How can boards of directors be less dysfunctional and more productive?

In the last several months, I have been asked this question by several organizations, including for-profit companies and nonprofit organizations.

My opinion is the issue causing the dysfunction is very consistent across organizations. For many organizations, it is not clearly defined as to the role of the CEO and the role of the board. Since the roles are not well defined, it is very easy to make assumptions, which leads to a high level of frustration on the part of all participants.

I was taught early in my career at Baxter that the best way to think about boards and governance is a really simple rule: “management manages and boards govern.” If this rule is clearly understood and followed by board members and management, things work very well. The problem starts when board members believe they should be directly involved in management, or management forgets that they report to the board in their role as fiduciaries.

Mr. William Graham, the longtime chairman and CEO of Baxter International explained very simply, “Think of the relationship between the board and management as a window. The board opens the window and gives advice to management, challenges management, and holds management accountable. But it is a window. It is not a door that the board walks through and begins to manage.” He also told me that the only operational decision that the board should make is whether or not they have the right CEO. If the CEO is not doing the job, they should be replaced rather than the board starting to take the place of management.

In addition to my comments above, here’s some advice that can help the process be more productive. I really believe the reason the people get frustrated is because they make assumptions, and we all know the danger with making assumptions. Therefore, in order to reduce frustration, I advise leaders to minimize assumptions by following a simple, four-step process:

1. Set clear expectations for both the CEO and the board.
2. Clearly communicate the expectations so that everyone involved in the process is well informed.
3. Hold both the CEO and the board accountable for achieving the expectations. This is reasonable if the expectations really are clearly set and clearly communicated.
4. Make the consequences, both positive and negative, clearly understood.

I am sometimes asked how you know whether you have clearly set expectations. The answer is very simple: If expectations are clearly set, nobody should be surprised. My strong view is that if several of the parties are surprised, by definition, the expectations have not been clearly set. And if that’s the case, then let’s not wonder why things are dysfunctional.