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Speed Review: Boards That Lead

Speed Review: Boards That Lead

Speed Review: Boards That Lead

When to Take Charge, When to Partner, and When to Stay Out of the Way

by Ram Charan & Michael Useem

Change is coming. Leadership at the top is being redefined as boards take a more active role in decisions that once belonged solely to the CEO. But for all the advantages of increased board engagement, it can create debilitating questions of authority and dangerous meddling in day-to-day operations. Directors need a new road map—for when to lead, when to partner, and when to stay out of the way.

Review

In Boards That Lead, authors Ram Charan, Dennis Carey and Michael Useem argue that boards today have a duty to lead — to take a more active role in making decisions that were once perhaps the sole prerogative of the executive. The reason for the increased active leadership role of boards is the growing complexity and information overload of today’s business environment “across every facet of doing business,” the authors write. They stress, however, that their new model of board leadership is based on a collaborative partnership in which the boards know “when to lead, when to partner, and when to stay out of the way.”

Knowing When to Do What

Perhaps the most important leadership responsibility of the board is to develop the central idea of the company — the practical, guiding core concept of the company that “references why the company exists, whom it serves, how it should be nurtured, why it will flourish, how it will make money and manage risk, and where it must be going if it is to sustain a competitive presence and achieve its broader purpose,” the authors write. “The central idea is the bedrock on which the enterprise is raised and how its resources are spent.”

Boards should also take a leadership role in selecting the CEO; ensuring the board’s competence, architecture and modus operandi; ensuring the ethics and integrity of the company; and defining the company’s compensation.

Boards should partner with the company’s executive on strategy, capital allocation and execution; defining the company’s financial goals; managing risk; allocating resources; developing talent; and developing what the authors call a “culture of decisiveness.”

Finally, according to the authors, boards should stay out of the way for issues of execution and operations as well as non-strategic decisions.

The Apple Example

The productive collaboration between Steve Jobs and the chairman of the Apple Board Edgar S. Woolard, Jr., according to the authors, perfectly exemplifies the meaning of knowing when to lead, partner and stay out of the way. To begin with, it was Woolard who convinced the board to bring Jobs, forced from Apple in 1985, back to the company in 1997 (one of the authors, Ram Charan, was an advisor to Woolard during this period). Jobs agreed on the condition that Woolard replace the entire board, although eventually one other board member was allowed to stay.

With a new board in place and Jobs committed to reviving the fast-declining company, Jobs and Woolard, according to the authors, began a back-and-forth process in which Jobs would come to Woolard with an idea, which Woolard and the board would either approve or disapprove. Jobs, Woolard would say, was always respectful, making a passionate pitch for his ideas but accepting defeat if it came. In many cases, however, Jobs was able to sell Woolard on his ideas. For example, after taking his new leadership position, the authors write, Jobs convinced Woolard to let him stop the Mac clones (an expensive proposition since the clone makers were under contract), fire many of the firm’s engineers, divide the survivors into six teams with whom Jobs would meet once a week, and perhaps most memorably, create an Apple store. Woolard resisted the Apple store, knowing that other computer manufacturers had tried and failed to succeed in retail. He finally acquiesced to only four stores, which the board approved.

Boards That Lead is an owner’s manual, clearly laying out how boards are supposed to operate. The book begins with defining the central idea and recruiting the right board members, then moves to several chapters on managing CEO succession (including identifying failing CEOS and recruiting successful replacements), and finally covers managing risk and avoiding micro-management. All chapters end with a detailed “director’s checklist” to help achieve the responsibilities outlined in the chapter.

In an early chapter, the authors write that board leadership “does not mean wandering into the weeds — micromanagement is decidedly not the point — but laissez-faire is no longer an acceptable posture at many boards either.” This clearly organized and authoritative book will help boards of directors stay as actively involved as they need to be — and no more.

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