May 9, 2014 10:48 am

Book review: ‘Boards that Lead’

Warren Buffett©AFP

In 2002, Warren Buffett made an admission that he had not been as vigilant as he should have been in his role as director of the various subsidiaries of his holding company, Berkshire Hathaway. In a letter to shareholders he wrote: “Too often I was silent when management made proposals that I judged to be counter to the interest of shareholders… In those cases, collegiality trumped independence [and a] certain social atmosphere presides in boardrooms where it becomes impolitic to challenge the chief executive.”

Later, Kevin Sharer, chairman of Amgen, the US biotech company, portrayed a very different relationship between board and chief executive: “Working with the board is vital, complex, and beyond your prior experience… It is among the most complex human relationships, especially if you’re the chairman, when you’re their boss, and they’re your boss. Get the relationship right, or it will hurt you.”

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These two very different experiences open a new book, Boards that Lead: When to Take Charge, When to Partner and When to Stay Out of the Way. The central premise of this book is a plea: “Governing boards should take more active leadership of the enterprise, not just monitor its management.”

In recent years, government regulators have sought to make boards oversee their companies through checklists and tighter rules. Mercifully, the dry subject matter of regulations is of little interest to the authors of this book. Instead they insist that the difference between a well-run board and one that merely stands by or worse, runs roughshod over the chief executives’ plans, comes from “human dynamics, social architecture and business leadership of the board itself”.

The growing complexity of markets and strategy, the authors say, is one of the biggest challenges for board members. It also means that they cannot afford to sit back and rubber stamp executives’ plans.

Boards often fail to do their job, they point out, for example failing to do their due diligence. They cite the example of Yahoo’s chief executive Scott Thompson. After a few months in the post, it was discovered that he had listed a degree in both accounting and computer science, but had actually earned only the first. It later transpired that there was also a discrepancy in the qualifications listed by the director in charge of Thompson’s recruitment. A few months later, the board recruited Marissa Mayer as chief executive.

The writers know their stuff: Ram Charan is a business adviser; Dennis Carey is vice-chairman of Korn/Ferry International, the executive search firm; and Michael Useem is professor of management and director of the centre for leadership and change management at the Wharton school at the University of Pennsylvania.

 

The pace is brisk and the examples bring to life what could be an arid subject. They mix anecdote with pragmatic checklists of what to look for when recruiting a board member, how to avoid members becoming bombastic and rendering the board dysfunctional, when to take charge, when to stay out of the way, how to define a company’s central idea, how to select a board leader and how to root out dysfunctional directors.

The authors know their audience: people considering board positions or those already in them. They identify the trait that binds their readers together: lack of time. So, at the end of the book they suggest an alternative to reading the full 200-plus pages: an 18-point checklist.

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