In boardrooms, many members are standalone actors. They “listen, make their points and go home,” said Carly Fiorina, MBA ’80. “But the reality is the rest of the world sees the company board as a team with responsibilities.”
Fiorina, CEO of Carly Fiorina Enterprises and previous board member for public and private companies large and small, shared this observation with leaders from major firms worldwide as keynote speaker for the 2012 Director’s Institute, hosted June 12 at the Ronald Regan Building and International Trade Center in Washington, D.C., by the Robert H. Smith School of Business’ Center for Financial Policy.
Sixty-plus participants, including Smith faculty and development personnel, discussed executive compensation, liability exposure, risk and crisis management, shareholder rights and more.
Fiorina said an optimal board is a self-aware, self-assessing and self-correcting team whose members debate vigorously and ask hard questions from perspectives that are culturally and professionally diverse. Many boards have smart individuals who do not function as a team and thus fail their companies. The Enron debacle is a “dramatic example,” she said.
Confidence in boards has plummeted. “Not just from spectacular failures, but because the corporate boardroom today is the most opaque institution in this country,” said the former Hewlett Packard chair and CEO. “Boardroom activity is utterly mysterious to most people who, at the same time, are impacted more than ever by this activity through stocks, retirement funds and the products these companies sell.”
Earlier panel discussion reinforced Fiorina’s point. “Corporate crises and events are increasingly politicized and often times criminalized,” said Robert Bostrom, a partner with SNR Denton in New York.” The velocity of events and consequences – fueled these days by social media and the Internet – call for companies and their boards to take a stronger position in terms of structuring their management teams to mitigate risk and crisis.”
Such focus should account for financial market disruption, HR, transactions, data privacy, regulatory compliance, cybersecurity, IT, business continuity, operational supply chain, financial disclosure, executive misconduct and reputation …“The list goes on and on,”Bostrom added. “If you don’t have dedicated people in your company and on your board thinking about these things, you increase your chances for a crisis and compounding the consequences.”
Fiorina cited risk assessment along with succession planning (via keeping tabs on company talent by interacting with high achievers who may not report directly to the CEO) and longview strategy (prioritizing shareholders, customers, employees and communities) as pillars of “a truly functional board, whose members don’t bog down in day-to-day operations.”
This kind of "truly functional" board is marked by teamwork-minus-groupthink, probing deliberation and transparency. But a major obstacle to achieving that kind of environment is the collegial and homogenous nature of boardroom culture.
“Managers often present bragging points to directors who avoid confronting them with probing questions and demands for honest assessment on specific matters,” Fiorina said. “Plus, the number of women serving on U.S. corporate boards hasn’t budged in about 20 years. Collectively, this creates groupthink and leads to a lot of rubber stamping.”
Take Kodak for example, she added. ”A failed strategy festers for seven years until the company goes bankrupt and leaves the public wondering ‘What was the board doing for those seven years?’ A board that fully deliberates before making decisions is at least well prepared to publicly explain a poor outcome.”
Transparency similar to that in the non-profit world can incentivize a better disciplined and focused board, and for-profits should follow suit, Fiorina said. According to survey data, less than 10 percent of boards assess themselves.
“When I served on the CIA’s advisory committee, one of every four meetings was conducted publicly. This was very useful because it prompted us to think about how we were spending our time and making decisions – making us self-aware and self-correcting,” she said. “This is not unreasonable in this age of transparency.
Director’s Institute Director Stephen Wallenstein, a Smith professor of practice, said Fiorina’s message complemented the institute’s mission to generate innovation and best-practice application among corporate directors and senior executive officers of public companies, who face an increasingly complex business and regulatory environment. “The technology-driven media and marketplace has made the stakes higher than ever for companies, who must work to mitigate executive misconduct and underperformance,” he said. “The panel discussions, in addition to Carly’s presentation, laid out an excellent framework to meet this challenge.”