The Director's Manual

Directors: Improve Board Performance

The Director's Manual: A Framework for Board Governance offers current and aspiring board members essential up-to-date governance guidance that blends rigorous research-based information with the wisdom found only through practical, direct experience. The book's flexible approach to solving governance issues reflects the authors' belief that no two boards and the cultural dynamics that drive them are the same. As such, the advice offered reflects recognizable leadership dynamics and real world, relevant organizational situations.

The book's two authors, Peter C. Browning, an experienced CEO and member of numerous boards and William L. Sparks, a respected organizational researcher, combine their individual experiences and talents to create a book that is both innovative and applicable to directors in any industry sector. Specific best practice guidance is designed to help board members and their directors understand the unique strengths and challenges of their own board while at the same time provide targeted information that drives needed improvements in board performance and efficiency. Specifically, this book will help board members:

• Explore practical advice on key issues, including selection, meeting schedules, and director succession
• Consider board performance from multiple perspectives, including cultural and group dynamics
• Discover how to effectively manage classic problems that arise when making decisions as a group
• Access a comprehensive set of assessment questions to test and reinforce your knowledge

The Director's Manual: A Framework for Board Governance offers practical advice to guide you as you lead your organization's board.

Acknowledgments ix

Peter C. Browning ix

William L. Sparks x

Preface xi

Why We Wrote This Book xi

Chapter 1 The Changing World of Board Governance: How We Got Here 1

What’s in This Chapter? 1

How and Why Boards Have Changed 2

Why These Events Are Important 3

A Barometer for CEO Compensation 5

2002—A Board Governance Tipping Point 9

Impact of the 2008 Financial Meltdown 14

Chapter Summary 17

What’s Next? 18

Chapter 2 Role of the Board 19

What’s in This Chapter? 19

Home Depot’s Leadership Question 20

Two Key Guiding Principles 22

Why Boards Exist 23

Three Critical Questions That Boards Ask 24

Is the Right CEO Running the Company? 25

Is a Robust Succession Plan in Place? 29

Determining the Right Strategy 30

Chapter Summary 31

What’s Next? 32

Chapter 3 Key Board Leadership Roles 33

What’s in This Chapter? 33

Public Outcry for Action 35

Changes in NYSE Listing Requirements 36

The Debate over the Separation of Roles 37

Nonexecutive Chairman, Lead Director, or Presiding Director 40

The Challenge of Board Leadership 42

Chapter Summary 45

What’s Next? 45

Chapter 4 Board Culture 47

What’s in This Chapter? 47

Understanding Board Culture 48

Examples Illustrating Schein’s Model of Culture and Board Dynamics 50

The Three Elements of Board Culture 51

The Leadership and Board Performance Cycle 58

Transforming Board Culture 63

Chapter Summary 66

What’s Next? 67

Chapter 5 Group Dynamics and Board Decision Making 68

What’s in This Chapter? 68

Why Working in Groups Is Difficult 69

Groupthink: Managing Conflict in the Boardroom 72

Understanding and Avoiding Groupthink 74

Getting Past The Abilene Paradox 76

Chapter Summary 81

What’s Next? 81

Chapter 6 Board Structure and Schedule 82

What’s in This Chapter? 82

Board Size 83

Meeting Requirements and Preparation 84

Effective Meetings and Service 90

Chapter Summary 91

What’s Next? 92

Chapter 7 Assessing Board Performance 93

What’s in This Chapter? 93

The Evolution of Board Assessments 94

Customizing the Assessment Process 96

Finding Your Own Best Practice 98

Chapter Summary 101

What’s Next? 101

Chapter 8 The Challenge of the Disruptive Director 103

What’s in This Chapter? 103

Disruptive Members a Common Issue 104

The Ying and Yang of Conflict 105

An Effective Dissenter 106

Five Types of Disruptive Directors 107

Dealing with Disruptive Directors 109

How Assessments Help 110

Chapter Summary 111

What’s Next? 112

Chapter 9 The Other Succession Challenge: The Board of Directors 113

What’s in This Chapter? 113

Why a Board Needs to Plan for Succession 114

Demographics and Board Service Realities 115

Enron, the 2008 Financial Collapse, and Dodd-Frank 115

Building a Board Succession Plan 117

Educating, Onboarding a New Member 123

Chapter Summary 124

What’s Next? 124

Chapter 10 What’s Next in the Boardroom? 125

What’s in This Chapter? 125

Ongoing Scrutiny of Executive Compensation 127

Continuing Demands for More Proxy Information 129

More Shareholder and Investor Activism 130

Greater Demands for Proxy Access 132

Sharper Focus on Risk Management 133

Ever-Increasing Scrutiny of Board Composition 134

The Way Forward 134

Chapter Summary 135

What’s Next? 136

Appendices Board of Directors Assessment Forms 137

Appendix A Board of Directors Self-Assessment 138

Appendix B Audit Committee Assessment 152

Appendix C Compensation Committee Assessment 154

Appendix D Governance/Nominating Committee Assessment 156

Appendix E CEO Assessment 158

Appendix F Lead Director Assessment 163

Appendix G Nonexecutive Chairman Assessment 165

Appendix H Peer Assessment 167

Notes 169

About the Authors 179

Index 183

PETER C. BROWNING, with experience on the boards of 13 public companies, two as CEO, is founder and managing director of Peter Browning Partners, LLC, a board advisory service that helps directors answer tough questions in the areas of board governance, board performance and dynamics, and leadership transition and succession planning.

WILLIAM L. SPARKS, PhD, is vice president of Talent with EnPro Industries and a managing partner with Peter Browning Partners, LLC. Concurrently he serves as the Dennis Thompson Chair of Leadership at the McColl School of Business at Queens University of Charlotte.

Each board of directors has its particular nuances relating to leadership, group dynamics, and decision making that create a board culture. Yet, all boards must fulfill specific fiduciary duties and meet federal reporting requirements and regulations. The Director’s Manual gives directors a reliable guidebook of proven techniques for meeting those requirements, while staying true to the unique culture of their boards.

Current and aspiring board members now have an authoritative, up-to-date governance guide that blends rigorous research-based information with the wisdom found only through practical, direct experience. This flexible approach to developing governance solutions reflects the authors’ belief that no two boards nor the cultural dynamics driving them are the same. The proven framework is equally useful to both established boards and new ones that are just beginning to learn what it means to truly be an effective board. Only a powerhouse authorial team like Peter Browning and William Sparks can simplify the complex, symbiotic relationship between the world inside the corporate boardroom and the realities outside into a single resource of insightful research findings and practical, straightforward advice. Board members and their directors can use the handpicked selection of proven practices to expedite understanding their board’s own unique strengths and challenges, while simultaneously contributing targeted information to drive key improvements in performance and efficiency. With this convenient reference at your fingertips, you can:

• Better understand just what is the role of the board, it’s limits and possibilities
• Predict which classic group decision-making dynamics your board is most likely to experience
• Customize assessments to better match your company’s processes and board culture, as well as benefit from hard-earned tips on conducting peer reviews
• Handle a director who is so disruptive to the vital chemistry of a board that the only solution is his or her departure

In addition to each chapter’s clear and concise guidelines, which are immediately implementable by every board type in any industry, this complete resource solidifies itself as a time saving asset by providing a robust appendix of assessment tools. From individual to group assessments—including lead director, nonexecutive chairman, CEO, compensation and audit committees, and more—these vetted and easy-to-use forms ensure accurate and thorough evaluations.