Effectively and Proactively Managing the Board of Directors

Earlier this week we discussed the ESOP Ownership Structure, Corporate Governance, and the Relationship between the Trustee, Board of Directors, and the ESOP Administrative Committee. Managing a Board discusses the Board of Directors from the perspective of an entrepreneur. This perspective also applies to the founder of a company who has sold a controlling interest to an ESOP. It discusses the three obligations of an effective Board of Directors:

• a duty to care, that is, to do the work required to fully understand the issues of the company
• a duty of loyalty, that is, to act in a way that serves the best interests of all the shareholders
• a fiduciary duty, that is, to take responsibility to ensure the legal and ethical operation of the business.

The article discusses signs that the Board is losing confidence in the current CEO:

• "pre-board" meetings without the entrepreneur, to discuss company issues
• new board members brought on without consulting the entrepreneur
• increasing questions about why the company is not hitting its projections
• talk about succession planning.

It also notes that the best way to avoid this issue is to retain control, meet or exceed financial projections and the expectations of the Board, and effective and proactively managing the Board of Directors:

• Conduct your own due diligence on every board member. Learn their strengths and weaknesses, and especially their particular areas of expertise.
• Build trust by avoiding surprises. Keep board members informed of important developments in the company and, especially, brief them personally on any bad news. Don't wait for regularly scheduled board meetings to convey information. Contact members by phone.
• Talk to your directors individually to solicit their opinions and to understand their unique concerns and issues. Build a personal relationship with each board member.