I recently had the honor of moderating an informative panel discussion for the Research Triangle Chapter of the National Association of Corporate Directors (NACD). In an engaging discussion with Dr. Victor Dzau, Bob Ingram, and Stephen Wiehe, we were able to shed light on the issues boards face in balancing what management communicates and what the board needs to know to ensure effective decision making in the boardroom. At the end of the day, the key to this balance is trust and transparency between management and the board. Without trust, the validity of information received and given is questioned.
Furthermore, establishing a trusting, transparent relationship prevents the destructive “us vs. them” mentality. Opening up your board meeting with a simple question: “What keeps the CEO up at night?” sets the foundation of teamwork necessary to foster trust and collaboration. If the CEO is willing to share openly and honestly, the CEO’s issues become the board’s issues, and the team can then work to an optimal solution.
As Mr. Ingram said, “The sooner you share in a transparent way, the sooner you mitigate a risk or capture an opportunity.” But transparency is not just about management providing comprehensive, unbiased information. Transparency is about directors being willing to provide critical, honest feedback. It’s also about directors asking clarifying, and sometimes challenging, questions. Transparency and trust go hand in hand.
Trust encourages board members to speak up without fear of becoming the dreaded antagonist. As Mr. Wiehe said, “Collaboration builds trust and results in better solutions.” In order to ask the “right” questions, directors should also actively seek out information on their own – not just to verify management’s assumptions, but to ensure they understand the broader context in which the company operates. This involves looking beyond the company and searching for information about competitors, suppliers, scientific trends, and customers. High performing boards will then incorporate this information in their governance, strategy formulation, and succession planning.
A more informed board is a more effective board. As the role of boards shift along with rising independence, information asymmetry has greater potential to inhibit effective decision-making more than ever before. In order to combat this problem, directors and management both must take active steps to build a culture of trust and transparency. Disclosures: I sit on the board of Enlight Research, LLC a subsidiary company that provides independent research information to boards of directors.