Boards That Deliver | Ram Charan

Summary of: Boards That Deliver: Advancing Corporate Governance From Compliance to Competitive Advantage
By: Ram Charan

Introduction

In Ram Charan’s book, ‘Boards That Deliver: Advancing Corporate Governance From Compliance to Competitive Advantage,’ he examines the evolving role of corporate boards and their journey from ceremonial to progressive. As increasingly complex challenges arise in today’s business landscape, the need for more engaged and active boards has become paramount. This summary provides insights into the stages of board evolution, characteristics of progressive boards, and their roles in strategy development, CEO selection, compensation, and risk management, ultimately guiding readers to understand the importance of a proactive and collaborative board for any modern corporation.

Evolving Stages of Corporate Governance

Corporate governance has undergone transformation since the infamous scandals of Enron, Tyco, WorldCom, and Adelphia. Despite regulations such as the Sarbanes-Oxley Act, most boards are still not equipped to take charge after years of dominance by CEOs and combined CEO-chairs. Boards evolve from old-fashioned CEO-driven governance to contemporary active oversight, passing through ceremonial, liberated, and progressive stages. Ceremonial boards merely rubber-stamp the CEO’s agenda, while liberated boards, which most companies are in, become more involved with day-to-day business. Progressive boards prioritize long-term success, exercise active governance, and actively evaluate strategy, management, and the hiring and firing of CEOs. To avoid disappointment and loss, boards must live up to regulatory requirements and the concerns of shareholders. With post-scandal reforms, many boards are becoming more progressive, adding value and a competitive advantage without wasting management’s time. Today, CEOs understand that their boards must take on more active roles of overseeing how their corporations are run.

Effective Board Management

This book summary discusses the characteristics of a progressive board and emphasizes the importance of group dynamics, information architecture, and focusing on substantive issues. The board’s effectiveness strongly correlates to the individual talents and teamwork of its members. Board members should participate actively in running the company by following a 12-month agenda focused on specific oversight and value creation. Effective boards avoid committing sins of omission and take necessary steps to use relevant, up-to-date information to fuel discussions and support decisions. To ensure success, boards must have an effective CEO and evaluate their own performance regularly.

The Importance of Effective CEO Selection and Compensation

The success of a company heavily relies on the leadership skills and direction of the CEO. The board must establish strict criteria for CEO selection and compensation, focusing on developing a diverse pool of strong leaders within the organization. They must also ensure a fair compensation structure that is aligned with the company’s strategy and benefits shareholders. Additionally, the board must be cautious when planning a CEO severance package, which can potentially cause a moral hazard for the company. By prioritizing these factors, a company can enhance its cultural and competitive strength while safeguarding against potential failure.

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