Mark Pfister - Build an effective board and success will follow

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.

1. 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.

1. 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.