Your board of directors is crucial to your organization’s success. In fact, having a high-performing board of directors sets the tone for a high-performing organization. But how? By understanding the role of your board and identifying traits to instill—and those to avoid—you’ll set up your board, and your organization, for success.
The Role of Your Board of Directors
The number one thing a board of directors does is provide governance for your organization. And board governance is not limited to legal governance. Rather, your board establishes a system of checks and balances throughout the organization, holds CEOs accountable, and aids in succession planning. Another important role is risk assessment, including competitive, economic, financial, staffing, and innovation risks. The board’s fiduciary responsibilities require board members to be objective, honest, and responsible as well.
Having a high-performing board requires the right mix of people with the right combination of expertise. Does somebody have expertise in law? What about human resources, finance, or development? Pay attention to your board matrix and make sure your board makeup is balanced.
I thought I understood the role of a board of directors until I attended IMD University’s board training program and realized there’s so much more to it. Sure, I knew the responsibilities of board members include fiscal oversight, resource development, strategic planning, and performance evaluation. A good board is available to provide advice and counsel to the CEO and executives as necessary too. The effectiveness of your board of directors, however, hinges on the presence of psychological safety.
Traits of High-Performing Boards
The number one trait of high-performing boards is psychological safety. Board members must be able to speak freely, engage in healthy debate, and raise tough questions. If you don’t have a board that functions with the highest level of psychological safety among board members, it’s never going to reach the level of effectiveness that your organization needs.
Psychological safety paves the way for everyone to ask questions and respectfully disagree with others. It allows your board of directors to build the other traits of high-performing teams:
Cohesion and trust
Defined processes, systems, and structure
Clearly defined roles and responsibilities
Clear, timely, and respectful communication
Achieving psychological safety on our board of directors during my time as Entrepreneurs’ Organization global chair was a high priority. When you’re part of a global organization, cultural differences and nuances make psychological safety even more important. Creating an environment of trust and safety was crucial to our success as a board. It took great patience, but I’m proud of the work we did together once we reached that level of comfortability. From that experience, I can confidently say that psychological safety is a culture—not a check mark.
Boards Behaving Badly
By providing that system of checks and balances and establishing accountability with CEOs, boards of directors facilitate responsible and ethical leadership. A corrupt board, on the other hand, quickly leads to disaster.
History shows examples of boards of directors that lacked psychological safety—and clearly illustrates the consequences. Major companies like Enron Corporation, which took down accounting firm Arthur Andersen with it, have gone belly-up because of corrupt business practices that could have been prevented had its board of directors operated with the right level of governance or had the psychological safety to ask more questions.
I had the opportunity to hear Andy Fastow, the CFO of Enron, speak. Andy spent 5 years in federal prison for his role in Enron’s collapse. He was one of the best speakers I’ve ever heard. He shared how even if you can get all the lawyers, accountants, and board members to sign off on things, there still has to be a basic determination of right or wrong. His story was fascinating—and a perfect example of what can go wrong when there are unreasonable goals, a lack of board governance, and an unhealthy culture that pushes people too far.
Evaluate Your Board of Directors
At the end of the day, your board of directors is there to ensure that your organization meets its projections, stays true to its vision, acts with integrity, and ultimately achieves success. It’s not top-down management, but it does set the tone for the rest of the business.
It’s important to monitor and evaluate your board of directors’ effectiveness. After all, the success of your board of directors dictates the success of your organization.
Questions to Consider
Is your board performing at the highest level?
What does your board matrix look like? What gaps can you fill?
Does your board of directors have psychological safety?
Is your board setting the right culture for the rest of your organization?
I’d love to help you set your board of directors—and your entire team—up for success. Contact me to learn more about my leadership coaching services.