The three things we talk about in Board-alone time, and two that we don’t

Board-alone time – paradoxically known in some jurisdictions as ‘Executive Time’ or ‘Executive Session’ – is that part of our meeting exclusively for the non-executive members of the board, those members who don’t work in the business day to day. In my experience, it’s the most debated and probably most misunderstood part of a board meeting.

Some chairs tell me they don’t believe in board-alone time because it shows a lack of trust in the CEO. Others use it ‘as needed,’ if the chair or a board member calls for it. I don’t agree with the former, and I’ll explain why, but I can easily understand how the latter approach, ‘as needed’, could lead to the former.

Let me start with two rules I have on what board-alone time isn’t:

  1. It isn’t normally a part of the board meeting itself, but rather an informal discussion among the non-executive directors. Therefore, with one exception that I’ll mention later, we don’t use if for making decisions that belong in the board meeting.
  2. More importantly, it’s not – as some directors and CEOs fear – an opportunity for the board to ‘beat up the CEO’ behind her or his back.

Why then do we hold board-alone time, and how should we use it?

I like to hold a brief session with the board alone at the start of each board meeting, as the board’s ‘pre-match team talk’. I’m fairly sure most smart chief executives hold ‘management-alone’ time in the days leading up to a board meeting – agreeing how they’ll approach it, and what decisions they want from the board. This seems to me good management. In the same way, board-alone time is our chance to prepare ourselves for the discussion and decide how we want to spend these next few important hours. 

We don’t spend much of our total year in board meetings. Yet this is when we need to make the most important, often most contentious and difficult, decisions the company faces … the decisions that only the board can make. Not surprisingly, I want us to be as well prepared as we can. 

  1. What do we need to talk about today?

The first thing we need from this session is to agree how we’ll prioritise our time over the next few hours, so we can add as much value to the business as possible. This is the board’s meeting, not management’s, so the board must have the final say over what we discuss. 

Most of the time we’ll know what our chief executive needs from us – strategies to adopt or capital expenditure to be approved – but in our role of oversight and testing management’s thinking, the board may decide that one or more other matters, not on the formal agenda, need raising or simply that we need to change the order of today’s business. 

2. What’s happened since we last met?

The second thing I like in our time alone is a brief update from the chair – and other directors if appropriate – on what’s happened since our last meeting, say, meetings between the chair and CEO, external stakeholder discussions, and so on. It’s also the chair’s chance to comment on how the chief executive performed on those occasions. As far as practicable, I want all directors to have a full picture and the same information about where things stand.

3. Does anyone need to raise any concerns?

The third use for board-alone time is as a safe forum for board members to raise any concerns they have. These may be relatively minor, the form or delivery of board papers for example, or – as I recall vividly – one board member asking, ‘Has our CEO run out of ideas?’ That would be a tough question to ask if the chief executive was sitting in the room. 

In the case I’m talking about, the board member had done a lot of background analysis before raising it. It became the trigger for a series of further questions, culminating several months later in a change of leadership. Importantly for the organisation, it led the board to face this difficult situation several months, possibly a year, earlier than it might otherwise have done.

This leads of course to the one crucial time when you do make a formal decision as the board alone: the critical and usually extremely difficult decision that our current chief executive is not the person to lead the organisation into the future … and what we need to do next, how and when. 

Finally, to avoid the suspicion of ‘behind the bike shed’ secret discussions, I follow our board-alone time with a board-plus-CEO-alone session, where we share with him or her all we’ve talked about, including the difficult bits. But, to keep it from becoming personal, I’ll phrase any concerns as ‘The board has a growing concern about …’ without naming directors individually.

As for how long these sessions are, I usually aim for no more than 15-20 minutes and I try not to allow discussions that should include the CEO. On most occasions, I’m keen to bring the chief executive into our discussion as soon as possible. 

After all, as the legendary, Jack Welch (who has, sadly, died as I write this) once put it, if you have confidence in your CEO, the question remaining for your meeting today is ‘What can we do to help our CEO achieve the company’s objectives?’ That’s not the same as giving her or him everything they want from the board, but what we agree they need – among which should be clarity of direction from the board and, when we leave the meeting, confidence that they have the board’s support. 


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Radio New Zealand and the Ansoff Matrix

Radio New Zealand announced last week that it was considering gutting its Concert Network, moving it from FM to AM, dismissing all its presenters, replacing it with an automated music stream and allocating the frequency to a more youth-orientated FM channel.

Many people better qualified than me have taken to the ramparts to protest this loss of New Zealand’s only serious music channel and I imagine some Ministers are receiving a lot of feedback.

But I do have many years of experience sitting in boardrooms, asking hard questions and formulating corporate strategies. So I’ve taken a different approach from most and have looked at this opera-in-real-time as I would in the boardroom. Of course I have only the information available to a member of the listening public and I assume the board has considered a lot more.

As a director, I’ve found a tool called the Ansoff Matrix (see below) a useful way to guide our thinking:

Let’s assume that Radio NZ’s board has decided it’s no longer its preferred option to stick with what is usually the least risky of these four strategies, ‘market penetration,’ in existing markets, with existing products. We can accept that as the board’s problem definition.

So, what now?

In most organisations, you might decide to move into a new market or launch a new product. But it’s generally thought very high risk to try to do both at once.

Yet this seems to be exactly where Radio NZ is heading:

  1. They want to attract a new, younger audience – something they’ve tried previously without much success; and
  2. They’re proposing to launch a new product, which they hope will appeal to that market.

As a director, I’d want to understand two things before we started:

  1. What gap in the market are we proposing to fill, and
  2. What competitive advantage do we have with our proposed new product?

When an organisation expands into new markets or new businesses, one of the fundamental rules you normally follow is to keep your base business strong and look after your existing customer base, because another essential component of any board decision is to identify the risks. In other words, to ask, ‘What if:’ ‘What if this plan doesn’t work; what’s Plan B?’

As I understand it, this proposal not only destroys irreversibly one of Radio NZ’s core products – a ‘product’ for which it is New Zealand’s sole provider (in commercial terms, 100% market share). Imagine if Coca-Cola had destroyed the formula for its original product when it launched New Coke. When that failed, what could they have done?

In addition, this move alienates – is already alienating – possibly irretrievably one of its most loyal customer groups – many of whom are among RadioNZ’s strongest promoters.

If the new strategy doesn’t work, the board seems to have left itself nowhere to turn, and they can’t unwind what they’ve done. Game over?

But wait: there’s more. We learned on Friday that the government has announced it’s reviewing a proposal to merge the two main crown owned broadcasters, Radio NZ and TVNZ. During reviews like that by your shareholder, you don’t usually make strategic changes to your business: it makes the shareholder’s job of analysing the data almost impossible.

  • If Radio NZ didn’t know this was coming, does this give cause for pause?
  • If they did know it was coming, I’d expect some very pointed questions from the shareholder to the board about how they allowed it to proceed.

Just this morning in fact we heard the Responsible Minister, also our Prime Minister, saying publicly on radio that the government had indeed asked Radio NZ to pause while the government looked at other options. It went ahead anyway.

I do hope the board has been asking the types of question I’ve talked about above. If they have, I’d be even more interested in the answers – and data supporting them.

If they haven’t, today would be a very good day to start!

In the old BBC series ‘Yes, Prime Minister’, senior public servant Sir Humphrey would refer to a decision he considered flawed as ‘A bold decision, Prime Minister.’ This was always enough to strike terror into the PM and lead to an immediate reversal. On the face of it, I’d call Radio NZ’s current proposal ‘a very bold decision indeed.’

Six Steps to More Meaningful Minutes

As I write, I’ve just finished reviewing the draft minutes for a board meeting we held last week.

Why do many chairs and directors see this as largely a chore – and do they give the minutes the attention they really need? Are they ensuring that the minutes reflect accurately the decisions the board took, and the tone of the meeting; or do they spend their energy – and feel triumphant – uncovering the trivial typo or incorrect use of punctuation (we all know one of those, don’t we)?

For me, the minutes need to satisfy two needs:

  1. First, when approved by the board, the minutes become the formal and legal record of what the board said and decided – a record that becomes permanent. 
  2. Secondly, the minutes are a reference point for board members who need to look back, perhaps years later, at how they got into a particular position. 

Here, then, are my Six Steps to More Meaningful Minutes:

  1. When signed off by the board, the minutes become the formal, legal, record of the meeting, so they need to be accurate and complete. This will be important if there is ever an argument over what the board did or didn’t do. I’ve provided expert evidence in several court cases. In almost every case it would have helped everyone if the board minutes had been more comprehensive, clearer about the board’s decisions, and written with greater care. In some instances, well written minutes might even have prevented legal action from going ahead. If you doubt me, take a look at the Report of the recent Australian Royal Commission on Misconduct in the Finance Industry: if something’s not in the minutes, it may as well not have happened.
  2. The minutes should capture not only the decisions the board made, but also the options the directors considered and why they made the choices they did. If you ever find yourself in Court, you may need to demonstrate that you applied the care and diligence required of a director and that you believed in good faith the decision you took was in the best interests of the company. The minutes need to record in at least some detail the board’s discussion and the main questions asked – the implication I took from the Royal Commission was that the minutes should record every material question and answer. 
  3. Quite often, we refer to our minutes several months or years later – sometimes to ask ourselves why we reached a particular decision. Minutes showing only that we made a particular decision aren’t much help … we know that, which is why we find ourselves in the situation we do. What’s helpful, therefore, is knowing why, at the time, the board thought it was the best decision.
  4. In general, the minutes shouldn’t refer to directors by name: ‘the board asked,’ ‘directors discussed’ is usually enough: it’s consistent with the principle of collective responsibility. It also avoids deterring a director from asking what they might think is a contentious or stupid question – with their name against it for all time. Occasionally, a director may ask to be recorded by name, but usually when they’re dissenting and voting against a resolution.
  5. In a similar vein, our minutes often refer to members of management by name. Nothing particularly wrong with that, except that things change with time. If you refer to the minutes several years later, a manager may have changed roles since the meeting. I prefer therefore to refer to managers by their title, such as CFO (Chief Financial Officer), to avoid any confusion. Of course, the list of attendees at the start of the minutes will show their name and the position they held.
  6. Finally, directors should be able to review the draft minutes while the meeting is fresh in their minds – while they can recall the discussion and tone of the meeting, as well as what was actually decided. As chair, I like the draft to come to me within four or five working days, and I’ll try to turn them around, with any edits, within a couple of days. (As board secretaries I’ve worked with will tell you, I don’t always meet this standard, but they’re usually polite enough to send me a gentle nudge if I haven’t responded.) Then the draft can go to the rest of the board for their review, preferably within a week of the meeting. 

I hope that’s prompted a few ideas to get you thinking about your own board minutes. You may not agree with everything I’ve said, but these principles have generally worked for me. Good luck in your next meeting – and in coaching your minutes secretary!

Where was Boeing’s Board of Directors?

I’ve just returned from a few weeks’ leave and one of the first stories to catch my eye related to the departure of Boeing’s CEO, Dennis Muilenberg, following the company’s inept handling of the aftermath of two fatal 737-Max crashes that killed a total of 346 people.

What surprised me was not that Mr Muilenberg has finally been dismissed, but that, in doing so, he takes with him a payout worth $US 62 million. 

There has been a lot of debate in recent years about the astronomical salaries of large company CEOs, and whether anyone actually merits such amounts, or indeed whether someone will really be motivated to work harder for $50 million than they would for, say, $5 million – even that relatively miserly sum being more than most employees are likely to earn over an entire lifetime.

But this payout is on another level again. Usually, when we discuss executive remuneration, we’re thinking of a CEO leading their company successfully and there’s an argument that, as the leader, the CEO should share in some of that success. However, since the second 737-Max crash in March 2019, Boeing’s order book has fallen to a 16-year low and its share price has fallen by about 20%, stripping $US 50 billion off the company’s market value. 

Where is the accountability for this destruction of value? More significantly, where was the Board of directors that set Mr Muilenberg’s remuneration? 

In most CEO employment agreements, there’s a clause saying that, if the CEO acts in a way that brings the company into disrepute, the Board may use this as grounds for dismissal, usually without compensation. Was nobody willing to stand up to Mr Muilenberg when he led the company into and through arguably the worst reputational crisis in the company’s history? 

Perhaps part of the answer is that, until October 2019, Mr Muilenberg was both Chairman and Chief Executive of Boeing, so we may assume that he had considerable influence over his Board. 

Part of the role of a Board is to ask ‘What if …’ In other words, when they were setting his remuneration, they should have asked themselves about some of the possible – if at the time unlikely – circumstances under which they might need to dismiss their chief executive. And, if they did so, what reputational issues might they need to consider?

If nobody did this, how can the directors argue that they were fulfilling their duty of care and loyalty to the company?

When we see more and more that even unsuccessful CEOs depart with what I can only describe as obscene pay packages, it’s no wonder that people become not only disillusioned with big companies, but sceptical about the value boards provide in general as a check and balance on executive behaviour and pay.

To make the specifics of this case even worse, on the very day that Mr Muilenberg departed with his nest egg, one of Boeing’s major suppliers announced that the recent shutdown in the 737-Max production line had forced it to lay off 2,800 of its employees – 2,800 people who will no longer receive a salary or wages, whose careers may be destroyed, and some of whom may no longer be able to meet the mortgage payments on their house.

Looking at it differently again, if Mr Muilenberg were to have a rush of conscience and pay $150,000 from his own pocket to every family of the 346 people killed in the two crashes, he would still be left with more than $10 million to cover his retirement – more than adequate reward for a CEO who has brought one of the world’s leading companies to its reputational knees.

How formal should our board meetings be?

The best answer I had once from a more experienced friend was, ‘As informal as possible – but no more so.’ In other words, let’s keep the formalities to a minimum that allow us to do what what we’re here for, to make the decisions that only the board can make – usually the most important and tricky decisions the organisation faces. You want to give yourself the best chance of getting them right.

In practice, I think this leads to two guiding rules:

  1. The chair needs the ability to control the discussion, to the extent of who is speaking and who is not, rather than in what they’re saying.

I’m not a fan of the rather archaic form of addressing another board member, ‘Through you, chair …’ which I suspect is a hangover from parliament, where the members address the Speaker of the House and refer to the person they’re really talking to in the third person (‘May I ask the honourable member …’). However, this always needs to be the unspoken assumption: as chair, you need the authority to allow (or encourage) a quieter person to speak, or to restrain someone who is dominating or repeating themselves.

  1. The chair also needs to ensure that you have only one discussion at a time around the board table.

This should be relatively obvious, but quite often a side conversation will break out and occupy one group of board members, while others are still speaking on the main topic. One danger – besides the bad manners of speaking over someone else – is that you can easily miss a point, or that others will miss what might be a perfectly valid point in your side-discussion. This habit is also a nightmare for your minutes secretary, who can’t follow two parallel discussions. As chair you need to control it and call people back to order if necessary.

Another aspect of boardroom formality is the proposing and seconding of resolutions: ‘Would someone move that we accept this report … and someone else second the motion?’. What value does this add, and why do we do it? Whenever I ask this, the answer is along the lines of ‘Because we’ve always done it this way,’ rather than for any other good reason.

I suspect this is a habit carried over from the rules for conducting shareholder meetings, usually set out in the organisation’s constitution. These usually say that a motion at an AGM will only be considered by the meeting when it has been properly proposed and seconded. This can be helpful for controlling a larger meeting like an AGM, but how a board runs its own meetings is an entirely different question.

In practice, chairs are likely to use the practice of proposing and seconding as much for ensuring a board member is awake – ‘Jo, are you happy to second that?’ – as for signalling who is actually bringing the resolution to the board. After all, most of the board’s material comes from the chief executive. If he or she isn’t a board member, then they won’t be proposing or seconding anything, even though it’s their paper. Also, if something went badly wrong and a court was trying to work out why the board made a certain decision, I think it would be misleading to have proposer and seconder recorded – especially when they actually have no greater interest in the matter than any other board member. Finally, the practice undermines the important principle of collective board responsibility for our decisions.

Sometimes though, even with the best intentions, a meeting won’t always run the way you’d like. I chaired the regional branch of a not-for-profit organisation some years ago. Our relatively large board used to meet at a long narrow table in a small room. During one meeting, part way through a fairly passionate discussion, I noticed a second even more lively exchange at the other end of the table. Raising my voice slightly, I said, ‘Only one discussion, please’. One of the board members most involved at the other end of the table looked around at me and said, ‘That’s OK Richard – we’re only having one discussion.’

Yes, it keeps you humble – and thinking how you might manage better next time.

The Five Roles of the Chair

Let’s talk about the Five Main Roles of the board chair.

Until you step into the chair’s role, you probably won’t appreciate the full range of what you’ll be called on to do. And, if you’re like most people who’ve learned mainly by watching your own board chair, you’ll have seen them chair board meetings, you may have seen some of the other work they do, but you’re unlikely to have seen all that they do. I’ve put together this outline, built from my own experience rather than any textbook, so you can go into the role with your eyes open, if you’re about to take it on for the first time.

  1. You’re still a director

First, you’re still a director. Lots of new chairs can forget this aspect because they’re so intent on making sure they chair – or rather facilitate – their board meetings efficiently. They can forget to play their own part. Remember you’re a participant as well as being the leader of the board. Part of the trick is being able to put your own views without dominating or shutting down the discussion – ‘because the chair has spoken.’

This may be a bit of an exaggeration, but I’ve seen chairs who use their position to get their own way: they set out their own position and then almost dare any other board member to offer a different position. This may work in the short term, but it does nothing to build an effective board that welcomes diverse views and genuinely wants to find the best answer. Over time, often quite short, it will certainly undermine your own position as chair, because other directors will resent your not being open to other views, or allowing them to make a contribution.

2. You need to run good board meetings

Secondly – the part that’s most visible to your colleagues – you’ll chair and run your board meetings, to make them as productive and efficient as possible.

Several board chairs have confessed to me that they feel exhausted at the end of a full board meeting, as if it’s a sign of weakness: it’s more likely they’ve been doing the job properly, since as chair you’re running three parallel processes for the full length of the meeting. First, as I’ve mentioned, you need to participate as a director, weighing information and differing opinions, asking good questions, thinking through the consequences and finally being a part of the board’s decision.

Then of course you have to manage the meeting itself, dealing with the most important items, getting through your agenda in the time you’ve allowed, and making sure you’re clear about the decisions you’ve taken. Finally, you need your antennae on alert so you can sense constantly who needs to speak who hasn’t, who needs not to speak any more because they’ve already spoken too much; whether the board is ready to make a decision and whether you’re getting off topic or going around in circles. With all this going on in your mind, it’s no surprise when the board chair feels drained at the end of the meeting, while the other directors usually have only one of those roles to perform – turning up as directors and playing their part.

3. You must build and develop your board

Third, the chair is responsible for building and developing an effective board, with the right range of skills, experience, external linkages and personal styles. Chairs don’t always have the luxury of choosing who’s on the board with them, but you’re still responsible for making the most of those you have: this may involve some coaching, board training or looking for another director to fill a gap. When you do get the chance to find one or more new members, it can become very time consuming, as typically the board chair will be leading the selection and appointment process, whether as chair of a formal nominations committee or more informally. Either way, it’s worth the trouble and time to get the best candidate(s) you can.

I was lucky enough recently to be asked to find two new members for a board I chair. Working with the search firm, we discussed something like 35 candidates, the firm itself spoke to about 20 of these and I interviewed nine. That’s quite time consuming, not to mention the subsequent process of due diligence, reference checking getting the appointments approved by shareholders, and finally welcoming and inducting our new directors. But it was worth the effort and both new members have made their mark from the day they joined us.

4. You’ll develop and nurture your stakeholder relationships

Fourthly, as chair you’re the external face of your board, with shareholders and other key stakeholders. I don’t agree with the board chair being the day-to-day spokesperson for the organisation – that’s your chief executive’s job – but at times you have to be the face,  particularly when you’re reporting to shareholders, or if the company’s facing a crisis, or something like the unexpected departure of your chief executive. You need to keep yourself well enough informed to know what the big issues are at any time, and what your message might need to be, whether in a formal AGM, or one to one over coffee with a sole shareholder or key influencer.

5. You run the board’s relationship with your chief executive

This fifth component of your role can at times be the most stimulating and enjoyable, and at others the most frustrating and draining of all the chair’s responsibilities. As chair, you’re the main link between the board and your chief executive, especially between your board meetings. Depending on your relationship and individual backgrounds and experience, you’re likely to alternate between being a sounding board, a mentor, a leader, an interpreter (of the board’s intentions) and a firm guiding hand.

I believe the relationship between the chair and chief executive is the most vital single relationship in an organisation: it’s built on two-way trust and respect, and the most effective relationships are not built on hierarchy or seniority but become a powerful partnership, where each understands the other’s strengths and how he or she can complement those.

Of course, as chair you need to remember you’re there on behalf of the board, and not as the chief executive’s individual ‘boss’. If your relationship breaks down, you’ll also have to manage the process to deal with that. So one of the golden rules of being the chair is that you can’t afford to become personal friends with your chief executive. This can actually be one of the hardest parts of the entire role of chair, for the simple reason that when you work closely with someone who shares a vision and similar values, and if you respect each other and get to know how each other thinks and operates, you’re likely to find you really like the other person. Sadly, this can be the biggest trap for a board chair: once your relationship becomes a friendship, you’ve lost your objectivity … you find yourself in board meetings acting as ‘counsel for the defence’, instead of keeping your professional independence, from where you can challenge and guide, and be true to your first duty, as I’ve outlined above, as a director.

In future posts, I’ll talk in more detail about each of these five roles, but this will do for now.

I should add, finally, that you’re unlikely to be doing all of these at the same time, so you can focus as you need to. But, overall, I hope I’ve given you some idea of what the position needs, and how becoming the chair can sometimes fill your day, or week, if you’re going to do it properly. Good luck!

How it all began

‘Hello Mr Westlake,’ said the voice on the phone. ‘I know you don’t have the time to be a director … but we were wondering whether you’d consider being the chairman.’

Some weeks earlier, I’d received a call asking whether I’d be interested in being appointed to the Establishment Board of the Meteorological Service state owned enterprise, being set up as a part of the government’s structural reforms. I had never been on a board, but I had always had an interest in the weather and, as a former pilot, I understood how heavily you relied on accurate weather reports and forecasts, and this opportunity excited me.

I replied that I’d have a strong interest in becoming a director, but needed to check first with my employer, the New Zealand CEO of an overseas owned bank. He wasn’t known for supporting his people’s career development and scoffed at this idea, telling me I couldn’t possibly have the time to take on this new role. It was late 1991 and merchant banking in New Zealand was almost moribund, so I didn’t agree with him, but regretfully I declined the approach.

So it was quite a surprise to receive that second call some weeks later. International banks have many faults, but one area in which they were sometimes quite skilled was in reading the mood of the times. When I relayed this further approach to my boss, he must have thought twice about whether to decline the evident wish of the government, and he told me I should accept.

So began my board career: Establishment Chair of the MetService SOE Establishment Board, chairing a board tasked with setting up the first national weather service in the world to be turned into a commercial company. I’d barely been inside a boardroom and had no training for the role, but I was keen to learn and take on the challenge … and I’ve been learning ever since.

Establishment boards of SOEs had no legal status, and we had no legal standing as a board, but, as I was advised by some government officials: ‘They’ll never work on paper, but they’re fine in practice.’ I might say the same about my early governance career.

28 years on, and I’ve been privileged to chair many boards since then and to work with some excellent – and a few not so excellent – chairs on other boards.

In my advisory business, I work with many newer chairs and chairs facing complex challenges and conflicts. They often ask where they can find reference material to guide them. Much of what I’ve found seems more relevant to experienced chairs of publicly listed companies, something that many (most?) chairs aren’t.

Apart from some initial training courses and generic best practice papers, I haven’t found much for the rest of us, chairing private companies, family businesses, co-operatives, government bodies, sports organisations, charities, other not-for-profits, or any of the thousands of other organisations that need someone to chair their board.

That’s why I’ve called this blog, ‘Chairing – for the rest of us’, or ‘CHAFTROU’ for short. Over coming weeks I’ll talk about the role of the chair as I’ve learned it, with some highlights, lessons, tips, and some of my biggest mistakes. I may add a few incidental comments too.

I hope this will help to fill some of the gaps, and that it’ll be useful – and entertaining – and, most of all, that you’ll enjoy this journey with me. Welcome a-board!