The Board as Bee17 March 2016
My book, Power in and around Organizations, first issued in 1983 and out of print for many years, is now available, free of charge. So this week I draw on a basic point about how bees bite, in a chapter that describes “The Board of Directors”. Read this here in the unlikely event that you don’t want to plough through all 700 pages.
Under the label “governance,” boards of directors have been getting a good deal of attention in recent years. This may be more than they deserve because there is often more status than substance in what boards do. Boards have several useful service roles to play in organizations, but only one—rather limited—of real consequence, about control.
Among the beneficial services that board members can provide, those with wide experience can offer advice to the management, or simply be there as sounding boards. Directors who are well connected can help raise funds for the organization. And the very presence of influential people on the board can enhance the reputation of an organization as well as connect it to important centers of power.
The board as overseer The real influence of the board, however, is in its responsibility to act as overseer of the activities of the full-time management. This starts with the appointment of the chief. (I use the word chief rather than CEO, to include the heads of non-business as well as corporate organizations.) Then there is the assessing of this person’s performance, and replacing him or her if need be. Sometimes board members must also act temporarily in that person’s place when he or she becomes incapacitated. All of this is tricky, because boards may not be particularly adept at doing it well.
The board does not control the organization; it appoints the chief who does that, and then appropriately backs off. Chiefs have axes, boards have gavels. Don’t be fooled by the noise that gavels can make. Of course, if a board lacks confidence in its chief, it has to replace, not second-guess, him or her. The tricky part is that the board cannot do this often.
Think of the chief of an organization as someone picking flowers. There’s a bee hovering around—that’s the board—so the chief had better be careful. But that bee can only bite once. So it had better be careful too! Of course, nothing stops a board from biting more than once—replacing one chief after another—except concerns about the perception of its own competence. Most of its members probably appointed the person being dismissed.
The board apart The trickiest part of all this is that board members, who attend only occasional meetings, and with very different responsibilities of their own, are often quite removed from what goes on in the organization. How can they even know when to replace the chief, given that their main channel into the organization is through that very same chief?
Compounding the problem of selection, assessment, and replacement is that board members typically have higher social status than most other people in the organization. That cannot help in their assessment of internal candidates for the job of managing those people. Indeed, it can introduce a bias toward selecting outsiders. Moreover, high-status people may be inclined to select people in their own image, whether other elites or at least people especially concerned with their status. Board members may relate easily to such people, but do these people themselves necessarily relate to the people they are supposed to manage? (See the TWOG called “The Harvard 19” on the bleak performance of one sample of high-status corporate CEOs.)
There is a label for people who relate well to “superiors” and badly to “subordinates”: “kiss up and kick down.” They’re great at hob knobbing with elites but lousy at working with people who are not elite. (I touched on how common this has become in an earlier TWOG, which suggested that choosing managers could be significantly improved by seeking the opinions of people who have been managed by the candidates.)
If choosing a chief sounds tricky, think about having to assess his or her performance from the outside. Next week I will discuss the tricky task of assessing managerial performance. Suffice it at this point to say that, in the absence of deeper knowledge, relying on convenient numbers—in businesses for example, profits or stock price—can be short-term and superficial.
Beware of the buzz Of course boards vary in their practices, depending on the nature of the organization. The discussion above applies especially to widely-held corporations. But for companies closely-held by a dominant outside owner, the board may exercise considerable control on that person’s behalf—unless he or she chooses to do so personally. (But again, the management has to manage.) As for entrepreneurial companies, managed by their owners, the service roles become the main ones for the board.
As for the boards of non-business organizations—NGOs, universities, hospitals, and so on—their directors may be even more distant from the basic operations. At least the directors of businesses are usually businesspeople themselves. But what happens when businesspeople sit on these boards? If they come with the belief that business knows better, they can be a menace, posing a double danger: they may be more inclined to meddle and to appoint businesspeople to run these non-business organizations. Businesspeople may know no more about education or health care than educators and physicians know about business.
These not-for-profit organizations are different. They have more complicated stakeholder relationships; their performance targets are less easily measured; and their employee relationships tend to be more engaging. These days, the prevailing practice of the management of business is not “the one best way”, not even the best way for many businesses themselves.
So what is the non-numeric bottom line for all this? Boards are necessary but problematic. They have to have an acute sense of what they don’t know, and how to find it out. And they need variety in their membership, to overcome the limitations of mislaid status. Beware of their buzzing even more than their biting.