From Good to Excellent Board Practices (Part 2)

Jorma Eloranta is a board member in four companies of which he chairs three. The net sales of these companies was 20 billion euros last year. His last executive position was the President and CEO of Metso Corporation. He also serves as the Chair of Directors’ Institute of Finland.

This blog post is based on his speech at Amcham’s Executive Breakfast that took place on October 6th, 2015. The breakfast event was the first of Amcham’s “From Good to Excellent” series where experts analyze the strengths and weaknesses of Finnish corporate culture and develop strategies for improvement.

Below are Jorma’s practical tips on better board practices:

1. The Board and Management have different roles

The success of a company depends on leadership. The CEO and executive team can make or break the company.

The Board can support good leaders and the right leadership spirit or destroy the leadership and success. The Board cannot successfully lead a company. The roles are different.

The role of Management is to make proposals for decisions and to prepare material for discussions on strategic and operative issues. Management is not supposed to “sell” anything to the Board, but instead openly have strategic dialogue with the Board. The Board needs to be engaged in the formation of the strategy. Management needs to have the courage to tell the Board if they do not have a clear answer to the present challenges. Additionally, management should report mistakes made by the company. When making important decisions, the Board needs to have several alternatives on the table out of which the CEO proposes one for approval.

Clarity of these roles and the decision making processes is the foundation for good leadership in a company.

We require that the CEO makes a written proposal for the Board’s decision on every agenda item.

The CEO and other managers present in the meeting should leave the meeting feeling inspired, empowered and happy. They should not feel relieved that the Board meeting is over and the pain can wait until the next meeting. Management by fear is not a long term working practice. However, a healthy, high-quality tension is positive. A good Board member is challenging, but equally supportive.

2. CEO and management succession planning

For the Board, one of the important duties is to assess the CEO’s performance and senior executive team. It is also important to verify that the company has a well-functioning, objective performance assessment process in place. This process should be linked to the development of individuals, remuneration and promotions.

3. Board (self) assessment

A Board Assessment is mandatory in enlisted companies in the Nordic countries. The outcome of the Assessment is reported to the Nomination Committee. It is, naturally, also given to the Board and Management for developing the Board work.

After every Board meeting, we have a quick, informal discussion amongst the members. The aim is to ask ourselves, “How did we do in this meeting?”

Once a year, we have a confidential e-questioner consisting of 10 – 100 questions. As the Chair, I have a one-hour discussion with all Board members individually where both parties give and receive feedback. We then formulate a joint conclusion of the Board based on these discussions and report them to the Nomination Board.

It all boils down to two points:

1. If you have the right strategy and a good CEO in place, the rest is a piece of cake.
2. Have fun and make money – that is business. Make sure that your net sales are high enough, compared to expenses, and always have cash available; that’s all you need 🙂

2018-05-17T08:21:43+00:00