Setting the Right Tone: The Lead Independent Director’s Role
“Tone at the top,” a phrase that’s bandied about a lot these days, tends to surface any time a scandal arises. When something goes bump in the night, the tone of the top tier of management—i.e., the CEO and his or her chief lieutenants—suddenly comes under scrutiny. As a long-time corporate executive and member of numerous boards, I would submit that we ought to examine the leadership style and tone set not only by the management team, but also by the board.
Below I reflect on some of what it takes for a board to practice oversight with a guiding tone of continuous improvement.
What Does Tone Mean for the Board?
Originally tone at the top was narrowly defined as a company’s internal financial controls, but today it refers more broadly to general corporate culture or ethical climate. It’s a normative system of values that’s very personal to each company. Simply put, “It’s the way we do things around here.”
Every company has a “way,” but what is it? Is it articulated? More narrowly, does your board’s way mirror the same tone that has been identified as the greater tone of the company? Conversely, does the board’s tone set the right tone for the rest of the company? While it can be difficult to articulate tone in words, you know it when you see it. Make time to describe what you observe and commit it to policy or collective memory.
As a lead independent director, the tone set by the board should matter. First and foremost, an ethical, positive culture prevents your company from getting into trouble, but more importantly, it helps the company perform well if the standards, rules, and expectations are cleared understood. The same should stand in your boardroom, and the lead director can help articulate the tone to his or her peers.
Get Tough On the Soft Stuff
The average board spends a lot of time on administrative tasks, firefighting, and worrying about management. Often times the soft stuff gets neglected as a result. There’s a huge emphasis on financial results, to be sure, but how much time in each meeting does the board spend on leading indicators versus trailing indicators? Given how hard it is to develop a strategy that lasts more than a minute and a half in today’s dynamic world, we need to ask what the company is doing to prepare for what’s completely unexpected.
Imagine, for a moment, that you’re leading a mining company in the 1850s. Gold has been discovered, and you know you’ve got to get to California, but because it’s such new territory, you’re not quite sure how to get there. There’s not enough room in the wagon train for all the food, water, and bullets that you think you’ll need along the way to sustain and protect your crew. How do you decide what to take? What bets are you going to make?
Boards do talk about bets and the risk and reward trade-offs related to their business, but does your board talk about who should be on the wagon train? Do they discuss what kind of leadership DNA (not resume or skills) they need as independent directors and how to find them? Do they ask hard and honest questions about the roles, responsibilities, and performance of directors?
The lead director of your board is uniquely positioned to guide his or her peers through tough conversations about performance, whether current directors are embodying the right tone, and how to get tough when hard decisions about staffing have to be made to get to the proverbial gold at the end of the road.
Ours is a rapidly changing world. Boards still may be putting too much emphasis on “knowing the business,” meaning knowing today’s business model and how to provide oversight of that model accordingly. But many (maybe most) of those business models are going to be extinct soon. Consequently, companies would be better served by boards that spend more time on the key business processes that are germane to any business, as well as on—you guessed it—corporate culture.
It is up to the lead director to spearhead this effort by working closely with the board’s individual directors and committee leaders to find the right people and ensure that they work together productively—with each other as well as with management.
How Do You Know You’ve Gotten it Right?
Do research. Very few companies spend time understanding what their “tone at the top” is and then improving it on more than an ad-hoc basis. Tone at the top is not what the board thinks or management thinks. Rather, it’s what employees, customers, and whole communities think about the actions and performance of the whole body of the company—including the board. Companies routinely do 360 reviews of management to “see how we’re doing.” Why not ask the same questions of the board?
This is another place where the lead director can make a difference. He or she should have the courage to measure the performance of the board and its members.
As directors, we wouldn’t dream of neglecting to measure the performance of management. Shouldn’t we be just as rigorous and demanding of ourselves?
Roger O. Goldman is chair of the board of American Express Bank, lead director of Seacoast Bank, and former chair of the board for Lighthouse International. Opinions are his own.
Interested in learning more about the role corporate culture plays in value creation? Download a complimentary copy of the NACD 2017 Report of the Blue Ribbon Commission on Culture as a Corporate Asset.