Board members typically have fairly limited interaction with the executives on whose boards they sit: presentations at board meetings, the infrequent board dinner, and perhaps the annual board strategy off-site meeting. Yet board members are called upon to make critical decisions about these executives: Who should become the next CEO? Who does the board believe can quarterback the next significant new venture?
Boards quite properly have begun to use more sophisticated processes to get greater insights on their pool of executive talent, including formal third-party assessments. Nonetheless, directors need to make the most of the opportunities they have to get to know company executives on a more personal level, personally. To gain some practical insights on this critical aspect of corporate governance, I spoke with Frank Brown, dean of INSEAD. Edited excerpts of our conversation follow:
When do board members need to get serious about getting to know company executives for the purposes of succession planning?
There's never a time when the board shouldn't be thinking about succession planning. The tenure today for a good CEO today is about five to seven years. After that, most are past their "sell by" date, even if they are excellent CEOs; the best ones should move on at that stage and consider becoming CEO at another company.
Consequently, the board always needs to be thinking about succession planning because even five years isn't much time to take high-potential executives and give them the kind of experience you'd want a person to have before becoming CEO.
What's the starting place for board members to get useful insights about company execs?
The starting place is the CEO: How does he or she view the different members of the executive team? Granted, that's one opinion and you may come to some very different conclusions as you get to know the executives yourself. But the CEO works with these executives day in and day out, so that's a pretty useful perspective to have. I'd encourage board members to ask the CEO some of these questions:
Which one or two members of your executive team do you really rely on? Why?
Which do you place the least reliance on? Why is that?
Who is your most innovative thinker?
Who is the executive who can really keep control of a budget and a timeline?
Who is the executive you'd be most comfortable putting in front of Wall Street analysts or other external audiences?
It's a pretty widespread practice now for executives to attend dinners with board members at least a few times a year to enable board members to get to know company execs in a more informal setting. How have you seen these work best?
Board/executive dinners tend to work best when the directors and executives are matched up helmet to helmet; if you have 12 board members, have 12 execs attend the dinner. Preferably, the executives invited should be some direct reports of the CEO along with a mix of up-and-coming stars.
The CEO should let the board members know in advance the names of the executives who will be attending and what their areas of responsibility are. I would urge directors to take a look at that list and do a little homework before the dinner that will help them to make more meaningful conversation with the executives they'll meet that evening.
If you have a board primarily or exclusively made up of U.S. directors and you are inviting executives who run international operations, it's more important than ever for the directors to do some homework relative to the regions that these executives are managing.
Board members often wonder about the types of questions they should be asking executives at these dinners. On one hand, they don't want to limit the conversation to superficial niceties like travel or movies. On the other, they wonder how deep they should get into business issues. What are your thoughts?
You want to have some dialogue at a macro level about the company, but focus much of the conversation about the business the executives are responsible for. You're trying to gauge whether people are good strategic thinkers. Are they candid about the challenges and thoughtful about how to appropriately address them? Do they understand key risks?
Some general questions that I think are useful to ask a company executive at a board dinner:
Tell me about the growth opportunities that you see in your business.
What trends do you see as either fostering or inhibiting these opportunities for growth?
What are the biggest challenges that you are facing right now in your business?
What do you see as the key risks the company is facing at the moment?
What do you see as the major risks facing your area of operations and how are these being addressed?
Who are your major competitors and, what do you see as their relative strengths and weaknesses?
So far we've been talking about one-on-one conversations between board members and executives. Is it important to see executives interacting with their peers and subordinates?
It can be very enlightening to see how an executive interacts as part of a team and how the team responds to the leadership of different executives. If you have a CEO who's open and trying to build a high-performing, collegial organization, he or she might be open to the idea of bringing the whole team into the boardroom, not just the team leader. That provides board members with some opportunity to observe this kind of interaction.