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Outstanding Board Members Finesse More Than Enterprise Risk

Forbes Coaches Council

Managing Principal of OrgLeader, optimizing how STEM organizations, executives and board members thrive in uncertainty and manage risk.

"The only risk that matters to the board is enterprise risk, and the audit committee is accountable for its oversight," Mason declared. Mason is the CEO of a growing middle-market company and the chair of its board of directors. As we continued our conversation, I offered another view:

• As a board director of a private or public company, even if you are not on the audit committee, you are responsible for overseeing how well management and the organization mitigate risk.

• Risk comes in a variety of forms. It ranges from enterprise risk to the way other issues are handled that affect governance.

Regarding this second point, risk includes how board members handle relationships and critical decisions with fellow directors, the executive team as well as those with a vested interest inside and outside the organization. These additional types of risk impact the way directors and other stakeholders operate as they address enterprise risk.

The Origin Of Risk

The source of risk is the uncertainty board members confront in their governance work. Any time members face a situation they have not previously encountered or a comparable circumstance where something new is introduced, uncertainty is the result. This could be dealing with unforeseen market shifts, gauging cybersecurity vulnerabilities, determining the broader impact of a proposed corporate strategy or weighing how much the organization should consider stakeholders beyond shareholders (see my prior article).

The way a director handles uncertainty with fellow board members in addition to how the board manages it with the executive team and the entire enterprise creates risk. In other words, uncertainty creates risk because botching how uncertainty is dealt with can produce mayhem.

Risk Miscues Of Board Members

Boards are not immune to missteps. In one case, a board supported installing a matrix organizational structure without much consideration because the chairman was set on it. Since board members failed to adequately push back, the implementation of this structure produced a corporate hairball. Management across the enterprise lacked the experience to efficiently operate in a matrix. The primary, secondary and tertiary reporting relationships established by management confused the workforce. Morale and productivity suffered which negatively affected the top and bottom lines.

In a succession planning circumstance, a board approved creating co-CEO roles but did not ensure the leaders placed in the roles bought into the "co" in co-CEO. Some board members who were related to one of the co-CEOs wavered on enforcing this collaborative requirement. Consequently, an ongoing power struggle between the two executives created chaos in the company.

In a merger situation involving cursory due diligence, half the directors wanted to integrate with another company because they saw the opportunity as a financial windfall. These individuals undermined the remaining members of the board including the chairman and CEO. The actions violated the director duties of care and loyalty and brought about turmoil. The unchecked behavior of a few damaged the board's credibility with stakeholders and ultimately its effectiveness.

Finesse In The Boardroom

Board members, whether independent or inside directors, applying the right amount of finesse makes a significant difference in such tricky situations and mitigates the risk. What do I mean? I am talking about what directors consider on their own prior to and during these challenging circumstances. Do they examine the type and severity of the situation, who is impacted by it, and how to best influence it? It also entails members knowing their own strengths that can assist and limitations that could hinder the board in these situations.

Equally important is how each board member interacts with other members as they address these precarious situations. For instance, do they recognize the right time to push back on fellow directors or the C-suite? How well do they understand when to use a steel-hand approach, a velvet-glove approach or something in between those two?

Intrapersonal and interpersonal essentials determine how board members carry themselves in addition to comprehending, evaluating and skillfully performing in these complicated conditions. This is finesse in a business environment. Finesse is more than what board directors possess. It is how they accomplish their objectives. Increased board use of finesse leads to better governance outcomes.

If you are an experienced or aspiring board director, try these cornerstone suggestions:

• Build trust with transparency. Some people believe you trust others until they provide a reason not to ("trust until"), or you trust them because they have shown they can be trusted ("trust because"). As a board member, trust results when fellow members believe what you say, they know you will follow through on commitments and you are comfortable being open and vulnerable regarding difficulties you encounter, making others more likely to reciprocate. Plus, you do not let self-interest cloud your judgment in your decisions and actions.

• Embody empathetic candor. A companion to building trust with transparency involves two components. First, you understand what other board members are experiencing or genuinely try to appreciate their viewpoints. Second, as you do this, you do not pull any punches. You share your perspective in a forthright and tactful manner.

• Embrace constructive dissent. Board members often believe that dissent, or conflict, is something to avoid. They go along to get along or act like it does not exist. This is a mistake. Dissent is neither good nor bad. At its core, dissent is merely a difference between two or more perspectives. How dissent is managed makes it good or bad. As a board director, effectively fulfilling your responsibilities involves identifying the fundamental issue (that is often camouflaged) rather than getting hung up on the personality quirks of your boardroom colleagues. Focusing on this issue enables you to have intense discussions and still be productive.

Whether you sit on a fiduciary or an advisory board, risk and the uncertainty that generates it are constants as you make critical decisions and take action regarding board member responsibilities. How well you finesse risk and uncertainty is vital to your success and longevity as a director.


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