Now More Than Ever, Company Boards Must Respect Boundaries

Veteran marketing professional Angela Hill received a call from a medical agency seeking design work. The prospective client specifically wanted an experienced marketing firm that understood the medical industry, making Hill’s San Diego business a solid fit. The executives accepted her proposal, but also informed her that the board of directors makes all of the final decisions.

Sure enough, the board vetoed her proposal and went with another, less-experienced marketing design firm charging 50% less. According to Hill, this is not an isolated incident.

“There’s this epidemic in my industry where professionals are losing business to firms with less experience solely based on the cost concerns of board members,” says Hill, president of Incitrio. “Now more than ever, boards are extremely paranoid about any decision that could impact the bottom line, so they’re getting involved in decisions they really shouldn’t be involved with.”

“Professionals are losing business to firms with less experience solely based on the cost concerns of board members.” – Angela Hill, Incitrio 

Incitrio’s experience is nothing novel in today’s business climate. Increasingly, as economic conditions deteriorate, directors who usually discuss and vote on long-term, big picture company strategy are increasingly making forays into the realm of day-to-day operations and minor decision. Unfortunately as long as the current difficulties prevail, businesses will have to get used to more meddling by their boards or those of their clients.

Fortunately, smaller companies like Incitrio can avoid falling victim to snap decisions of would-be clients’ overzealous boards by having a better idea of who calls the shots.  And companies that have eager beavers in the board room can cope with them by establishing boundaries. 

Too Many Chiefs?        

The role of a board is to advise the executive team and represent the needs of shareholders (or, in private companies, investors). Micromanagement by the board is strongly discouraged, but turbulent times have spawned restlessness and fear among directors, says management consultant Kevin McCarthy, CEO of Winter Park, Florida-based On-Purpose Partners LLC.

When board members “suit up and take the field,” he says, the results can be disastrous.

“Imagine an NFL football team falling way behind in a game,” McCarthy suggests, by way of analogy. “The team owner comes out to the field and takes over from the head coach’s job. Then, he gets on the field and starts taking snaps under the center to run the offense.”

That scenario sounds absurd, of course, but McCarthy and others with experience working on boards or with boards as executives say it is all-too-common. It requires a strong, level-headed board to “restrain itself” when managers are put to the test, but board members who overstep their boundaries usually do worse than even a mediocre executive, says Danville-based consultant Nancy Clark.

In the best-case scenario, the board has full faith in the chief executive’s ability to run the company. But boards often have members who can dominate the group and overextend their roles, says Atherton-based consultant Ken Ross, who has experience in both spheres.

“The board can work through or approve the business plan. Once that’s done, the board should let the company operate,” says Ross, who is affiliated with the Expert CEO Inc. network of former executives. “That’s the theory, but the reality often is different.”

“The board can work through or approve the business plan. Once that’s done, the board should let the company operate.” – Ken Ross, Expert CEO Inc. 

Just as ineffective is a board that fails to get involved enough, he says, since entrepreneurs often are so focused on the day-to-day operations that a longer view is also needed. Management psychologist Peter Levin says this tends to happen more at fast-growth entrepreneurial organizations, where the CEO wears many hats. But in general, he says there is a definite trend right now of boards becoming more involved in operations.

“I can tell you for sure that members of boards of all businesses now are looking over the shoulders of their CEOs,” says Levin, managing director of the Los Angeles office of RHR International Co.  

Caught in the Middle

A company whose management team is out of sync with its board certainly can hurt its chances of success, but it also creates major headaches for small business owners like Hill. She learned about the prospective client’s need to seek board approval only after prompting the executives for more information about the decision-making process, but such rash decisions (absent an explanation) can leave third-party businesses scratching their heads.

“Next time, find out what your clients’ decision-making process is before you make your pitch,” San Antonio, Texas-based management mentor Christopher Avery suggests. It’s always best to speak with the decision-maker, he says.

And just as in personal investing, businesses risk much if they put all of their eggs in one basket. In a more extreme case where a small marketing firm is dependent on a single corporation, the smaller company risks losing control of its direction and can by default absorb the client’s culture and direction, says Sacramento-based business broker Andrew Rogerson.

“A business has to have a vision and can only have one vision. The owner or CEO needs to live and breathe that vision,” says Rogerson, of Murphy Business & Financial Corporation. “If a privately held company is relying on that vision from a publicly traded company, it has lost its way.”

A Transparent, Functioning Relationship

Transparency is the key to a healthy, functioning relationship between the board and the management team, sources say. Even though the board is not there to run the company, keeping them apprised of what the company is doing on a regular basis encourages trust and prevents the urge to micromanage, Levin says.

“The overall idea is to increase transparency in times of crisis, which tends to reduce the anxiety of the board,” Levin says. “The normal role is an advisory position, and most of the board members don’t have the detailed knowledge about the company to run it.”

“The overall idea is to increase transparency in times of crisis, which tends to reduce the anxiety of the board,” Peter Levin, RHR International Co. 

Simply put, no company board likes surprises. 

And since the board’s chief role is to think strategically, now is a good time for the board to be thinking about ways to get into a good position for when the economy recovers, he adds. While the executives focus on today’s needs, Levin says, the board would be better utilized by looking at tomorrow’s opportunities.

Avery suggests clearly defining the roles and boundaries of the board members early on. If there is a clear division of labor but the board goes around the CEO, it’s indicative of a dysfunctional relationship. And although it occasionally makes sense to seek board input for short-term decisions, especially during the current crisis, he says executives should not lean too heavily on the board for operational help. After all, the CEO was hired to lead the company and make tough decisions.

But disagreements and conflicts will arise in most organizations, which is why Avery suggests having a protocol in place for resolving board/management disputes.

There is a fine line between managing and advising, but a more effective board of directors will help its executives do their jobs better instead of actually doing it for them, says San Francisco-based organizational development consultant Leila Bulling Towne. 

“Now is the time for board members to demonstrate the expertise for which they were hired,” says Towne, president of the Bulling Towne Group LLC. “Who is the strategy expert? Who knows everything about organizational development? Time to coach the management team and help them to take bold steps. Bold, but not brash.”

Do the opposite and you risk hamstringing your executives, like in the case of Incitrio’s client.