By Stuart R. Levine
Published in, Forbes Insights

There is increased conversation regarding governance and its impact on shareholder value.  To participate requires clear thinking and crisp communication.  Let’s start by understanding that any good decision-making process requires timely information that is presented in a coherent and effective manner.  When we talk about organizational culture, there are serious implications for shareholder value.  The phrase “tone at the top” is frequently used. “Tone at the top” is defined by the way information is shared with the board of directors and within the C-suite.

One of the critical fundamentals of governance is the sharing of information.  Most people understand that information is an important element of power. When you study organizational behavior, often you will find that managers that play a cheap game of “keep-away” where they create webs around important information and don’t share data in a helpful way in order to protect the status quo which values mediocrity.  This kind of behavior is often tacitly approved and sanctioned throughout the culture.

By examining board behavior, it will become apparent how to create a strong culture. The first place to look is the board agenda, which serves as a vehicle for the directors around the table to engage both strategically and productively.  Materials with exhibits and executive summaries should be distributed at least five business days in advance, which provides directors with the opportunity to digest the information and come fully prepared to participate in business discussions. This creates the beginning of a culture that sets professional expectations throughout the organization.

Excellent governance practices require strategic preparation from both the directors and senior leadership team.  Several years ago, I observed a very senior business leader who did not understand how to prepare or present to a board.  He was allocated one hour, and in that timeframe, he proceeded to update the board on every branch and service level unit throughout the country.  He attempted to take the board through a 50-page deck in extremely small type.  It was impossible to see the materials on the screen.  To enhance the optics, the lights were dimmed in the board room, which ensured that half the directors fell asleep.  Those  directors who remained awake, were asking too low level questions about branch operations in Florida rather than trends, analytics and financial results.  The dirty truth is that governance requires hard thinking about creating an executive summary that presents at a high level so that people can make informed decisions.  50 pages of blather does not cut it.

Another example is about controlling information and the high speed required in today’s business environment. CEOs should be held accountable for a high level of communication. If a CEO wants to gain the confidence of the board of directors, sending out a board book the day before the meeting (this does not include when you have late breaking events that require addendums during transactions) does not give the board confidence in that CEO’s ability to lead an organization effectively if they can’t provide timely information and present in a clear and concise way.  When directors receive information in advance to digest, this creates a trusting “tone at the top” in which people are encouraged to actively participate in strategic conversations.  If CEOs are not doing this with their boards, they are certainly not doing it with their senior leadership teams.  This is a good way to determine if those buzz words like communication and collaboration are actually happening.

One CEO I know not only delivers the board book five days in advance, but then schedules a one-hour meeting with each director to present three important strategic issues and to gather questions any board members may have on those issues. This is the definition of eliminating boardroom surprises that can lead to harmful behavior and cultural distractions.

The U.S. is still a well-governed business nation. The response to the Enron scandals that began in 2001, was Sarbanes Oxley which created additional oversight. Financial services wrought the wave of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 to prevent another financial crisis.    Presently, there are swirling allegations regarding the Volkswagen corporation.  My sense is that this will lead to the next round of rigorous legislation with increasing liability for directors.  It’s important to answer questions such as, “Did the board have access to whistleblower activity in order to exercise independent business judgement?” and “Did they ask appropriate questions about engineering, compliance or ethical issues?  What did the board’s dashboard look like?  Remember that with Volkswagen having approximately 25% of its revenue in North America, regulatory bodies like the Environmental Protection Agency are now considering litigation based on allegations from engineering disclosures.

The development and navigation of the board agenda and deck should be owned by a trusted leader – either the General Counsel or Corporate Secretary who is responsible for both the content and the process.  “Hot topics” which definitely change over time depending upon the company or industry, include such issues as cybersecurity, risk management, executive compensation, succession planning, compliance, shareholder activism, crisis management, proxy Final advisors, whistleblower enforcement, accounting standards changes, new rulemaking and legislation and ESG issues. These subjects should be on your radar to help frame an intelligent agenda creation process.