Beverly Behan
Beverly Behan has had the privilege of working with boards of directors of the S&P 1500 and listed companies around the globe for the last 25 years. To date, she's worked with nearly 200 boards, ranging from recent IPOs to the fortune 500s from New York and Toronto to Bogota, Kuala Lumpur and Tel Aviv. Her clients are typically boards that want to get to the top of their game and stay there.
Transcript
Maureen Farmer
Beverly Behan has had the privilege of working with boards of directors of the S&P 1500 and listed companies around the globe for the last 25 years. To date, she's worked with nearly 200 boards, ranging from recent IPOs to the fortune 500's from New York and Toronto to Bogota, Kuala Lumpur and Tel Aviv. Her clients are typically boards that want to get to the top of their game and stay there. Bev has interviewed thousands of directors and conducted board and director evaluations for her clients dating back to 1996. The Insight she gained from this work focusing on the effectiveness of boards and individual directors has been the foundation for Becoming a Boardroom Star (just recently published). Bev is also an author of Great Companies Deserve Great Boards, and named Governance Book of the Year by Directors and Boards magazine and ranked number one for four weeks on the Globe and Mail business bestseller list in Canada. During the COVID-19 lockdown, she authored three books, including Board and Director Evaluations: Innovations for the 21st century governance committees, which debuted as the number one new release on Amazon and corporate governance in August of 2021. A former partner at Mercer Delta in New York and global managing director of The Hague group's board effectiveness practice. Beverly started her own firm board advisor LLC in New York in 2009. Beth can be reached at beverly dot behan at boardadvisor dot net.
Your materials are impeccable, I've gone through the book and the recording—Oh, yeah, Maddison and I were looking at your recordings this morning. Really wonderful insights to boardroom operations that very seldom ever get talked about.
Beverly Behan
Well, that's what I think is that, you know, people that write a lot of books about boards tend to write them very much from a regulatory standpoint. Very technical. And what resonates to people, I think, particularly with Boardroom Star, is it's probably the most fun book that I've written. Because it was me talking to my friends really, talking to individuals, as opposed to talking about board building processes. So, people like anecdotes, they like stories, I think storytelling is really what teaches them what has impact. And so, you know, clearly because of my non-disclosures with all my clients, I'm not at liberty to say, 'Oh, this is what happened to this board or to this board'. But it doesn't really matter because the stories resonate. And interestingly, I had a call last night, I'm doing a webcast Sunday night, which is Monday morning in Kuala Lumpur, Malaysia, where I've done a fair amount of work over the years, and I sent people there the manuscript to look at Boardroom Star. And they all said, 'Oh, I'm reading this', and I'm like, 'Oh, I've seen this in this board'. I did the same with people in Israel. I did the same with a guy in Colombia, and so what's interesting about that, is that I really think these are global themes.
Maureen Farmer
Oh yeah, I think people...wherever there are people, there are going to be relationships that work, relationships that don't work. I mean, governance is a process and structure, but it's really the people that make it work.
Beverly Behan
Absolutely. And I think that's what many people lose sight of in the regulatory morass. And so, you're absolutely right, Maureen, it is all about people. You know, and that's why I personally think one of the greatest shortcomings of governance right now is the ineffectiveness of board leadership in managing director performance and stepping up to where there is a person who is really either not carrying their weight or is actually creating some dysfunction in the board, because it is about people and that's going to impact the board in terms of its effectiveness, even its decision-making, its discussions, and I think it's the failure to step up. That's really one of the biggest problems in governance right now.
Maureen Farmer
I work with a lot of executives, a lot of CEOs and some of them serve on boards. And many of them have decided to leave their organizations because of a director conflict. And usually it's the onboarding of a new director...could be maybe a major shareholder as well, that creates a lot of conflict and a lot of ethical issues for the CEO. And many times they've had to leave as a result of that, and it may take a while to do that. But that has been my experience over the past probably four or five years is that by the time the client gets to me, the person gets to me, they've suffered under a new leadership that they just can't move forward with.
Beverly Behan
Well, I agree with you. I think far too often, people come to me as well, when the horse is really out of the barn. I mean, there were a lot of things you could have done earlier on, to prevent the problem from really turning into a very serious situation where one party feels they have to leave, there were a lot of things you could have done proactively. But very often people are very too late to the party, to address those issues to the point that they have to make a more dramatic decision, like you've just described. And that's one of the reasons that, you know, during the COVID-19 lock downs, I actually wrote three books. Becoming a Boardroom Star, I think is the one we want to talk about mostly on this podcast. But there is a new book going to be coming out, hopefully in November, and I'm getting some advanced copies. So you know, if people are new CEOs, or working with new CEOs, they can certainly get in touch with me, I think I've got 100 copies coming. And it is a book specifically for new CEOs. It's called New CEOs and Boards: How to build a great board relationship and a great board. And that's to really help people coming into the CEO role to really understand how to be effective in working with the board. Because when you think about it, Maureen, when someone becomes a CEO, it's often the first time in their career, that they're reporting not to a single person, their boss. And by the time they've become CEO, they've got pretty good at managing up to a boss, they're reporting to a group. And that is a whole new ballgame. And many CEOs have challenges with that transition, they often begin by focusing on the board chair and that relationship. But treating the board chair like that's your boss is a huge mistake, for a number of reasons that obviously I discuss in book, some chairs are real champions, some are not, some are preservationists, and they don't have any influence with the board whatsoever, even though they have that title. And you can't ignore the other people on the board. And the amount of time that it takes from a CEOs, you know, work life to work with the board is quite stunning. It's more than 20%. And very few CEOs anticipate that level of engagement. So when I say 20%, I'm talking about interacting with the board, board members between meetings, I'm also talking about preparing for board meetings with your team, by yourself with others, and committee meetings and then attending those meetings. And when you add that all up, it typically gets to 15% or more and for a new CEO who's building that relationship with the board to 20. And so often, if you invest the time in the energy to build that solid foundation, then if a new director comes in, that creates some dysfunction or some problems, you're often in a better position with your own board to address some of those problems. In the book, I actually talk about a new CEO...he wasn't that new by the time we did this. I think he'd been in that role about two years. But he'd inherited, as most CEOs do, the board of their predecessor. I mean, unless you're doing an IPO, you're inheriting the board of somebody else. And he inherited a very toxic director. And so we talk about what was done to finally get this guy to leave the board, which was not easy, but was eventually managed. And it was done in a way that had absolutely no political repercussions for that CEO, which is possible to do and it's actually the smart way to go about it.
Maureen Farmer
Not that I want you to disclose your secret sauce, but I'd be very curious if you could give us a top...you know, two or three things that was an effective way of managing that director out of the organization. Can you talk a little bit about that?
Beverly Behan
I'm happy to talk about that Maureen, I think it's really important. I mean, first and foremost, I think the real secret sauce for any Chief Executive Officer in working with the board, and particularly in making changes to the board, whether that's a change to an individual director, or a larger change in how the board is working, or working with the management team, is what I'll call leading from behind. So, you know, there's a lot been written about that. A seminal article done about that years ago in Harvard Business Review. But when you lead from behind you, you essentially shepherd your board over to processes. Pprocesses, that you as a CEO know, are going to work to address this very problem. But once you shepherd them to the process, and you say, 'Hey, by the way, I'm funding this, like, you go ahead, pick what you want to do', and you get them rolling down that road, then they own it, and they're going to action it. And that's very different than if the CEO says, 'Hey, we've got to get rid of this person. Oh, here's my friend, Fred, he'd be a much better director'—mostly do very clumsy things, when it comes to trying to make changes with their board. And others are reluctant to even attempt it, because they fear that they will alienate directors, and they will destroy a lot of the goodwill with their board that they've worked hard to build. So they just let this dysfunction go. So let's go back to this example, what exactly did the CEO do? Well, first of all, he had a lot of feedback from individual directors that they also saw this toxic director as a serious problem. But he didn't want it to be his fight against this guy. The first thing that happened was the lead director, sat down with this toxic director, tried to sort of manage the situation and the toxic director basically walked out of the meeting. Now, this was made even more complicated, because the toxic director was the chair of the Nominating and Governance Committee. So, that is even tougher, right? So, what they did is they led from behind. And first of all, when I say they, the CEO very much had the lead director on side. In fact, if he wasn't on side, when the guy walked out of the meeting, he was all in. And what they did is they decided to do an individual director evaluation. And of course, that falls to the province of the Nominating and Governance Committee. But they convinced the toxic director that this was a best practice that they should do it. And I was providing the CEO with advice as to the format that this thing was going to take. So, this wasn't going to be some little scorecard. They were going to do interviews and all this kind of stuff. Of course, I couldn't do them, because I was consulting to the CEO. And the board knew that. So, I wouldn't have credibility. They went outside, they hired...actually, it was a, it was someone who had worked for a search firm, still worked at a search firm. And actually, this person had placed the toxic director on this board more than 20 years earlier, about 20 years earlier.
Maybe not 20 years—he had been there through...the CEO I worked with, I think I call him Rob in the book. That's not his real name. He was the third CEO that had worked with this director. So he'd been there, I think, about 17 years at this point. And he certainly wasn't going to leave. And people had tried to bring in term limits. And he had a whole bunch of data about other boards that had grandfathered people in their term limits. So he said, y'all put them in as long as all of us on the board are grandfathered. Okay. And that's a typical deflection that I've seen over the years where CEOs have tried to bring in age limits of term limits, they just get this pushback about grandfathering. So it's a hollow victory. And it also tends to alienate the board. So that was a device I used to see a lot of CEOs try to use about, you know, 10 or 15 years ago, it doesn't tend to work very well. What Rob did, that was better. He went forward, got the lead director on site and eventually got the toxic director who was the chair of the Nom Gov Committee on site to do a real director evaluation. They hired this individual, very professional individual. And of course, the toxic director was comfortable because this was the very headhunter who had placed him on this board. And, the toxic director, honestly thought he was like the best board member there was okay. And he was very arrogant, full of himself. And so the first thing we agreed to, because I was sort of advising Rob behind the scenes was that they would form which is typical, sort of a sponsorship group for the director evaluation, which consisted of the chair of the Nom Gov Committee, the lead director and the CEO. So they got to see the interview protocol before it went out. And so the interview protocol comes through. And it was evident that the search consultant didn't have a lot of experience. They had kind of taken a survey based board evaluation, they sent this over. And Rob and I just dissected this thing, created more open ended questions. And, you know, sort of the kicker question, which I think was, you know, do you have any advice for this director? Do you think this director should be renominated? And because Rob as the CEO was part of the sponsorship group, so he was allowed to have feedback in the protocol. And we knew that these direct questions would get board members expressing the same kinds of views that they had shared with Rob about the dysfunction of this board member, if in fact, they were willing to share that with the consultant. Well, it turns out they were. And it turns out, they had some pretty scathing feedback. And very much to this consultants credit, they didn't pull their punches. They basically, you know, summarized what that feedback was, and how we knew this because Rob didn't actually get to see it. But the Nom Gov Committee did and the lead director was on that. And the toxic director, who was the chair of the committee was so incensed, because the search consultant had been, you know, very forthright and honest in giving the feedback that they really got from this process. He fired the search consultant or fired the consultant doing the board evaluation, threatened to sue that person, threatened to sue their firm, the lead director said we're not we're not suing them, there is nothing they did that was unprofessional. And so it took a little while after that. But of course, the key question was should this person be renominated, and a few months later came up the renomination decision, and the lead director was part of the Governance Committee and said, well, quite properly, anybody who's up for renomination needs to leave the room while we have this discussion, even though you're the chair of the committee. So the toxic director left the room, and the lead director and the other committee members said, 'Look, you know, two thirds of the board felt that this person should not be renominated, and I can't in good conscience, renominate the person and they agreed'. And so when he came back in, he was informed he was not being renominated. And he used some very vulgar language, he threatened to sue everybody. But in the end, he left and the two CEOs prior to Rob, called him up and said, 'how did you ever...' okay. Well, that was how, and what was really interesting is that none of it, none of the flack at all landed on rob, the CEO.
Maureen Farmer
And so how long did that take? From you know, end to end?
Beverly Behan
I would say it took the better part of six months. And the reason for that Maureen, is that, you know, we identified this problem. And, you know, first the lead director, I think he had a conversation with the toxic director, and then we started looking at the process...had to get the toxic director on side with that...had to hire a consultant, then to go through it...to do a director evaluation itself, it really only takes about, you know, used to take about one to two months, you can do it even faster now, because you can do them on Zoom or video thing. Then we got the results of that. So that all in probably took the better part of like, you know, maybe three months, something like that for months. And then there was the sort of period of time...so maybe all in it was a little bit over six months because there was a little bit of time after the process was finished, before there was this renomination decision. It was at the renomination discussion that you know, the hammer finally dropped. But it was clearly done well within the space of a year and it was done very elegantly.
Maureen Farmer
And in terms of a before and after kind of evaluation, if we were to look at the organization before and after, how would you describe it or how would you evaluate the impact of that change? With the removal of the toxic board member.
Beverly Behan
It was night and day. Yeah, it was absolutely night and day, this toxic board member, you know, was very...he spoke to the two female directors on the board in a very patronizing tone. If people challenged his points of view, you know, he got very defensive, and he was quite vitriolic in his comments. And he was particularly antagonistic towards management, maybe a little bit less CEO personally, but certainly with other members of the senior team. He himself had a background, I believe in human resources. And so he particularly targeted the Chief Human Resources Officer, that was his favorite sort of foil, to sort of suggest how incompetent that person was, it didn't matter that that roll had changed. That all went away, and just all went away. You know, it just lifted this very, you know, toxic and unpleasant, sort of dynamic in this boardroom. It was definitely worth doing.
Maureen Farmer
Right. You think from an employer branding, and from an employee or leadership engagement point of view, as well...probably made a big difference on how things were done after.
Beverly Behan
Well, I don't think it has a lot of impact necessarily on employees. I mean, there's only a very small subgroup of employees that ever go into the boardroom.
Maureen Farmer
But I would think though, at the executive level, if you have a Chief Human Resources Officer who's being, you know, mistreated by a director over time...
Beverly Behan
That's happening in the boardroom, it's a bit of a, you know, there's a bit of a veil there. I mean, that's not to say, I think the point you're getting at, which is an important point is that the board really sets the tone at the top of an organization. And they do, employees generally don't go to the board and don't see the board in action. But senior executives do. And increasingly, boards want more exposure to sort of the rising stars in the organization. You know, when those people walk into the boardroom, what I often find is, you'll have a company that has spent an inordinate amount of time on values, statements and vision and saying, you know, this is how we treat each other here at the ABC Company, and then they walk into the board and it's certainly not reflecting those corporate values. That undercuts the credibility of the board. And frankly, it undercuts the credibility of the CEO and the management team. So, they should see a parallel when they walk into the board, to work with the board.
Maureen Farmer
Right. And I guess what I'm getting at is that the cost of c-level turnover, it can be exponential compared to a regular, you know, individual contributor or employee in the company. And I've seen situations where c-levels have come into an organization, they don't get along with the board or whatever that is, whatever that dynamic is, and they leave after 18 months. And if you do the math on that, for everyone, from the company point of view, and from the individual executives point of view, it can be huge in terms of financial implication, and in terms of, you know, business leadership and getting things done.
Beverly Behan
I think that's a great point, Maureen. And I think it really goes back to, you know, this point I was making sort of earlier that one of the biggest shortcomings in corporate governance right now is the failure of board leadership to step up to director performance management issues. You know, we've seen studies that...one of my favorite governance studies or board studies that comes out every year here in the United States is one done by PricewaterhouseCoopers. And they typically survey or interview about 700 board members of public companies across the country, all different industries. And last year, I don't think the study for 2021 is quite out yet...should be coming out soon. But certainly in 2020...49%—So, that's roughly half of them, felt that one of their fellow directors needed to be replaced, and more than 20% thought that two or more had to go. And this was no aberration because the exact same numbers came up the year prior.
Maureen Farmer
I'm familiar with the report. I've seen I've seen the report. It's excellent. Anyone listening to this should take the time to have a look at it.
Beverly Behan
And what that underscores is that, you know, there's not a lot of director performance management going on. And this is directors themselves that are saying that their peers need to go. And that number has got worse. PwC first asked that question in 2013, when they started the study, and I think it was about 30% said, we have at least one director it needs to go...that was considered shocking. I remember doing an interview with the Wall Street Journal about that. Now it's half, and it's not getting any better. And when you also look at another finding in that study, those 700, directors were asked to rate board leadership on various things. And the lowest score they gave board leadership was on director performance management. So, this is just a really big thing. And and when you say that the cost of having executive turnover as a result of, you know, conflicts with the board or other dysfunction with board members. You're absolutely right, Maureen. And I think that one of the biggest issues right now for board leadership is to step up and address some of those director performance problems. The bigger issue can sometimes be, what if the problem is the chair of the board? And you know, it happens more than you think. And I started my career working with boards in Canada, where it is very common to separate the roles of chair and CEO. In the United States, I think it was about two years ago that finally, I think 51% or 52% of the S&P 500 finally started separating the roles. My view is, in a perfect world, it's probably better to separate roles, but I would see a lot of Canadian companies, you know, sort of do a lot of virtue signaling, saying, 'Oh, we've separated these roles, they are really good'. And the person who was serving as Chair was absolutely dysfunctional. So I don't think that was really a better situation. And I used to teach for about 10 years in directors college at McGill. And almost always at the breaks, people will come up to me and say, what if the real problem is the chair of the board? What if they're really ineffective? What do you do about that? You do exactly the same thing. You do a really robust director evaluation process. And again, if you're a CEO, and you know that your Chair probably isn't really the right leader of the board. What you want to do is get the chair of the Nominating and Governance Committee to agree to do a director evaluation and not some internal thing where the Chair is phoning people doing it themselves. Right? Don't laugh! This happens all the time!
Maureen Farmer
Haha, no I know!
Beverly Behan
They say, "oh yeah, we are doing a Chair evaluation. I call everybody up and go, 'How am I doing?' Like, because I want to get to write feedback". Oh, yeah. Right. So look, you can do that every couple of years. But once every three years, it's a good practice to bring in a third party. And that just ensures confidentiality. And frankly, I'll be honest with you, Maureen, really great Chairs, appreciate that kind of feedback, because continuous improvement is their mantra. And that's what makes them so good. You know, I say, and I talked about this a little bit in Becoming a Boardroom Star and other books, that there's really two types of board leaders, there is what I call a boardroom champion. And that's a Chair or or lead director, but typically a Chair, who really believes in excellence. They want the board to really be something they're proud of, and when executives work with that board, they get real value, they might come out of the meetings and say something like, 'you know, that was a challenging meeting. But wow, there wasn't a single issue that they missed. So you know, when I go to Wall Street now to present this roadshow, (or whatever it is), I know that I fully canvas that and that's given me real confidence', or 'we were in the process of going down this strategic direction, we're still going there, but there were a number of issues I think, honestly, we hadn't quite gone through and the board brought that up. And that was incredibly valuable'. So, boardroom champions want executives to have that kind of experience working with their board, and they love really constructive, good feedback. That creates continuous improvement because that's what makes good boards great, and that's what keeps great boards vibrant. By contrast, another type of board leader, I tend to call the boardroom preservationist, and their main goal in life is to stay on the board as long as humanly possible. And to stay in the Chairs role. They're largely driven by status and prestige, love to swan around the country club or whatever, 'oh, yes, I'm the chairman of x and y'. They're not terribly interested in excellence. In fact, mediocrity is pretty much perfect as far as they're concerned, because excellence can be threatening. And they don't want anything to threaten the longevity of their term in the chairman's role. And they'll kind of go wherever the wind is blowing. And as long as there are no regulatory compliance problems, they're just going to turn a blind eye to anything else, they're certainly not going to step up to a director performance issue. So if you have a preservationist, one of the things we'll find is they're often very well liked, they go to great lengths to try to sort of ingratiate themselves to everybody on the board, and even the CEO so that nobody threatens their position, but they're not really terribly effective. And so what you need to kind of put in, in that instance, is a director evaluation, that includes the board chair, and involves interviews and involves a third party. And when you do that kind of work, you're looking to interview everybody on the board, not to dig up dirt on the chair. In fact, you want it to be balanced, you want every director including that chair, to get credit, and understand their contributions and their strengths, because they're more likely to accept more negative feedback if they get some positive recognition for what they've done well, but you also want it to be, you know, constructive and actionable. There's a lot of these scorecards where a chair will just get some lousy scores, that doesn't tend to do much except get the chair angry.
Maureen Farmer
Well, of course, yeah, 100%.
Beverly Behan
And it doesn't go after, you know, the real issues. And it's interesting in this call, I was on last night with a gentleman from Kuala Lumpur. And he sits on a number of boards. He was talking about the Chair of one company whose board he's on. He said, This guy just doesn't understand how to facilitate a board meeting, we have some issues that are really important, okay, like we're approving a deal, or we're looking at an integration that is not going well. And then we have some very, you know, perfunctory issues, he allocates the exact same time to the perfunctory issues as the big issues. So, the meetings just aren't working very well. Now, let's say you had that problem. If you did a director evaluation involving a scorecard, this chair would get some low scores of maybe some write-in's, you know, poor meeting management, but that wouldn't really tell him, what him or her what the issue was. But if you interviewed people on the board, you get feedback, just like this guy was sharing with me, which is the real problem is the meeting allocation time between the priority issues and the regulatory issues. That's something the chair can A understand and B be addressed. And therefore it's constructive.
Maureen Farmer
Right. And so was this person, aside from his meeting facilitation skills, was he an otherwise competent person?
Beverly Behan
I think so. I think so. So, that that's not an example of getting rid of him. But it's an example of giving them feedback. So that, you know, it improves any, it's not only improving them, it's improving the whole board. And the effectiveness of the board, you know, now let's say you have a chair who truly is, you know, dysfunctional, they're going to get some, you know, sharper feedback, and they're going to have to make a decision as to whether they want to step up to it or not. Interestingly, though, in most of my career, because I tend to, you know, do this in a way that provides balanced and very actionable and specific feedback. They accept it, and they try to step up, sometimes they can make those changes. Sometimes they can't. You know, interestingly, too, I've had a couple of Chairs resign, right in the meeting, because they get the interview protocol. And then we sit down for the conversation, and the Chair says, you know, I don't want to be Chair anymore, because they really felt these questions and they know, deep down, they haven't been very effective. Now, that doesn't happen often. But it's certainly happened to me a couple of times in my career. And yes, there are a couple of occasions, two exactly out of, I don't know, I've worked with about 200 boards now. Where I've been fired—Didn't like the feedback, right? When you do this work, people are candid with you. They share with you their real, honest views and you got to be honest with them.
Maureen Farmer
Yeah, you have a fiduciary duty to deliver the services that you were hired for. And, you know, candy coating it or or being, you know, ingratiating yourself with the board because you know, thy want to hear good things or the Chair or whatever...it is obviously not going to help anyone in the long run.
Beverly Behan
And that's one of the reasons why it can be challenging if you're using for, you know, board evaluation work, either a law firm that has a history of working with the board and with the company or an accounting firm, that's doing the same, because, you know, they don't want to jeopardize their client relationship, right?
Maureen Farmer
Right, I get that 100%—a completely impartial someone with no emotional or professional attachment to the organization, or vested interest in the outcome.
Beverly Behan
Yeah, because I think it's just very difficult. And, you know, there's one example that comes to mind of that, there was this gentleman, who was, he became the Chair, the board had fired the CEO who had been chair CEO, they hired a new CEO. And they said, you know, maybe as this person's kind of growing in the job, we'll have someone on the board be non executive Chair. So they appointed him to that role. And he was a very poor meeting facilitator, he, you know, the meeting just kind of swirled around him, and he took notes, like he was almost being a secretary. And he didn't direct the meetings, he didn't intervene, when the meetings are going off path, he was just like, with his head down taking notes. And he also didn't make many efforts to even spend time with his fellow directors, which I think is critical for a chair, you need to keep your finger on the pulse of your board. So that means, you know, staying in touch not every week or every month, but on a regular basis with your board members, find out what's on their mind, what are they concerned about. An in that way, too, you're a better sort of bellwether for the CEO, when your co CEO says, you know, I'm thinking of doing this, do you think the board's gonna have a problem with it, as the Chair, you're not gonna know that unless you've kept your finger on the pulse, but that this individual, you know, he kind of just hung out with two directors that he liked to play golf with, and ignored the rest. So, and then the relationship between him and the CEO had really been kind of melting down. What they did was a scorecard type of thing that was tabulated by their outside law firm that had a long history working with them. And of course, he got terrible scores, and really very vitriolic writing comments. And they just served all that up like a laundry list. And the board, just, you know, it was explosive. And the firm, the law firm was fired. And they're probably a very competent law firm, but they didn't really understand some of the nuances of doing director evaluation work and board evaluation.
Maureen Farmer
Yeah. And that can impact that relationship in the long term for sure.
Beverly Behan
Yeah, they were fired. I mean, they lost a client. And so you know, that is, I think, a good illustration of, you know, when you're using an external resource, but one that has other vested interests with the company as a client, they can, you know, they can find it challenging to try to navigate more difficult feedback.
Maureen Farmer
Mm hmm. Yeah, no doubt. So, in terms of, you know, just keeping track of the time here today, I could talk for hours on this topic. What are you seeing Bev? Over the last...I mean, aside from the the PricewaterhouseCoopers, report and study, what other trends are you seeing in boardrooms today?
Beverly Behan
Well, I think that, you know, really, on a large scale, we've come an interesting path over the last, I would say 25 years. I mean, I started working with boards in 96, so 25 years ago, and boards at that time, were really like a country club. You know, it was considered an honor to be on a board, which it still is, but you weren't really expected to do anything. It was kind of a reward for a successful career. That changed with Enron, because all of a sudden, this is a real job. And I think what we're seeing now is the boards are working harder than ever now. And there is a lot of risks. There's, you know, almost every day, there's some new, you know, challenge on the horizon. We've just come through this pandemic. Now. You know, people are looking at supply chain issues. I mean, there's a lot of, you know, climate change and cybersecurity. There's a lot of stuff out there in terms of risks, and I think directors are working harder than ever but it's shifting I really see Maureen is where we are now in terms of board meetings, is you'll have the CEO, the management team, essentially present out to the board. And they'll say, Okay, here's what we want to do. And here's why we want to do it. And here's our calculations. And you know, the various inputs are assumptions that go into our proposal. And then they'll turn to the board at the end of that and say, Okay, any questions, and then what they do is sort of brace themselves to defend their proposal against questions from the board. The shift I see us starting to move towards as we go into the third decade of the 21st century is a shift away from that sort of reporting out Defend type of management board dynamic to what I'll call collaborative oversight. And that's where the board is certainly going to challenge and question management's assumptions, that's their fiduciary duty on the part of shareholders, but where management sees value in leveraging the actual expertise of the board, because if you've gone to the effort, she put around your board table, some tremendously accomplished people with relevant skills that pertain to your business and your strategy. Why wouldn't you leverage that more than simply just defending against those people's questions, you know, in a presentation, so I think it's really that shift in yes, there's still going to be this oversight and, and questioning of management's assumptions and challenging management, but on the same time, using the board a little bit more, as a sounding board, and really leveraging and harvesting the talent at your board table. Now, through the COVID pandemic. I think we've seen boards kind of get more involved, when you face an emergency, it's kind of an all hands on deck situation. So we probably saw boards even micromanaging a little bit at that point, they're gonna come back, but it would be nice if they actually came back to more of this collaborative oversight. And I think that is what we're going to see. As opposed to just back to this reporting out of defensive mechanisms.
Maureen Farmer
And it opens the capacity for the entire organization, when that happens.
Beverly Behan
It really does. Because you're really getting value out of all the expertise and experience that you've taken efforts to put around your board table. Now, there are certain prerequisites for that to happen. One is that you really have the right talent around your board table, you know, if what you have are people who've been on the board, you know, maybe they joined when this was a regional model line, and now it's a global company, and they don't really understand international business issues, you've got to probably replace some of those folks with people that can provide that type of sounding board comments and have that kind of expertise. That's really valuable.
Maureen Farmer
So, I see two mechanisms for having that happen. One would be term limits, is that correct?
Beverly Behan
Limits and age limits are a joke. Okay. So they're, they're well intentioned. But it really goes back to this whole idea that board leadership is uncomfortable addressing shortcomings and director performance, so they use age limits and term limits as a clean way to repopulate the board. If you have a term limit, and your best director hits it, you're going to lose them. Alright, I don't think that's good. And you can have a lousy director who's been on for about a year and a half. And according to the term limit, they get to stay for another nine years. No one's any further ahead with that, no, what you really need to do is do a real you know, board succession exercise. So, my favorite, a lot of boards like to use something called a board skills matrix. And I think that's fine. But that, again, is kind of like 20th century technology. The format I like, is called board 2.0. I talked a little bit about that.
Maureen Farmer
Yeah, I've seen. Yeah, it's excellent. These tools are excellent. For anyone listening to this podcast, definitely get the book because there are tools you can use immediately. In this vein, for sure.
Beverly Behan
So what 2.0 does, it focuses the whole board and the senior management team on designing the optimal board composition for the board of the future, the optimal board to govern the company in three to five years time. And what it does, first of all, you've got everybody engaged around that. And that's important. And that's what gets everybody aligned around that. And you're not doing it piecemeal. Oh, you know, Fred's retiring. So are we going to replace his skills—or what have you, you're really looking at it holistically and saying, 'what does the optimal board look like to govern our company down the road'? Everybody weighs in. And then you work backwards and say, 'okay, clearly, there's some skills missing, we're going to have to refresh the board, how soon are we going to go about it'. And while this may be a three to five year, target, what I find is a lot of boards start taking steps right away, because the process highlights some real gaps in their current board composition, and they feel we would be better served filling those sooner rather than later. And it I find that a much more effective process than a term limit or retirement age, because you're really looking at the the types of expertise and the types of perspectives that you want around that board table, as opposed to just you know, you've been on the board 9 or 10 years.
Maureen Farmer
So, what are you seeing as a result of the 2.0? Right now, you mentioned cybersecurity, what else?
Beverly Behan
Well, you know, diversity is obviously an interesting, really interesting and important factor in board composition right now. My own view is that I've seen boards say, 'oh, and then in addition, we'll have you know, a diverse director here'. I don't think that's a great way to go about it. I think it's much better to look at what do we really want in terms of skills and then where are the talent pools with really rich, diverse talent that we can, you know, achieve our diversity objectives and get the relevant skills and expertise we want around the board table. So you know, if you look at most boards, I think you need some industry expertise. I don't think you need the entire board...I mean, a lot of mining companies, they're all miners. I think that's probably a mistake. I mean, for many years, Canada is a great example. If you look at the boards of most of the big Canadian banks in the mid 1990s through to late 1990s. I don't think they had a single person on their board with any financial services background. Which may be shocking, but that is what it had. I mean, my very first client in 96 was one of the large Canadian banks, I don't think there was... there might have been one person, but the vast majority of people did not have a financial services background
Maureen Farmer
That's shocking.
Beverly Behan
Well, you know, it was for me. But you know, if you look at the board of say, I don't know, Telus, I haven't looked at that one recently. But I looked at that one about a couple of years ago, I don't think there was anybody with a telecommunications background on it. So you know, I'm not saying the whole board has to have industry expertise. Often people who are industry veterans just bring richer expertise about that industry, that not only allows them to sort of challenge management in a different way, because they know the business so well, they're often the directors that the CEO and management say that they get the most value from. So I don't think your whole board should be that, I think that's a mistake. But I do think you want a couple of people at the board table with a background in your industry. You want some people at the board table, you know, that have operational experience. So a CEO, obviously is sort of the the top of the food chain on operational experience. But you know, could be that you've run a large division, you should have had some people at the board table that have run major P&L, similar in size and scope to the company that they're governing. You want some financial expertise, obviously, at your board table to chair your audit committee. But I think even sort of beyond that, capital structure issues, M&A transactions. So whether that's a, you know, a chief financial officer type of background, whether that's a retired Big Four audit partner, whether that's a commercial banker...you know, you want to beef that up. As you mentioned earlier, Cybersecurity Information Technology. You know, I would say 10 years ago, it was kind of like, well, we're not really sure we need that now, I think most boards, feel it's a gap if they don't have somebody that has some of that background. But that can be a very different background. I mean, for some boards, they really want somebody who understands implementation of large systems. So, somebody with a CIO type of background. Some want more like a digital person, somebody who's maybe been in a senior role in Silicon Valley or something like that. So even within those broader sort of buckets of, you know, technology or finance, you've got to drill down and say, what's the real perspective that we'd have the most value having at our board table?
Maureen Farmer
Well, this is so insightful, Bev and I am conscious of the time, but I would like to ask you a couple more questions before we close with the call for the podcast. I guess the one that comes to mind is what would be the one or two things that you would say to a new CEO onboarding into an organization for the first time, or you mentioned a little bit about that before, about making sure that they build relationships with the entire board? What else would you recommend?
Beverly Behan
Well, let's actually start right there, Maureen. You know, I think it's very, very important for any new CEO and I devoted an entire chapter of the new book to this, to sit down and have a really good discussion with every one of their board members about working together to get to know each other. But what most CEOs do they do one of two things. One, they'll say, Well, I don't need to do that. Because, you know, I've met everybody when they interviewed me, as, you know, to become CEO. So we've already gone through that. No, you haven't. In those conversations, you were the job applicant. Now, you are the CEO. And so this is really the start of your relationship. So that's one mistake is to think, 'Oh, well, we've already covered that ground'. No, actually, you haven't. The second is, they tend to view this as a very social sort of thing. So they'll, you know, take a director to lunch or take a director, you know, to breakfast or dinner or something like that, maybe fly to their hometown. That's all very nice. But I think a lot more structure and focus can turn that conversation from a nice little social chat to something that's really giving you some great insights about working with your board going forward.
So, there are a whole range of things and as I say, there's a whole chapter in the book about things you might want to think about. But you want to talk about how they worked with your predecessor, how they might want to work differently with you. What did they see as the strengths of the board? What are they frustrated about with the board? The individual who's your chair or lead director, how often do they hear from that person, that's going to give you a sense right there, if that person has their finger on the pulse of the board or not. You can even use those preliminary discussions to talk about some of the key assumptions in your own strategic analysis to see if the board understands those or not. So, this is particularly important if you've come from outside of the company, because you don't really know what your predecessor gave the board in terms of competitive information, industry information, a lot of those people on the board, they don't come from the industry, how much do they really understand?
So, if you structure these conversations just a little bit more and focus them a little bit more, you're gonna find them really eye opening, as opposed to just a nice social chat, where you talk about your families through some travel. So, I would say that's the very first thing, you know that lays the foundation. And then, you know, a very important part of that, that takes you know, even more focus is the relationship you build with the leader of the independent directors, whether that's a non executive chair, or you know, a lead director, sometimes you'll have a lead director, because in the States, it's not completely uncommon yet for the outgoing CEO to remain as Chair for perhaps a year. Right. So you want to build that relationship with the lead director at that time. So that's what lays the foundation.
Another thing that I think is really important for a new CEO to do to really build rapport with their board, is to think about the what I call (I've got a chapter on it) it's called Building a board worthy executive team, so I've worked with nearly 200 boards now all over the world, much of that work has been in board evaluations. And two thirds of those boards are very unhappy with their pre-reading materials. They're very critical of management presentations in the boardroom. And this is something that as a new CEO, you can address early on. And some of those shortcomings, you'll find out in these preliminary discussions. And if your board is one, like two thirds of boards in my experience are, where there, there's really a lot of area for improvement. If you tackle that early on, you're going to get a lot of kudos from the board. And you're also going to have much better board meetings. And it's something that's pretty easy for you to do, because the management team all reports to you. And I would also say that the management team, how they interact with the board, is determined very much by the CEOs approach in working with the board. And if you don't sort of imprint your own style of working with the board, your management team is going to continue in the pattern that your predecessor adopted.
Maureen Farmer
It is a great opportunity to effect change at the very beginning. And timing is everything as they say.
Beverly Behan
That's absolutely true. Yeah, that's the start off. And then, you know, we talk a little bit more about other things you want to think about as your relationship develops, which includes making some changes to the board. I mean, another thing you might want to think about are expectations of the board. And the board's expectations of management. I worked with a woman who became the CEO of a regional bank. And sort of through her assumption, you know, a couple of the older board members were a bit patronizing towards her. And one of the things she did, within about the first four months of becoming CEO, is she put together and some of it was informed by these preliminary discussions with the directors, sort of a list of you know, this is what I kind of expect from working with the board. And that included things like preparation, it included things like very candid feedback, it included things like, you know, creating a respectful environment and working with each other and with the management team. And there were in fact, two directors who, you know, didn't exactly do that. And so she kind of laid that out. And then she also said, you know, this is what I think the board has a right to expect from me and my management team. And she handed this out, she had a discussion about it with the board. She told me, 'I stood up from the table, and I could just tell from the way they were looking at me, and the way they started treating me from there on' she said, 'I became the chief executive officer that day'. So that was important, because that was really her as a CEO putting her stamp on that relationship.
Maureen Farmer
And taking a leadership position in that in that room.
Beverly Behan
Yeah and saying this is how I want us to work together. And I think it's something so many CEOs overlook until later in the game where there's a problem with the board, you know, and then they're kind of backtracking. And that's really how we start the conversation is, you know, there's a problem, there's a new director, well, if you haven't really built in and solidified a great foundation of your working relationship with your board, it's going to be a lot tougher to address that problem, when it rears its ugly head. So that's why being a little proactive, and I know for a new CEO, you know, there's all these books, you know, your first 100 days, your first 90 days, your first 60 days. You're like, alright, well, I've got so many things on the burner here, you know, this board thing, I'll just put it off. Yeah, you know, it's really important. It's not a burning platform issue. But it's really something that if you don't consciously set the relationship you have with your board and create that consciously, in the first say, 6 to 12 months of working together, it's gonna happen anyway. And it may not happen in exactly the way you might have wanted. If you've been distracted with other things.
Maureen Farmer
I think this is a really, really powerful message. And I would love to have you back another time, if you're open to talk a little bit more about some of the other work that you have done and some of your other insights. My last question, before we close out the podcast is what has surprised you most in your career as a board advisor so far?
Beverly Behan
Well, I think that what surprised me initially, I guess, because I've been working with boards back since 96. Back in those days, was that it really was a country club. I mean, I was always of the view, you know, I was an impressionable young lawyer in my 30s. And, you know, I thought, hey, the board is where the buck stops, and where we have all these, you know, successful experienced business people who are really, you know, weighing in and, and making a difference for the company they oversee. And it was just this country club environment. So I think that was shocking. We don't see as much of that going forward. But I would say one of the, I think biggest and most surprising things to me...and it's the reason I wrote another book about this, when I wrote three in the lockdowns was its book about board and director evaluations and board evaluations, when you do them in the right way...and I'm talking about, you know, with interviews with everybody on the board, and the senior team, and really focusing on, you know, meaningful issues, versus this sort of box ticking, you know, compliance mode, it makes the biggest difference I've ever found in 25 years of working in the boardroom, which is how you take a board from good to great, and how you keep a great board vibrant. And I guess what's sort of been shocking to me, is that how few boards are taking advantage of that, you know, it's considered a best practice to do a board evaluation every year, take advantage of that, and make that something, you know, meaningful. And, you know, that adds real value for your board management relationship for your board that makes positive changes, as opposed to sort of let's just tick some boxes and put it in a folder. I just think that's and also, when you think about the people that sit on boards, I mean, these are very sophisticated, experienced people. And, you know, you almost treat them like school children, telling them to fill out some survey with a couple of writings, as opposed to giving them the respect that I frankly, think they deserve, which is having a conversation to leverage their insights and recommendations and good thoughts about the board. So, I would say that continues to surprise me that that's a little bit underused. But I think we're going to see that shift as well, in the third decade of the 21st century.
Maureen Farmer
Well, you're a spear leader there for sure. And I've read a lot of board governance books. And I have to say that the one that I've just read that you've just written, Becoming a Boardroom Star is really uniquely different. And very insightful. And I encourage anyone listening to this conversation today to have a look at the book and use some of the strategies that you have laid out there. But would you be interested in coming back another time to continue the conversation?
Beverly Behan
I'd be delighted to continue the conversation we're in. I think you've hit on some really great points and it's been a lot of fun and we've talked about some things that hopefully are helpful to your audience.
Maureen Farmer
I'm absolutely honored to have you here today. And we will definitely be in touch and set a time for another call into the future!