategic operational, reputational and financial risks in which the organization is engaged. They should be able to verify the extent to which their organizations are exposed to those risks, and they should understand the strategies available for risk mitigation.

Boards, and especially governance committees, must take a more dynamic view of the composition of boards than has traditionally been taken. Directors today may require a much deeper understanding of risk, technology, or global operations than in the past.

Governance committees must ask themselves whether the board has this level of understanding and if not, what they are going to do about it. This may lead to a requirement for more education of boards or of individual directors, and it may require boards to refresh their membership more frequently and radically than in the past.

Boards can and should require independent, third party assessments of critical risks. When these differ from management's assessments, directors must be fearless in provoking a discussion.

Boards need to change how they look at executive compensation. It should be viewed as a risk variable and examined by the risk committee of the board or by the board as a whole. The examination should address specifically whether proposed or established compensation schemes encourage or discourage the right risk-taking behaviour.

Finally, boards should be wary of CEOs with narcissistic tendencies. They should be on their guard against CEOs who appear to be excessively confident and those who resist or appear to resent deep and tough questioning. They should be on the lookout for CEOs who appear to be continually "selling" to them or "managing" them.

When boards of directors come across CEOs exhibiting any of these traits, they should exercise even greater scrutiny. If they face resistance, they might even have to have the CEO replaced.

Next week: Call to Action for Business Leaders

<< Leadership on Trial Home