FRESH TAKES ON BIG IDEAS

A board of directors can play a vital role in a company’s success. But not all boards are as effective as they need to be in today’s high-stakes world. A concerted effort to improve boards’ governance, ways of working, and capabilities can be a worthwhile investment.

In advising the boards of global companies for more than 20 years, I have seen the same roadblocks arise again and again. We still regularly see board directors and management teams that do not collaborate effectively and or engage sufficiently in honest discourse. Many boards can also become too focused on fiduciary activities—including financial reporting, compliance, and risk controls—leaving little to no time for addressing more strategic, forward-looking topics.

The most successful boards are the ones that can become true catalysts for change. Some boards have been able to evolve from being “rubber-stampers” of executive decisions to helping management navigate strategic challenges. Highly effective boards engage regularly with management, get the support they need to develop relevant skills, and invite diverse voices to openly debate difficult questions. These boards partner closely with management to drive real change and add real value.

The boards of companies backed by private equity (PE) are often effective at being this type of catalyst. PE-backed boards tend to relentlessly focus on value creation, foster tight alignment with management, and work together toward achieving long-term outcomes while providing relevant oversight and control. Board directors are genuine sparring partners for management and can strike a constructive balance of challenge and support, motivating management to make bold decisions. This collaboration often creates an increasingly valuable company that can exit successfully in seven to ten years—and that will continue to create value for its new owners into the future. 

“‘Catalyst boards’ partner closely with management to drive real change and add real value.”

Today, we are seeing more boards of public companies adopt the kinds of practices typically used by PE-backed boards to become better catalysts for change. This is especially critical at a time when AI is rapidly transforming every aspect of business. Today’s management teams need strong sounding boards to navigate these disruptive changes. 

To be sure, PE boards are not beholden to public shareholders, so they may have more freedom to try new tactics and take a longer-term view. But management teams of public companies should also be receptive to their boards’ guidance on critical and broad-reaching topics such as AI adoption and geopolitical strategy. To ensure useful guidance, management should make sure that board directors have the tools they need to make effective strategic decisions—including thorough onboarding, transparent and open communication, and frequent access to executives. 

It’s important to note that a “catalyst board” is not a silver bullet. At the end of the day, a board is made up of people—with all their strengths and idiosyncrasies. For executives looking to get more value out of their boards, the first step is to connect on a human level with each director. This means inviting open dialogue inside and outside meetings and creating an environment of trust where every board director feels supported to speak up. People do their best work—work that catalyzes change and growth—when they feel valued for their contributions. 

—Edited by Kristi Essick, executive editor, San Francisco

ABOUT THIS AUTHOR

Frithjof Lund is a senior partner in McKinsey’s Oslo office.