CHAPTER 8

Conclusion

The “Vital Few” for Boards and Directors

When Kaoru Ishikawa, Japan’s great quality expert, visited Cummins to share his thinking with senior management, he introduced me to a term I’ve never forgotten: the vital few versus the trivial many. Quality, Dr. Ishikawa told us, always depends on focus on the former and not being distracted by the latter. This is as true for boards as any other work group.

In the preceding chapters, I have shared my thinking on how corporate and nonprofit boards and directors can be good stewards and achieve great governance. To summarize my vital few messages:

• Be great cathedral builders in addition to competent bricklayers.

• Maintain the organization’s ability to control its destiny (i.e., its right of self-determination).

• Maximize long-term economic value creation (companies) and efficient mission achievement (nonprofits).

• Insist on a foundation of broad excellence and pursue high aspirations and vision.

• Understand the role of directors and the board. Practice stewardship thinking. Govern rather than manage. Help as well as monitor.

• Develop a deep understanding of the enterprise. It means many things to many people. It is a story with chapters completed and more to be written.

• Do the right things. Ensure the substance of board work is on the mark. Appoint a great leader, ensure a smart strategy and effective execution, maintain a prudent risk profile, and set a tone of integrity at the top.

• Do things right. Ensure directors have quality information. Create a process that enables the board to deliberate and debate consequential matters and make rational decisions. Get out of the boardroom bubble.

• Embrace what is best in good governance: board independence, transparency, accountability, and renewal; frequent executive sessions; equity ownership and pay-for-performance. Be skeptical of unsupported assertions, one-size-fits-all orthodoxy, and a checklist approach.

In the previous chapter, I reported on the governance views of experienced directors. These people are not shrinking violets, and they don’t agree on everything. Some, for example, see net benefit in governance reforms while others see high cost and problematic consequences. Still, there is broad consensus on some important matters:

• Governance has improved because of greater focus on shareholder value, use of equity incentives, transparency, independence of directors from management, and prevalence of executive sessions.

• The board’s monitoring function is a given. Deep value lies in the board’s assisting management to build a vibrant, successful enterprise. Some issues deserve a deep dive by the board. The board has a vital role in successfully navigating crises.

• A board’s most important duties are in strategy, leadership, and risk.

• Basics matter in director effectiveness: preparation, attendance, engagement, and contribution. No smartphones in laps!

• Challenge and debate are essential to good strategy and decisions. Politics and factions are destructive to good board process. Big ego and high maintenance directors are unwelcome.

• A board is a portfolio of talents, experiences, and career stages. The common focus is shared stewardship of the company or organization.

• New directors should learn the business, get to know the senior people, listen a lot, be themselves, and learn how to help the board get things done.

• Smaller boards, lead directors, and executive sessions help increase candor and debate among directors.

• Corporate directors represent owners. Their primary focus must be long-term economic value creation.

• There are many more similarities than differences in the stewardship of various kinds of organizations: public and private companies and nonprofits. But the differences that do exist—in stakeholders, ownership, authority, performance metrics—are important for governance.

• Success and complacency plant seeds of decline. The board is obliged to raise sights and challenge the status quo to lay the groundwork for continued success.

• Failing to initiate or adapt to disruptive change can lead to decline and failure. Directors need to help management get ahead of the curve.

• Respect is the coin of the realm in the boardroom. Directors earn it through a sustained record of thoughtful consideration, competence, and contribution.

• A board seat is not a sinecure. Turnover is necessary for board renewal. Board succession should be like a well-run relay race: carefully planned with some overlap, a minimum of lost speed, and no dropped batons.

I began this book by introducing you to two great companies with which I have had the longest governance experience: Gordon Food Service and Equity Residential.

In both cases, I have had the deeply satisfying experience of working with board colleagues to provide governance that has enabled the companies to thrive, create a lot of economic value, and maintain control of their destinies. A remaining task for those of us who have been in governance of these companies for a long time is to ensure smooth and orderly succession—passing the baton without missing a beat. That work is well underway.

Governance is interesting, challenging, rewarding, and fun. I hope my messages will help boards and directors become more effective in their work and, as a result, better stewards of the enterprises with which they are entrusted. Those organizations, as well as America and the world, will be better for it.