Happily ever after. Part I / by Alexander Lyadov

My notes from the 1st module of Board Direction program


The Board Direction program was created by Ukrainian Corporate Governance Academy for current or future board members of private, public or state-owned companies. The modules are taught by the invited professors from top business schools such as INSEAD and London Business School. In order to better internalize all the ideas I learnt from the lectures, cases and internet articles I am publishing these notes made during my study. I thought they might be of interest to those, who like myself are eager to learn how to build truly effective and value creating Boards. I worked as a Board Director in various companies and witnessed firsthand how that governing body alike scalpel surgeon could be an instrument of healing as well as of destruction.

Attention! These notes are NOT what the professor said or what was written in the study materials - there are just my thoughts extracted from all the content I heard and read during last week in various sources, which was filtered through my perception and personal experience. It should also be noted that for the reader some of the ideas may sound unclear or even contradictory, as they require knowledge of particular context or my additional explanation. Thus if you have any questions, comments or complaints, please address them only to me personally. 

For owners who are new to board governance - first build the Advisory board, then Supervisory board.

For board candidate: first work as an Advisor, then become a Board member.

Board Chairman: not providing the answers, but pulling the answers from the board members.

Good question to ask oneself: "Is the right spirit in the boardroom? Am I inspired by the board meeting"

Good execution of the bad plan is the worst thing.

The best governance is in protestant countries like Canada, Sweden etc. Why? The essence of governance is a protesting (in a good sense). Coach is not a friend for the players. Good spirit - honest discussion about difficult questions.

Male CEO + female Chairman = good combination, as it's well balanced. In general women are more collaborative and fair play oriented.

Sweden try to have a new bill: by 2019 at least 40 percent of board members of listed firms should be women.

Key competence for the board - asking the right questions.

The aim of the Board is Security - protecting the company from the catastrophic risks thanks to the cumulative experience of past generations ( "the experience of the dead").

No good board is possible until owners believe in it and give it a chance.

A question for oneself: "Do you have a private board"?

Good governance is not only what to execute, but when to stop executing (e.g. USA in Iraq)

The most important question - who appoints the board members.

The most disloyal creatures are shareholders.

Governance is about 2 questions:
1) What question do we have?
2) Who can answer it?

People who failed in business can be good directors (best coaches are not the best players)

Board work: effectiveness over efficiency (sometimes being inefficient is OK)

Board language is of generalist - don't use the specialist's language.

If a shareholder wants to destroy company value, you can't prevent it - so talk first, then resign.

Every successful person needs a board.

Board is all about diversity of opinions (background, experience, age, gender, etc.)

independence is the main quality of good board member (from shareholders, management, third parties etc.)

In Ukraine the main criteria - ethical background (integrity).

Board is about what NOT to do. Good to have a "Chief Warning Officer" in the board.

At the end of the board meeting it's useful to ask everyone: "What's your regret? What did you wish to ask, but didn't?". The aim is to make the implicit intuition explicit.

The key is to ensure safety to speak up in order to make the unspeakable speakable, because not talking is a corruption.

You don't pay board member for performance (no bonus), you pay by renewal of the contract.

Don't accept board seat for the money (loss of independence).

The good simple rule for board member compensation is CEO annual compensation divided by the number of working days per year and multiplied by number of board meetings including preparation time.

In business it's enough to be better, not perfect.

Most problems are not problems - they are symptoms.

Quality of my opinion = Intelligence of people x number of people I talked to

You should spend more time of Engagement (1st stage) and Exploring Options (2nd stage) to move quickly and smoothly in Execution (3rd stage)

Engagement is not just information gathering, but also (re)framing

Advise to the board: the more CEO is successful, the more you should be (positively) challenging. The less CEO is successful - the more supportive you should be (up to a certain point).

Put difficult (criticizing, carping, picking) people in Audit committee.

Engage people before you make a decision, not after.

Do not change alone - choose a coach, build a private board. E.g, choose 3 people to meet monthly, at the end ask "Was it helpful?"

As a board we are not friends. Competence should be a minimum requirement, but real value comes from the talent.

If you are given a choice who to keep - "CEO or Chairman", then chose CEO, as CEO is much harder to find.

Change management - focus on opinion-leaders at the extremes of the distribution of the the audience (bell-curve). Take into account that half of the opinion-leaders can change their opinion to the opposite extreme at any time.

As a board member don't go for opinions, go for evidence.

It's good to have a Policemen on the board - Senior person in charge for governance committee.

You should have a coalition to support you.

Many CEOs are strange people - half-neurotics almost psychopaths (as per BIG 5 personality test, https://www.truity.com/view/tests/big-five-personality).

Board members should be more balanced in all 5 dimensions, may be slightly more neurotic. Chairman should also be balanced and slightly higher in extraversion and able to stand for himself. 

Board evaluation is in fact Chairman's evaluation. So before changing a Chairman make an anonymous evaluation of the board.

Before you make a revolution in company (strategy, management), first you need a revolution in the Board in order to have unity on the Board (e.g. Ukraine).

Reverse mentoring - coach board members in totally new disciplines (e.g. financial person in marketing)

A CEO of your company should first join the board of other company, then become chairman there and only then to move to chairman role in your company. Thus he will learn through experience the difference of each role.

Most cases of fraud happen not in businesses, but in Holdings/Corporations (easy to hide).

Corporations don't run businesses - they govern them.

The choice of KPI is the choice of strategy.

Don't confuse the Corporate strategy with Business strategy.

In governance you don't innovate - you just take known practices and apply.

Advice to Ukraine: show what you are doing about corruption. Markets are sensitive to improvements.

Cultural difference of the quality of the board (oversimplification):
- USA: "We made a clear decision".
- France: "We had a great intellectual discussion".
- Japan: "The boss accepted our proposal".

Always engage the activists shareholders (the "enemies") - they are like coaches like McKinsey, but for free. Engaging doesn't mean agreeing.

A good board board asks themselves:
- Did we discuss radically different options?
- What is the real issue we are dealing with?
- May be the "enemy" is right?

Board members should be free to meet with management without CEO presence to ask questions about the company (but not giving orders).

An informal dinner the night before the board meeting is useful ritual for context identification.

Good board member constantly communicates with shareholders from his network.

Art: Une Assemblee d' Actionnaires, Edmond Lavrate (France, 19th century)