CEOs of the 4,402 publicly traded companies in America have an often underutilized resource — their board of directors. My personal belief is that the first step in improving boards is to increase the percentage of women from 19% to a much higher number. But I am not an expert.
So, to understand best practices I recently spoke with a true authority on best practices in board governance – Ray Troubh. Mr. Troubh has been a highly successful non-executive director of over 25 public companies, including being named non-executive Chairman of Enron in its emergence from bankruptcy. Below are 10 questions aimed to provide perspective to CEOs and board members on best practices. In the 10th answer Ray surprised me with his insight about CEO communication with analysts.
Ray Troubh and Robert Reiss
Robert Reiss: Should companies separate or combine the roles of CEO and Chairman?
Ray Troubh: My view is contrary to most of the experienced directors to whom you might direct that question. I think that it takes a very big ego, among other things, to be a successful chief executive. The good ones want both titles – undiluted – and I agree with them. The better step is to create a lead director who is the board liaison with the CEO and helps other directors understand their roles. Additionally, he or she can act as a moderator if friction arises amongst strong willed board members.
Reiss: What is the core role of a board member?
Troubh: It is to define the parameters of the highway that the chief executive is permitted; such as when are they going to interfere and what are they going to say enough is enough. And you have to decide that with the chief executive because you can’t constrict the chief executive, you got to give him a chance to show courage but also restraint. It’s like having a grandfather or grandmother who isn’t going to be there every day, but who is available for judgment. The board should provide judgment on major issues and shouldn’t try to run the day-to-day business of the company.
Reiss: What are the most significant mistakes that new board members make?
Troubh: Each board is unique and many new members are opinionated before they understand the individuality of the board and the dynamics among members. They should take time to think before they talk. Also, many don’t fully understand the business before they pontificate.
Reiss: What is ideal balance between company executives and outside directors?
Troubh: I would very much be against the practice of having the board made up of maybe half inside executives and half outsiders. How can you possibly trust the judgment of inside directors who are working for the chief executive and whose salary is going be X or Y depending on what he or she thinks about their loyalties. How can they possibly express their true view to the board? There’s one thing, you can bring them all in the board meeting. They don’t need to be directors. I want new board members to be truly independent and selected by a truly independent group — that’s why I believe the emergence of powerful nominating committees in the American Board scene is a wonderful improvement.
Reiss: What should the relationship be between board members and the outside investment community?
Troubh: Board members and the outside institutional investment community are natural allies, each wants the company to do well. So instead of fighting all the time, blowing away legal and accounting money on special studies, there should be more direct engagement. And it’s happening more now … but I said this years ago. The interaction of the large shareholders and the board members should be more frequent. I think it should be in groups, three or four important board members should be able to meet with three or four large shareholders and discuss ideas.