Why I Took My Board to Costco

Tom Falk, chairman and CEO of Kimberly-Clark, says visiting customers is a key part of getting senior management and directors aligned on strategy

You've expended the effort to get the right people around your boardroom table and now you want to leverage that hard-won talent for corporate strategy. But many chief executive officers find doing this almost as difficult as putting together a top-notch board. A common failure: Giving the directors an insufficient understanding of key aspects of the business, something that's fundamental to effective strategy discussions. New CEOs in particular often make the classic error of presenting the board with a finalized strategy rather than engaging them at appropriate points in the strategy development process.

Tom Falk, CEO and Chairman of Kimberly-Clark (KMB) has learned how to engage his board to draw on members' strengths, allowing for greater understanding and alignment on key strategic issues. He recently shared some of his insights with me. Edited excerpts of our conversation follow.

Tom, you recently took the Kimberly-Clark board to spend a day at Costco (COST). Why did you do that?

It's important for the board to meet with the company's major customers. It helps them to understand the business in a more hands-on way than presentations in board meetings ever could. Taking the time and making the effort to educate the board about our business is fundamental to our philosophy on governance.

I don't view good governance as compliance. I view good governance as having a high-performing board that makes a real contribution to the company. The more the board knows about the business, the better the contribution they can make, particularly in discussions of corporate strategy. That's why every year we take the board to spend a day with one of our major customers. This year it was Costco, last year it was Target (TGT), the year before it was Wal-Mart (WMT). We have the board meet with our customer's senior leadership and discuss a variety of issues that can really help further their understanding of our business and the viewpoints of key people we do business with.

Tell me about your first experience working with your board on corporate strategy.

Shortly after I became CEO in September, 2002, I undertook a major review of Kimberly-Clark's corporate strategy. My executive team and I spent months putting together our strategy presentation for the board. We had everything—graphs, charts, mountains of data. The board meeting was a PowerPoint blizzard. When I finished the presentation, however, I could tell that something was wrong.

The board told me they didn't disagree with the strategy I'd just presented, but they really hadn't liked our approach. They wanted to get more engaged in strategic discussions, to have dialogue with me and my top executives about some of the key decisions and implementation challenges in executing the strategy, to explore some of the alternatives we'd decided against and understand why we'd shied away from those.

How did that experience change the way you work with your board on corporate strategy?

I realized I needed to work with them on strategy in a way that got them much more engaged and drew on their experience and insights. My board is composed of highly accomplished businesspeople who have a wealth of different perspectives that I and the company can benefit from. We recognized the importance of harnessing that experience around strategic decisions and put more emphasis into giving them a more hands-on understanding of the business. Taking the board out to visit with customers like Costco was a part of it.

We also redesigned our strategy sessions. In many board agendas, presentations on strategy take up most of the time and the board often runs out of time to have real discussions. We've now added a discussion on strategy to every meeting agenda. We send out extensive material in advance so the board can arrive fully briefed and we can spend most of our strategy time discussing key issues. I find doing this has allowed the board to raise many critical issues and different perspectives that are extremely valuable to me and my senior management team.

In the end, I want our board and management team to feel ownership for, and alignment with, our company's strategic direction.