Happenings, Insights, Thought Leadership
Most directors on Farm Credit and other cooperative boards strive to fulfill their responsibilities, serve the interests of those who elected them, and contribute to a strong overall board. These directors have a good understanding of the fundamentals of being a director, including their fiduciary responsibilities and the board’s role in leading the organization.
There is another level of board performance, however, one that fewer boards have attained but to which all can aspire. These stellar boards have a more forward-looking approach, and their directors consistently engender active debate, asking tough questions that explore the implications of issues and decisions.
“Stellar boards look at a bigger, broader picture and the long-term implications of the decisions they’re asked to make,” says Cindy Knutson, former Vice President of Governance and Board Development at FCC Services. “They consider what’s in store for their industry, their organization, their employees and their community and link those expectations to local, national and global trends.”
Cindy points to three characteristics of stellar boards. First, directors have strong communication and interpersonal skills, the ability to handle conflict, and the courage to communicate tactfully what might not be a welcome question or topic. Second, the board has a healthy relationship with management, one built on mutual respect and in which both sides welcome constructive discourse. Third, directors are willing to engage in professional development, deepening their understanding of their role, developing a better understanding of what exercising fiduciary responsibility means, and separating their role as directors from their other roles outside the boardroom.
“The primary focus of good governance is to maximize good decision-making, and the most effective boards are able to help the management team on behalf of the members be the most effective in terms of the decisions that need to be made,” says Elliot Schreiber, an FCC Services instructor for four years, the founding Chair of the Schreiber Paris consulting company, and the co-author of the book, Achieving the Execution Edge: 20 Essential Questions Directors Should Have Answered About Strategy Execution. “They’re also future oriented, and I recommend that board’s spend 75 percent of their time focusing on the present and the future, and only 25 percent looking to the past, including past financial performance.”
Becoming a stellar board is not without effort. Directors need to be committed to paying attention to these trends and events, applying their base of experience and knowledge, and recognizing potential impacts and outcomes. They also need to be committed to asking challenging questions of each other and of management, and willing to listen to differing viewpoints.
“Every director wears two hats in working with their management team, the strategic partner hat and the traffic cop hat, and the strongest directors recognize when each role is needed,” says Anjan Thakor, a professor at the Olin Business School at Washington University in St. Louis, and an instructor for FCC Services’ Premier Governance Series (PGS) and Advanced Governance Series (AGS). “Ideally, most of the time the board is in the role of partner, providing counsel to the CEO as he or she pursues the agreed upon business strategy. However, directors need to be prepared to switch roles at any time and start to ask difficult, even challenging, questions of the CEO when the situation warrants.”
Anjan points out that those situations will vary from director to director, and from organization to organization. An exodus of senior leaders from the organization might be one red flag; a recommendation from the CEO for a significant change in strategy could be another; a recognition of a new or more worrisome risk to the organization, something all boards should be focused on, could be a third. In general, though, directors need to be willing to think differently than the CEO and bring their own experience and insight to bear on the decisions being made.
“The single biggest trait of stellar boards is the type of implication questions the directors ask,” says Cindy. “These boards recognize the distinction between argument and debate, and that respectful debate is healthy, and indeed necessary, to arrive at the best decisions for the organization. Everyone simply ‘getting along’ in the boardroom doesn’t make a good board.”
Elliot agrees, saying, “My sessions for FCC Services are designed to enhance board effectiveness by creating constructive contention. Effective boards don’t simply try to get along; directors have a diversity of opinion and challenge each other in order to get to the best decision.”
While it’s incumbent upon current directors to work to improve their skills, new directors offer a prime opportunity to improve the overall performance of the board. With diversity positively correlated with financial performance, according to the Harvard Business Review, it’s essential that Nominating Committees seek diversity of thought and background as well as more visible characteristics such as age, gender and ethnicity. They should then interview candidates much like for a job position, ensuring that they possess the ability to see implications, ask important questions, and apply their knowledge and insights to new situations. The board should also identify which skill sets are needed so the Nominating Committee can seek the appropriate characteristics.
“The good news for today’s cooperatives is that more than ever before, boards are demonstrating a true desire to be better than they were, even as their organizations have grown larger, their industries more complex and both their opportunities and risks more financially impactful,” says Cindy.
“The debacles we’ve seen in the business world in recent years have brought directors a new awareness of their roles, responsibilities and liabilities beyond just understanding the financials,” says Cindy. “They’re seeking more education, both formal training and an increased attentiveness to what’s going on in the world and how that might impact their organizations.”
This education is critical as boards across Farm Credit and agriculture are facing a plethora of challenges in addition to their fiduciary responsibilities. New risks are emerging, such as cyber security that needs to be mitigated. Many leaders in key positions are nearing retirement, so succession planning needs to be implemented to ensure a smooth transition of operations and customer services to the next generation. Growth, while always a goal, needs to be carefully managed based on current conditions and appetite for risk. Strategy to achieve this and other goals needs to be established in conjunction with senior management, with the board helping ensure both the right strategy is set and that everything is aligned to make that strategy successful.
Whether young or old, elected or appointed, new or incumbent, all directors can benefit from professional development to take their boards from strong to stellar.
Tony III, an appointed director on MidAtlantic Farm Credit’s board for 18 months, has undertaken his development with great zeal, including pursuing his own reading agenda and already attending four modules in FCC Services’ Premier Governance Series, with the remaining two slated for later this year. These sessions have covered board roles and responsibilities, strategy and working effectively with the CEO, the financial markets and human capital. The sessions are well-targeted to the challenges that MidAtlantic is facing.
“Our CEO announced his retirement six months after I joined the board, so succession planning and business continuity are definitely key issues for us,” Tony says. “We’re also focused on enterprise risk, focusing our strategy, and continuing to meet our customers’ needs, especially the different expectations of our young and beginning farmers.”
The Premier Governance Series is open to all Farm Credit organizations that sign up for a three-year investment commitment, during each of which the organization can select a number of board members to participate in the particular modules of the program based on their needs; the Advanced Governance Series offers similar development content to agricultural cooperatives.
“PGS provides a great platform that distills essential information to manageable components, so participants can go back to their boards with the relevant information and skills and put them into action, benefiting the entire board,” he says. “The quality of the FCC Services instructors is also truly stellar. Our last session was led by the chair of the strategy department at Harvard Business School, and for a group of only 30 or so people to have access to someone like that for several hours of in-depth discussion was amazing.”
Beyond the commitment to professional development for its directors, MidAtlantic’s board also embodies many of the other key requirements for a stellar board.
“My fellow directors are truly committed to actively participating in meetings, they come prepared having read the advance materials, and on more than one occasion, we’ve had rather spirited debates,” Tony says. “There’s a level of trust among us that any disagreements are directed at an opposing viewpoint rather than the person holding it, an understanding that our discussions are confidential, and a recognition that, first and foremost, we’re all accountable to our members.”
John Ruedinger, who chairs the board of Cooperative Resources International (CRI), has led a similar commitment to board development through participation in the Advanced Governance Series. A seasoned director himself, serving on various boards since 1989, he still finds benefit in the courses and experiences and encourages his fellow directors to capitalize on the opportunity.
“I’ve completed the full AGS series myself, and we’ve had 20 other directors go through anywhere from one to five of the modules,” he says.
An involved chair, John assesses his directors and the AGS content, and recommends which module or modules each director should attend. “This isn’t to say that they’re not qualified or not understanding certain areas, but you pick the people who would benefit the most from any given module, and bring back that deeper understand to the full board,” he says. “This is an investment, and we need to look at what will most benefit the board and the cooperative.”
As CRI strives to build and maintain a stellar board, AGS has delivered noticeable results. “We’ve seen a significant difference in the caliber of discussions we’ve been having since we started sending our directors to AGS. They’re more aware of the right type of questions to ask, leading to more in-depth, sometimes controversial but always respectful, discussions,” John says.
This is essential as CRI addresses the challenges and opportunities of operating in the global marketplace, as well as the need for strategic planning, managing human capital and achieving financial performance goals.
“To really move a board forward, directors need the ability to think outside the box and not be afraid to take calculated risks, even knowing you may sometimes fail in that decision,” John says. “That comes from having trust and respect among your directors, who are asking the right questions and having the right discussions, and are working effectively with your management team.”
Improving board performance requires a conscious self-assessment and commitment to bringing about change. It also requires individual commitment from each director.
“In AGS and PGS, we have a lot of really smart, committed people around the table who don’t always understand the nuances of a larger organization, and many are farmers used to working independently rather than in collaboration,” says Elliot. “Helping these boards improve their overall performance usually requires at least three directors to undergo effective governance training before they’re able to start affecting the rest of the board with positive change.”
FCC Services offers a full range of board, executive and leadership development resources that are uniquely tailored to our client’s specific challenges and these dynamic times. Contact Leslie Hilton, VP of Governance and Board Development at 303.721.3215 to learn more about our offerings.
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