One of the ongoing questions from members of boards of directors is how to resolve the tension between oversight and managing.
An excellent starting point to understanding this role is to consider the metaphor, “put sand in the shoes of management,” meaning that boards need to continually challenge management on the scenarios that management has considered and what stories it is telling itself about what could go wrong. Moreover, as aptly shown by the phrase, “boards need to get management out of its comfort zone,” executive teams begin to believe about themselves and how well they are doing. The independent challenge that the board can offer is that by putting that little bit of sand in the shoe of management it makes sure management is thinking about things carefully.
The key role of the board is not management, but oversight focusing on governance. To have good oversight, an effective board should challenge senior management not only on what they have planned for, but what they may not have considered, or may not have even known about.
A board should focus on all those stakeholders involved in the company. This can include the management team itself, the employees, shareholders, business venture partners, and the board members themselves.
Reputational damage hurts everyone. One of the things that can really make a difference to management is when the board is able to be an effective devil’s advocate—not managing the senior executives, but rather assisting them in their governing role by helping management to step back and think critically of their own underlying assumptions and biases.
One of the continuing struggles I hear from board members is asymmetrical information, largely due to the siloed nature of company information and structures. These sorts of barriers are pervasive in any company of any size that has different operations, product lines, and markets in different countries and time zones. These limitations in the free flow of information by themselves create a risk to the organization, its investors, employees, and the board’s ability to ask questions.
It's a reminder to management to listen carefully to its own organization and be able to link information to all of the places it needs to be fed, lest you suffer the same fate as Wells Fargo's board, which led to its fraudulent accounts scandal.