Why corporate distress requires sharper board oversight
There is no shortage of challenges companies are facing — including shifting economic conditions, geopolitical disruptions, inflation, tariffs and supply chain issues (must we go on?) — all of which are expected to have a significant impact on operational performance this year, either causing their own problems or making the path forward difficult to traverse.
Discipline and effective strategy execution are crucial, with the National Association of Corporate Directors suggesting the traditional role of strategy oversight is expanding to a rigorous focus on how companies are meeting their strategic goals.
But what should you do when your company’s troubles require some tough decisions in the boardroom? Foster, who has sat on 55 boards, offered several pieces of advice.
Build board trust before a crisis hits
Board members need to trust their chairperson and each other in times of crisis, but that confidence needs to be built before times get tough. Whether by cultivating relationships at board dinners, meetings or over the phone, focus on fostering camaraderie and respect now.
“You can't start when the problem arises. There has to be chemistry in a relationship before that,” Foster said.
The same goes with you and your CEO. Strengthen your relationship through regular communication with top management, especially if you offer expertise that your company leader is experiencing turbulence in.
How should boards manage disagreement during a crisis?
Tension can run high about how to navigate a company out of a tough situation. Ideas may clash, but there’s an art to working through conflict.
“It’s very good to disagree, because if people did not disagree, why would you have a board? At the same time, it’s really important to disagree agreeably,” Foster said.
That means having decorum, being respectful and not talking over each other.
“Everyone should be encouraged to speak, and to speak fully,” he said.
Seek board alignment, but don’t wait for perfection
While your board is ideally a diverse group with varying views, you want unanimity on major decisions. Not only does this build a stronger board, but it sends a powerful message to management.
But taking too long to reach unanimity can hurt the company.
For example, signing off on the next CEO can be a difficult and drawn-out process. Foster once sat on a board of 11 members, and all but two favored a certain candidate as the next CEO. The board strove for months to achieve unanimity and ultimately did, but it took nearly a year to reach that decision.
“That was far too long for this CEO succession process to go on, and the company suffered,” he said. “You need to be willing to make a decision.”
If you have a clear majority, take the vote and move on.
When should boards make tough decisions with incomplete information?
Distressed companies can deliberate too long on weighty decisions, such as financing. This is time-consuming and expensive, and often bad for the business.
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