BOARDS THAT LEAD
When to Take Charge, When to Partner and When to Stay Out of the Way
Ram Charan, Dennis Carey and Michael Useem
Harvard Business Publishing
224 pages; Rs 995
It is rare to read a book on boardrooms and think that much of what it says can be implemented in Indian companies. Every Indian board member, aspiring director and senior executive should read this book.
A collaborative effort by three eminent American consultants with different perspectives, the book takes the reader into boardrooms around the world, though from an American boardroom perspective. It provides a road map for good corporate governance and discusses best practices in boardrooms. The book aims to outline when boards should lead; when boards should partner with management; and when boards should stay out of the way of management rather than just monitor management.
The reader is taken into boardrooms of many multinational companies - Apple, HP, Ford, BHP Billiton, P&G, GSK, Delphi, Lenovo, Grupo RBS, Rohm and Haas, Motorola, HBOS, among others. The reader is taken through events that changed the history of many of these companies. Indian companies such as Infosys, Airtel and GMR Group find mention on three different issues. The book provides insights not only into successful companies, but also into a few instances of failure. Concepts like board evaluation, CEO succession, exiting a falling CEO and so on are novel in Indian boards because these issues are not discussed and debated in the Indian corporate governance scenario.
The authors argue that all board members must buy into the central idea driving the company. The central idea is the "bedrock on which the enterprise is raised and how its resources are spent", and translates into a full-blown strategy for execution. Successful boards are those that recruit directors who build value while rooting out dysfunctional directors. A sound chemistry among the directors will catalyse a boardroom.
The book also recommends a leader of the board, a lead director, who acts as a non-executive sounding board for the CEO. The authors point out that due to the demand for separation of the role of chief executive and board chair by good-governance advocates, American boardrooms have increasingly adopted either an independent board chair or a designated board leader. The authors outline six qualities of a board leader and say that not all directors are capable of serving as board leaders.
I found the interactions of Edgar Woolard, the lead director on the board of Apple, and Steve Jobs, who was brought into Apple to take charge of a failing company, very insightful. Rarely does one get to see the process for recruiting, coaching and retaining a CEO as that of Steve Jobs as Apple's CEO in what is ranked as one of the "greatest business decisions of all time".
The book argues that "Too often directors remain one of the most valuable but least utilised of a company's assets". Boardrooms have been too reactive, passive and accepting of what is proposed by the executive. In collaborative leadership between boards and management, the boards should take charge of CEO succession, executive compensation, goal choices, merger decisions, risk tolerance, and other functions that have traditionally been the province of management.
The ultimate decision is CEO succession, and the reader is taken through the structured process adopted by the boards of 3M, GSK and Humana. The book lists 10 principles for finding the right CEO, with the final note that succession planning should be embedded into corporate culture. The authors aver that spotting a falling CEO is as important as recruiting a new one. I wonder how many Indian boards think of exiting a falling CEO, much less putting in place mechanisms to spot falling CEOs.
The examples of GE and P&G are used to illustrate how boards are working directly with top executives to institute enterprise risk management systems and convert risk into opportunity. A board can be a destroyer or a creator of value. Additionally, the board should establish a culture of integrity throughout the firm.
The book concludes by suggesting that the definition of corporate governance include leading, not just monitoring of, companies. In prescribing a new working relationship between the board and management, the authors suggest that the senior executive should be designated as chair and CEO and the top director as board leader. They suggest the debate should focus on creating and designing boards that can lead with management to create more shareholder value.
I found the checklists at the end of each chapter and at the end of the book to be very useful and a practical way to debate and discuss boardroom issues. The appendices are practical and some lists, such as the director evaluation template, can be adopted by Indian firms.
The book doesn't provide insights into boardrooms in companies where the dominant shareholder drives the agenda and the board functions as a figurehead. Other aspects that haven't been covered are the importance and workings of boards at start-ups and non-profit organisations. Overall, however, this is a book worth reading by board members of companies that seek to emulate best practices in American boardrooms.
The reviewer is founder and managing director of InGovern Research Services, India's first proxy advisory and corporate governance research firm
