In this episode, Mark A. Pfister, the “Board Architect,” talks about how to build a board, what that means and the powerful impact it has on any company or organization.

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Links

Board education & certification: https://www.pfisterstrategy.com/exceptionalboarddirector

Book on Board Architecture: https://www.pfisterstrategy.com/books

Quotes

The architecture component of a board forces the thought process that you are looking and planning earlier. Whether you’re creating a new board, or you’re looking to rebuild an existing board, put some discipline behind this, look at the design aspects of it, understand there is a successful formula and model for boards that work efficiently and effectively; hence, the terminology of “board architecture” over “board structure.” 

Three areas of focus in board architecture

1. Sphere of influence.  

This relates to the vertical components of a properly built board. Core leadership competency, operations experience, and skillset competencies. 

• Planes of Congruence.  

This looks at the character of the Board, essentially the horizontal components. These can include balance of personality types, mix of industry backgrounds, diversity, age ranges, and many other components. 

• Coverage and Balance. 

This has to do with creating a depth of knowledge and somewhat of an    overlap of knowledge on the board. It allows for at least one other person, if not more, to have that ability to question whether it’s at a governance level, whether it’s at a technical level, just to understand and bring that conversation to additional questions and elevate the outcome, which is what that board is there to do .

“There’s this interesting trend where placement and search organizations are being engaged to a certain degree, but the nominating committee has really taken an end-to-end process back into their purview and they’re managing that process from end to end.”

Testing of board members

I use two tests, one is called the GPPI or Gordon Personal Profile Inventory, and that particular test allows me to assess what I correlate to the emotional intelligence and the mindfulness intelligence. It’s not just about IQ anymore.

Another one that I use is a Watson-Glaser test that allows as a comparison back to if someone’s claiming to be an expert or a certain level of leadership, you can compare that back, and all of these tests are comparing back against big data so it’s not that it’s right or wrong answers. It’s about are other people at that level successful and how is this person comparing with that?

“I believe that 90-plus percent of most issues within any board of directors of any entity type relates back to its lack of architecture in the way the board is built, so that makes it even more important for an aspiring director to understand how they avoid engagements or even appointments where they’re just simply not going to be happy, or their risk goes up.”

“I am of the mindset that we are not just representing shareholders anymore that are only focused on the financial outcome of the organization. To me, and this is another observable, a board that is focused not just on the shareholder aspect, but also on the stakeholders, which are many – that’s employees, that’s vendors, that’s consumers of the product and services – that viewpoint has to be an equal weighted consideration in the boardroom.”

“Whatever failures happen in an organization. I don’t look at the CEO. I look at the board first and foremost.” The CEO is a direct representative at the operational level of the organization representing the board, period.

“Every director should keep in the back of their mind ‘values equal culture equals organizational risk level’ – all of it can be related back to that.”

Big Ideas/Thoughts

Question: What is the interrelationship between strategy and governance?

Board directors cannot properly govern without a deep understanding of not just a theory of strategy, but what the strategy is of the organization.

The diagram that I recommend, and I use in our board training is very simple. On one side sits the word goals, on the other side sits the word tasks, and in between that is a double-edged arrow or double-pointing arrow, that’s strategy. 

Strategy is connecting the goals to the tasks of the organization – – it’s the how. When you hear “strategy” you should think “how?.”

We should be saying to ourselves as a director, “We need to fully understand the goals of this organization, and once they’re set for a certain time period (the what and the why), the rest of our existence in the boardroom as it relates to governance is truly overseeing the strategy.  It’s the governance of the strategy, which is the how.

You cannot govern something if you don’t understand the strategy, they are inextricably linked and they’re absolutely related, and this is a big miss for many senior level leaders today is that they don’t understand where governance sits as it relates to strategy.

Strategy today is an integrated pattern of decision-making, which in a leadership mindset, if you think about an integrated pattern of decision-making, it forces you to ask questions.

Question: In a situation where the CEO and their senior team are responsible for developing the strategy, what is, in your view, the best way for the board to be involved to a point where they’re not doing the job of the senior management, but are fully involved in understanding the strategy and are able to ask the questions they need to ask of the management?

I am actually probably a little more hands-on in my belief of the board’s involvement with the strategy, and I would even say with the goals of the organization, I view those two areas as a very close working relationship between the CEO and the board.

I’m not saying that the CEO should not step away and work with their team on coming up with possibly a proposed strategy, but I am also a fan before the CEO does that, that the board has some sort of very high strategic planning session and goal-setting session with the CEO.

I am an absolute fan of every single board having a strategic planning committee, and I would even like to see the naming of that change so it’s not misconstrued and call it more so a strategy committee, because strategic planning is assuming that the board is doing the planning, so I think that should change.

Risk Committee.  Any clients that I work with in the board architecture realm, I’m laser focused on not just the strategic committee, but also the risk committee, and I think there’s this misunderstanding or misnomer out there that, “Well, that’s the responsibility of the audit committee.” My comment typically on that is that I’m not disputing by any means risk as it relates to finance, but the number of risks that are being dealt with in every organization today that require a home, especially at the board level, I don’t think any company can get away with that right now…..you have to separate out not just financial risks, but overall company and organization risks.

Raza: I think as we’ve talked with our guests, including David Koenig, the audit committee is kind of focusing on what has happened, at the least it needs a separate time, separate mindset, a separate  hat on to say, what is the future possibilities of risks, both positive and negative, in the sense that, are we taking enough risks, and hence, having a separate risk committee is likely the best way to drive that.

Mark: Well, I would love to see more of a formal approach as it relates to education and certification or risk areas for a board. David Koenig has done that with the DCRO.

Transcript

Joe: [00:00:00] Hello and welcome to On Boards, a deep dive at what drives business success. I’m Joe Ayoub and I’m here with my co-host, Raza Shaikh. On Boards is about boards of directors and advisors and all aspects of governance. Twice a month, this is a place to learn about one of the most critically-important aspects of any company or organization: its board of directors or advisors, as well as the important issues that are facing boards, company leadership and stakeholders.
Raza: Joe and I speak with a wide range of guests and talk about what makes a board successful or unsuccessful, what it takes to be an effective board member, what challenges boards are facing, how they’re assessing those challenges, and how to make your board one of the most valuable assets of your organization.
Joe: Our guest today is Mark Pfister. Mark is CEO and Chief Board Consultant [00:01:00] of MA Pfister Strategy Group, an executive advisory firm that serves as a strategic advisory council for executives and boards in the public, private and non-profit sectors. He prides himself on being a coach and mentor to senior executors and directors. In board director circles, Mark has earned the nickname, the “Board Architect.”
Raza: Mark is the creator of the Board as a Service (BaaS) engagement model, an industry he’s credited with inventing. He is a highly sought-after speaker and conducts international speaking tours, lectures and seminars focused on effective leadership, strategy, board architecture, becoming an exceptional board director candidate, professional project and program management and entrepreneurship.
Joe: Mark is a proficient board director and CEO with experience across multiple industry verticals. His experience as a [00:02:00] board consultant, having guided and coached hundreds of boards, board committees, and board members offers a unique and informed viewpoint to the companies he serves.
Welcome, Mark. Thanks so much for joining us today on On Boards.
Mark: I’m glad to be here, Joseph and Raza. Thank you so much.
Joe: Let’s start at the beginning, early in your career you recognized the need for board governance, leadership and structure, and what you told us when we talked last week was you saw the same challenges over and over, a lack of what you call board architecture.
What do you mean by the term board architecture?
Mark: I appreciate the question, Joseph. To me, we hear all the time about board structure and I started to think years ago about that and I said to myself, “Even though we talk about board structure, it’s quite a reactive terminology.”
It actually is used more so towards looking at an existing board and how is that board structured, [00:03:00] depending on its people, its board members, how the committees are of course structured. I pushed for many years to change this mindset and flip it a 180 degrees out and say, “Well, why don’t we look at it as an architect would for a building? They’re not just going to go out and start building something nor will they get the permits for it.”
Well, the architecture component of a board forces the thought process that you are looking and planning earlier, or if you’re creating a new board, or if you’re looking to rebuild an existing board, put some discipline behind this, look at the design aspects of it, understand there is a successful formula and model for boards that work efficiently and effectively; hence, the terminology of board architecture over board structure as far as I am concerned.
Joe: And the term “board composition” is that subsumed into board architecture?
Mark: Absolutely, so we’ll probably talk a little more today also about what does it mean when we say board architecture, and I’ll talk a little bit about the three areas or the three layers that we look at when we’re properly designing a board.
Joe: Let’s talk about that. What are the three layers?
Mark: [00:04:00] Sure. First and foremost, it’s what we call our sphere of influence, and this relates to the vertical components of a properly built board. It’s the leadership aspects of measurement, the skill sets. I like to look at this also from the comparison back to the knowledge and the experience of operations and all of this is relating back to what is the expertise of this particular executive or this expert that we’re looking to have join our board.
Now, this seems pretty obvious, most boards do this. They say, “Skill sets, leadership aspects, let’s see what you’ve accomplished.” The problem is that most boards stop at that point. They say, “Okay, this person has great experience. I love their title. They have the right approach. They have the right skill sets for us.”
The problem with that is that they’re only touching on one of many evaluation points as we view it in the board architecture realm, they’re missing number two, which is what I like to call planes of congruence. These are the horizontal characteristics of a board and truly add what I view as the character of the board, and I mean character in the way that you have different [00:05:00] approaches, different personalities, different experiences, not necessarily that you want a board with characters like Seinfeld characters
Joe: Although, that would be interesting.
Mark: Yeah. But this has to do again with the horizontal component, so a couple of good examples of this, diversity is a big one right now so diversity of perspective, leading to diversity of thought, and we can definitely design that very well into our boards. Even before that became a buzzword just a few years ago, that’s always been an interest to me because I know that past experience weighs into current decision making.
Another aspect would say, “Let’s look at this board from end to end and also above and beyond the skill sets we talked about in step one, the sphere of influence. For the planes of congruence, let’s look at the horizontal of balance of personality types, so any board that I sit in front of, even before I know that I’m doing it, I’m trying to classify that board with four different personality types; the analyst, the diplomat, the sentinel, which is the protector or the explorer, and what’s interesting. is that once you start doing this and I [00:06:00] recommend that you and your listeners start to do this, if you’re in front of a board, start to figure out which people fit into one of those categories.
What you’ll find is that many boards are missing one or more of the balance of those personality types, and there is always a dominant personality type. Most people will say, “I make up all of those.” I mean, I get that, but everybody hast to be dominant, and by keeping that balance of those four very simple evaluation points, as it relates to the horizontal characteristics of a board, it drives the conversations among decision makers to a much deeper level. It’s quite amazing how a different perspective through a personality can really balance the decisioning and the outcome.
Joe: Can you give us the skinny on what each of those personality types represent?
Mark: Sure. Sure. The Analyst, as you can likely imagine, is the one that needs or requires all the data. I mean, everybody I’m going to describe is in a positive way right now, because I view the value of that everybody brings. The Analyst is the one that will say something such as, “I can’t make this decision until I see the data. What backs [00:07:00] up the decision we’re talking about? Why are we talking about this because maybe we didn’t receive the information upfront?” That’s the Analyst mindset.
The Diplomat is the person that is typically making sure everybody on the board is heard. They’re given their soap box for a period of time. They realize that by everybody being involved, it won’t just deliver a better outcome but it also makes the team feel included as a board so everybody has their chance to state their piece.
The Sentinel is the protector. This is the person that knows the bylaws and the articles of incorporation inside and out. Many times they have a legal background, but they’re typically the person that is truly trying to keep the board to its stated purpose and within the guardrails of the guidelines. Usually this person is related in some way to the governance committee or the nom/gov committee.
The Explorer, we know this type, this is the innovator. It’s the person that’s always looking forward. They could probably write a lot in a moment’s notice the vision of the organization, which is what they want to be or [00:08:00] enable in the future, but they don’t spend much time on the mission, which is what they want to do well now.
You can see each one by itself may not give the full picture of the full focus of what the board needs for the overall guidance of the organization, but when that balance is created on a board, it’s honestly unstoppable. They’re all looking from different viewpoints. They’re giving very unique answers or input or questions to areas that really drive that board to a profound conclusion.
Joe: Do you think the most effective board chairs are, I guess I’ll call them, diplomat. Well, I was going to say diplomat-focused persona because there’s a little bit of everything and everyone probably.
Mark: Yeah, it’s a great question and for your listeners, if they could see me, I’m smiling from ear to ear right now, because I have been studying that for many years and I’m trying to come up with the fact of, is it the diplomat that makes the best chairperson? I can tell you, I don’t know that I’m quite convinced yet, and my recent research on this is focusing me on what the current [00:09:00] stage of the business is as it relates back to the chairperson.
I will admit if I don’t know something, I don’t know as of yet, but I will say for an established organization that’s sort of in its process or steady state process, we see a lot of large-stage public companies, it typically is the diplomat, but I don’t necessarily give that same answer if it’s a mid-stage, high-growth public company or pre-IPO company. I would tell you that sometimes it’s a difference of mindset or maybe even the Analyst works out quite well in that chair seat.
Joe: Do you advise that nom/gov committees or whoever is doing the board architecture do testing on them or can you kind of identify the personality types just by observing them during an interview?
Mark: Yeah, it can be a mix, and let me first say that there’s some very interesting trending around the work of the nominating committee coming back into the nominating committee. What I mean by that is that there’s this interesting trend where [00:10:00] placement and search organizations, they’re still being engaged to a certain degree, but the nominating committee has really taken an end-to-end process back into their purview and they’re managing that process from end to end.
I like that because, Joe, to answer your question, it allows them to be more involved and understand the process of not just a skill set evaluation, that sphere of influence, but adding in that second area, which is that planes of congruence, which typically is the personality types.
Now, I like to have two angles on this one. What is the most simple thing you can come up with so in a conversation or just by observing, you can come to a conclusion. Hence, the reason I say that those four personality types of Analysts, Diplomat, Sentinel, Explorer, even if you don’t take it further from there with testing, whatever it may be, you can still kind of get a feel for that just by observing.
Now, there are ways to drill that a little bit further and we all know the Myers-Briggs and those types of tests. I actually don’t use those. I use two tests, one is called the GPPI or Gordon Personal Profile, and that particular [00:11:00] test allows me to assess what I correlate to the emotional intelligence and the mindfulness intelligence. It’s not just about IQ anymore.
As Reed Hastings of Netflix stated nobody wants to work with the brilliant jerk. We don’t want to work with a brilliant jerk. That’s this idea that just because you’re smart IQ-wise doesn’t mean you’re going to be good for the company. There are different ways to evaluate that more deeply.
Another one that I use is a Watson-Glaser test that allows as a comparison back to if someone’s claiming to be an expert or a certain level of leadership, you can compare that back, and all of these tests are comparing back against big data so it’s not that it’s right or wrong answers. It’s about are other people at that level successful and how is this person comparing with that?
Raza: Spear of influence, planes of congruence, what is the third tier in the board architecture tiers?
Mark: I’m glad you brought me back to that so I can close that topic out, so the third one is called coverage and balance, and this has to do with creating a depth of knowledge and somewhat of an overlap of knowledge on the board.
The first thing to say, [00:12:00] and this goes really back, even for a board candidate, to package themselves. It’s not just the one-trick pony, but to have some depth in how they look at themselves and how they portray themselves to a potential board nominating committee. The coverage and balance is basically stating we don’t want to just have one person that’s an SME on our board in a specific area, we want to make sure we have some depth and coverage as it relates to maybe one other person that has some sort of deep knowledge in this space.
A good example of this, Raza, is that, and I’ll use two examples of expertise areas right now that are sort of become these siloed areas on boards, one of them is by far the cybersecurity area. The boards that believe they’re progressive and they’re getting in the expertise and they have somebody looking out for the organization as it relates to cybersecurity and its relationship with technology, they’ll go up and give their presentation and everybody around the remaining board table, their mouths are open and what are they going to do? They can’t nod yes, they can’t not no, so they simply come to an [00:13:00] agreement. It sounds good, but they can’t challenge it, and we all know that boards are there to ask questions.
The coverage and balance approach for this allows for at least one other person, if not more, to have that ability to question whether it’s at a governance level, whether it’s at a technical level, just to understand and bring that conversation to additional questions, and again, elevate the outcome, which is what that board is there to do .
Human capital is another area right now that’s somewhat of a struggle in a boardroom where the mindset has graduated from the viewpoint of a cost center of human resources to now the investment area of human capital, but when it comes to others knowing about this, or even the nine areas of materiality for the SEC in the US for transparency, you’re finding these siloed areas of knowledge, and nobody can question that right now. They don’t quite understand all the details of it. That’s the third area, Raza, it’s that coverage and balance creating a depth of that board.
Raza: does provide for layers of architecture that co-mingle and work together well.
Mark, one of the [00:14:00] thing that Joe and I have often talked with our guests is one of the key parts of the job of a board is to help with strategy and we often see that boards don’t spend enough time in doing that. In your view, what is the interrelationship between strategy and governance?
Mark: Yeah, and this is a great question. It’s something I ask in all of the board interviews that I do, and it needs to start with a deeper understanding of board directors, of knowing that they can not properly govern without a deep understanding of not just a theory of strategy, but also what the strategy is of the organization.
Raza, let me answer your question, but I want to add a few components in prior before I get to that. The first one here is that a board or any director, any senior level leader is thinking very simply about what exactly is strategy, where does it sit in the grand scheme of things? The easiest way and the diagram that I recommend and I use in our board training is very simple. [00:15:00] On one side sits the word goals, on the other side sits the word tasks, and in between that is a double-edged arrow or double-pointing arrow, that’s strategy.
That is the easiest way to think about this. Strategy is connecting the goals to the tasks of the organization, so it’s the how. Essentially, when you hear strategy, you should think how. The goals should be viewed as the what and the why. If we compare this now, that very simple overview of strategy as far as its relationship to goals, if we do the overlay now of governance, we should be saying to ourself as a director, “We need to fully understand the goals of this organization, and once they’re set for a certain time period, the what and the why, the rest of our existence in the boardroom as it relates to governance is truly overseeing the strategy. It’s the governance of the strategy, which is the how.
It’s not to say we don’t go back and revisit the goals, but we understand that we are governing the strategy at that point. The interrelationship of this, and I sometimes get the answer back when I ask that question of the [00:16:00] interrelationship between governance and strategy, sometimes the absolute wrong answer is that there is no interrelationship and that’s totally wrong.
I mean, for me, those interviews last about 10 minutes and they’re over. The way to look at this is that, again, you cannot govern something if you don’t understand the strategy, they are inextricably linked and they’re absolutely related, and this is a big miss for many senior level leaders today is that they don’t understand where governance sits as it relates to strategy.
Raza: Yeah. What else are you governing?
Mark: I typically ask that as well. If I ask a question in the boardroom of a client of mine that I’m working with, I’ll ask the question first off, what is your definition of strategy because I believe that has changed in recent times. We’ve moved away from these hard, tangible things that are deliverables like project plans or strategic planning outputs, and I’ve used strategy today more as an integrated pattern of decision-making, which in a leadership mindset, if you think about an integrated pattern of decision-making, it forces you to ask questions.
That’s the mindset of how a [00:17:00] senior leader should think about strategy. They’re trying to ask questions that get them to the how, and then the secondary step of that is to say, “How does this relate back to the goals of the organization?” If there’s a mismatch on any of those, you know that the governance is off.
Joe: In a situation where the CEO and their senior team are responsible for developing the strategy, what is, in your view, the best way for the board to be involved to a point where they’re not doing the job of the senior management, but they will be fully involved in understanding it and being able to being in a position to ask the questions they need to ask of the management, to get to the right strategy?
Mark: Yeah. I am actually probably a little more hands-on in my belief of the board’s involvement with the strategy, and I would even say with the goals of the organization, I view those two areas as a very close working relationship between the CEO and the board.
Now to be even a little more descriptive in this, to answer your [00:18:00] question, Joseph. I’m not saying that the CEO should not step away and work with their team on coming up with possibly a proposed strategy, but I am also a fan before the CEO does that, that the board has some sort of very high strategic planning session and goal-setting session with the CEO.
I’ll just go back to our course again, in this, we actually provide templates that actually walk through that initial high-level discussion on the goal-setting, the timeframe around that, and then what we call focus areas of the support of what those goals and the strategy essentially would be focused on.
It’s not a solutioning. Its simply stating where would we want to focus our efforts and what high-level words with no descriptive areas of those words, where would we want to drive and support this organization to reach these goals?
Now, that to me, is when the CEO would likely best step away with a team and come back, but the board should be intimately involved with this, and I am an absolute fan of every single board having a strategic planning committee, and [00:19:00] I would even like to see the naming of that change so it’s not misconstrued and call it more so a strategy committee, because strategic planning is assuming that the board is doing the planning, so I think that should change.
Raza: Mark, is there another committee that you think is very important for boards to have as a dedicated committee?
Mark: Yeah. I’m glad you bring that up too. Now, any clients that I work with in the board architecture realm I’m going to laser focus on not just the strategic committee, but also the risk committee, and I think, especially in the public space, there’s this either misunderstanding or misnomer out there that, “Well, that’s the responsibility of the audit committee.” My comments typically back on that is that I’m not disputing by any means as a risk as it relates to finance, but the number of risks that are being dealt with in every organization today that require a home, especially at the board level, I don’t think any company can get away with that right now.
There are many examples of this of companies struggling that don’t have risk committees. To me it requires that direct focus and you have to separate out not just financial risks, [00:20:00] but overall company and organization risks.
Raza: I think as we’ve talked with our guests, including David Koenig, the audit committee is kind of focusing on what has happened, at the least it needs a separate time, separate mindset, a separate hat on to say, what is the future possibilities of risks, both positive and negative, in the sense that, are we taking enough risks, and hence, having a separate risk committee is likely the best way to drive that.
Mark: Absolutely. The positive aspect of taking on risk is a must for organizations, absolutely.
Joe: What should the risk committee look like? Who sits on the risk committee?
Mark: Well, I mean, to me, and Raza mentioned a moment ago about David Koenig who has that DCRO and the risk certification, I truly believe that is a discipline and it needs to have that focus. First and foremost, I would love to see more of a formal approach as it relates to education and certification or risk areas for a board.
To me, [00:21:00] that team, at least the chair of the committee, if not more members, have not just deep expertise and experience, but also what I like to call their proof, and that’s the education and the certification areas that support that. That is a very specific area of importance and we’ve entered a time where, what I like to call, governance simultaneity has hit every single board.
There are so many interrelated and consistent areas of volume as it relates to risk to an organization that we have to start looking at these with their own lens and in their own focus area and that can’t just be an afterthought for an audit committee after they’re done with their finance duties, it has to be a primary function of boards today.
Raza: I agree with you a hundred percent. As a qualified risk director graduate from the program, I think boards ought to have those skills and expertise especially on the risk committee.
Mark, I also want to bring the conversation to your book published in 2018, called “Across The Board.” Tell us about the book, who’s your audience and [00:22:00] how they can best make use of that book.
Mark: Sure. Sure. Well, that book is very closely based on the topics we mentioned at the start of today, on the topic of board architecture, so it’s going in a little more deeply and saying, “This isn’t just how you do this or how you evaluate it, but why is it important and what are some examples of boards that do this correctly, and what are some examples of boards that don’t do this correctly?”
I like to think the way the book was written is from two lenses. One of them from an already existing board and you as a board member on that board, but I think one of the more important or equally important areas is to think about this from a board candidate or an aspiring director’s viewpoint to say, “Well, how do I take this? How do I get to the understanding and the evaluation before I say yes to an offered board seat that I’m going to be successful on this board? The board is operating correctly. They’re focused in the right areas. I’m not going to have to test out my indemnification or my D&O policy if I join this board.”
That architecture component, and you’ve probably [00:23:00] heard me say this in some of my previous speaking engagements, is that I believe that 90-plus percent of most issues within any board of directors of any entity type relates back to its lack of architecture in the way the board is built, so that makes it even more important for an aspiring director to understand how do they avoid engagements or even appointments where they’re just simply not going to be happy or their risk goes up.
Raza: Yeah. Am I part of a well-architected board?
Mark: That’s correct. That’s correct. Or will I be, right?
Raza: Will I be part of the well-architected board? I see a lot of concepts coming from the software Architecture World. I’m sure in your tiers you have concepts around cohesion and coupling.
Mark: Absolutely. I guess you could say also, if you took one route, you could say it was an agile approach to it, or you could look at the waterfall approach if you want it to in another development angle. There are multiple ways to look at this. I’m just mostly concerned that somebody who is in the early stages of board directorship is not tainted [00:24:00] by a failing board or a board that’s not working correctly because basically the future boards they join, that has been their training ground. We don’t want that to propagate itself across other industries or other boards.
Joe: What is a stellar board look like?
Mark: Well, it’s a good question. One is that they are architected properly. The other one, and I like to think of these as what I call “observables” of directors. It’s not rocket science to figure out if a board is highly functional or not. If you were an observer, walked into a boardroom to observe that board for two hours, you would look at a couple of different things or two different areas.
One would be again, that they are interacting, they’re communicating properly. They’re practicing what’s called respectful dissent, which basically means that even if you know you’re going to get out-voted on something, you’re allowed to still make your case. Even when you’re out-voted, you don’t mope around. You don’t tell the CEO that that was not your vote. The minute those doors close, everybody is in alignment because that’s what the overall board or a majority of the board stated. That’s the communication [00:25:00] aspect and understanding again of that respectful dissent area.
Another big one for me, and I’m going to make the correlation here, is a learning board or a board that is very much bought into the ongoing aspect of learning. What’s interesting about that is, the correlation that can be made here is that the boards that are all of the mindset of ongoing learning and integrating lunch-and-learns, or even two hours of their two-day board meeting to have someone come in and speak, they understand they don’t know everything, and typically the correlation of this is that people that know that they have to learn, they ask more questions and they have less ego, which allows again for more of this interaction and camaraderie to be built on a board.
Raza: Maybe one way of putting what is a high-performing board, can it be related to the company’s performance? Meaning do you imply from higher performance of a company that the board must be high-performing or vice versa, or the high-performing board may not have as much to do with a high-performing [00:26:00] company, but then we would like to believe that a high-performing board would lead to a high-performing company.
Mark: Yeah, I get the question. I am of the mindset that we are not just representing shareholders anymore that are only focused on the financial outcome of the organization. To me, and this is another observable is, a board that is focused, not just on the shareholder aspect, but also on the stakeholders, which are many, that’s employees, that’s vendors, that’s consumers of the product and services, that viewpoint has to be an equal weighted consideration in the boardroom.
By the way, this also comes back directly to the values and the culture of an organization. There is a direct correlation to a board that is solely focused on the shareholder considerations. Typically those boards have less focus on the values and the culture of the organization as compared to a board that is equally focused on stakeholders, they typically have an increased focus on values and culture, which again, we know directly lowers risk [00:27:00] in an organization when the values and the culture are at the level that it is.
Joe: Well, what you’ve just said I think aptly describes the Boeing board.
Mark: I think so. There’s a lot of dynamic in that particular example, but I know it’s been a top of mind and there’s been a lot of information that’s come out from that so we could probably talk about the Theranos board in there as well, or previous Theranos board. The Boeing incident is quite interesting as you’re alluding to, Joseph, in that I always still point back and say, “Whatever failures happen in an organization. I don’t look at the CEO. I look at the board first and foremost.” The CEO is a direct representative at the operational level of the organization representing the board, period.
But on top of that, the Boeing scenario, Joseph, to your point, is another prime example of how it’s very tough to meld and match together varying cultures and values of two different organizations. I’m still dumbfounded by anybody that’s involved in the M&A realm right now [00:28:00] that is not focusing on that. They may get the deal done, but there’s nothing that’s going to be continuing or the longevity of the company is at risk when that values and culture area is not focused on. Boeing is a prime example of that after their merger with McDonnell Douglas.
Joe: Yeah, I think your comment about the merger of cultures is critical when evaluating any kind of acquisition or merger. I think your comment about the importance of values in an organization is something that’s far more the topic of discussion now than it used to be, and I think it’s moving in the right direction, but we have a long way to go before companies truly have embraced the notion that the values that they talk about and that they embody on how they operate are critical to their success.
Mark: Absolutely. And I hate to call it a formula because it’s, by no means, an Albert Einstein equals MC squared, but if every director kept in the back of their mind values equals [00:29:00] culture equals organization risk level, period, all of it can be related back to that. If you are of the mindset where the communication is a value of the organization, but it’s not being lived, so it’s not part of the culture, the risks are simply not going to be elevated or escalated up the chain of command in those organizations. That is a direct risk to not only the organization, but directly to the board and the personal reputation of that board as well.
Joe: Let me just shift for a minute. If you’re evaluating a board candidate, what is it that you look for and determining whether they have board level prowess? How do they do that? What do you look for in their materials? What would you look for in an interview?
Mark: Yeah, there’s a few areas, and to summarize I focus on three pieces of this. One is I want to make sure that the individual or the candidate is coming across not as what I would view as a board hobbyist, but someone who’s disciplined in the board space. I’m not talking about experience or expertise when I say that, I’m [00:30:00] even talking about aspiring directors that have spent the time to understand how to package themselves properly.
A good example of this is the following, and I see this all the time with the nominating committee processes that I build out and then I work on the vetting process in the interview process. The submissions, nowhere in their head, or does it say non-executive director, it’ll say CEO, SVP whatever expertise they have, and my first point in that is that they’re not packaging themselves properly, because are they applying for the CEO role? Are they applying for the board role? It doesn’t say non-executive director.
All of that is pointing back to what we view and what we teach as part of our program, what we call your major and your three minors. The first thing that should hit me in the face the minute I open up your board documents should be, who is this person, and what are they about before I read anything? The major is basically saying, “These are the few areas that I’m an absolute expert in. I have the titles to back it up. I have the expertise to back it up.”
That’s typically there to a certain degree, but again, adding that non-executive [00:31:00] director if that’s indeed the position you’re going for. What most people miss, and again, it’s something that we focus heavily on in the packaging realm is what we call your three minors. Tell me the three board committees that you bring value to if we’re going to appoint you to this board.
Prime example of this, my three minors; strategy, governance, technology and cybersecurity. Those are my three. The technology and cybersecurity is in one so that’s why I’m saying three. But in that case, I’m not viewed as a one-trick pony of only being able to come in and serve in the finance committee or the audit committee area.
This comes back to a properly architected board. If you remember the coverage and balance item, I’m not just only going to serve on the strategic planning committee, but I can also add value to the nom/gov committee and also there’s a technology and cybersecurity committee I can add value on those.
The packaging component is extremely important. Don’t try to be all things to all people, but tell me your major and tell me three committees you bring value to or varying value on with at least one of them being an expert area.
Joe: That’s a great way to [00:32:00] look at it, absolutely. Mark, it’s been great speaking with you. Thanks for joining us today.
Mark: Thank you both. It’s been a pleasure.
Joe: And thank you all for listening to On Boards with our special guest, Mark Pfister.
Raza: We have a request for our listeners. Please take a moment to rate and review On Boards Podcast on the Apple Podcast app if you’ve enjoyed listening to it. It really helps other discover our podcasts. Also, you can visit our website at onboardspodcast.com. That’s onboardspodcast.com. We’d love to hear your comment, suggestions and feedback.
Joe: Please stay safe and take care of yourselves, your families, and your communities as best you can. And Raza, you take care too.
Raza: You too, Joe.
Joe: Thanks.