5 Reasons directors always need the courage to speak their minds

Photo courtesy of Howard Lake on Flickr

Photo courtesy of Howard Lake on Flickr

Rob Swystun, Pristine Advisers

A couple of weeks ago, I wrote about how boards could be more effective by having a director whose role is specified as being the devil’s advocate in the group, meaning they are expected to reasonably criticize board decisions to force everyone to acknowledge any shortcomings of those decisions. Essentially, they would try to talk the rest of the board out of making any given decision.

Having a dedicated voice of dissent on a board has many pros, but perhaps it wouldn’t even be necessary if all directors spoke their mind all the time. There are reasons this doesn’t happen  (groupthink and such), but here are five reasons why board members should have the courage to speak their minds, courtesy of Third Creek Advisors founder Adam J. Epstein as seen on VentureBeat.

1. It helps avoid stasis. Part of a board’s duty is to nurture and guide a company as it grows to help it expand and change in productive ways. But, in a boardroom, which Epstein describes as a complex environment full of egos, insecurities and politics, it can be intimidating to be the lone voice pointing out that an idea may not be quite as good as everyone thinks it is or to stick up for an idea that isn’t popular even though you believe it’s the right choice. If nobody is willing to do this, though, stasis will take effect and the company will suffer for it, because the external environment is anything but stagnant.

Sometimes it takes courage to be the one to say something. The example that Epstein gives is something we’re probably all guilty of being too afraid to say at one point or another: “I don’t understand.” People don’t want to look foolish, so they don’t speak up when something is going over their heads, but it would be even more foolish to make a decision based on something that you don’t actually comprehend. Chances are, you’re not the only one who doesn’t understand it, anyway.

2. It can lead to a needed change of course. The global business landscape of today is way different than it was for previous generations. For one, it changes much more rapidly, necessitating thoroughly designed product road maps, carefully allocated operating budgets and meticulously organized strategic plans. Wall Street will relentlessly dissect what a company does and will act swiftly if it finds a company to be asleep at the proverbial wheel. It’s better to point out when a company’s plans are flawed sooner rather than later when it may be too late. Otherwise, your company stock could end up being the worst kind of stock; a laughing stock. (Just ask the people at Blackberry how terrible that is.)

3. It can help to keep the board fresh. While hiring and — even more so — firing a CEO grabs all the headlines, the more nuanced, but equally important, succession is that of an underperforming board member. Epstein says corporate boards are loaded with dead weight because often nobody on the board has the courage to point out that a highly-respected and experienced colleague isn’t quite cutting it and should be replaced.

4. It can help establish a company’s longer-term interests. In what Epstein calls today’s capital markets ecosystem, it can be more difficult than ever to position a company for long-term success, as it takes years rather than quarters. Boards, together with management, have to be have the courage to position their companies for future success and not just present success.

5. It can help to set the right tone at the top. Having the courage to speak up means if you see something is wrong, you say something about it. Just advocating for doing the right thing rather than the most profitable thing if those two should diverge takes courage. But, directors should always choose to conduct themselves in a manner that displays profound integrity so as to be an example to the rest of the company.

Epstein says that friendly banter, passive questioning and acquiescence are still unfortunately the norm in corporate boardrooms in America and this is part of the reason activist investing is so prolific these days.

The importance of having the courage to speak your mind in the boardroom can never be overstated. Boards are put in place to ensure companies are being managed well, staying relevant and meeting their threats head on. Not speaking one’s mind in the boardroom is undermining all of those things and inviting potential disaster.

 

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