This newsletter’s Table of Contents is as follows:
- Board Oversight of R&D
2. Board Oversight of “Mission-Critical” Regulatory Issues
3. Many boards getting insufficient info on post-Covid work strategy, survey finds
4. How To Deal With A Bad Board Member
- Board Oversight of R&D
1. Board Oversight of R&D
R&D investment is critical for long-term value creation, and boards need to understand it. But boards also need to understand and have oversight over how that investment fits into the IP strategy of the company and drives the overall corporate strategy. For example, in Re Clovis Oncology, Inc. the court noted the expertise and experience on the board but questioned whether the directors had exercised the necessary oversight. In the company’s eagerness to get a lung cancer treatment to market before a competitor, there were discrepancies in how clinical results were presented. The board may have been unaware of or may have ignored the reports. Either way, the Delaware Chancery Court held that there was enough evidence to move ahead with litigation over whether directors breached their fiduciary duty.
Therefore, Boards not only need to ensure that compliance plans are in place, but also they need to monitor that compliance. But there is a balance needed. Boards need to know enough about the company’s R&D investments to perform oversight, but also need to avoid getting into the day-to-day management of them, she says.
Another role of the board is to streamline R&D with director expertise. This means having a digital director when looking at a board’s composition and board matrix…or even a technology committee. This is a time of “hypergrowth.” The pandemic accelerated that growth and directors should lean into innovation.
To play a long game, the board may want to structure CEO compensation that could lead to R&D results. Because it might take 10 years for something to really develop, Boards need to set up long-term compensation to reflect that and even factor in how succession will affect R&D.
2. Board Oversight of “Mission-Critical” Regulatory Issues
In The Boeing Company Derivative Litigation lawsuit, the Delaware Court of Chancery refused to dismiss the plaintiffs’ claims that the board members breached their duty of oversight by failing to establish an effective airplane safety monitoring system and follow up on related red flags.
The litigation arose from the crashes of two Boeing 737 MAX airplanes.
Although the litigation is still pending, the opinion by Vice Chancellor Zurn reiterates the importance of board oversight of “mission-critical” regulatory issues and gives guidance as to possible board processes, such as assigning responsibility to a committee specifically in its charter documents or including such matters as part of the regular board agenda (as opposed to ad hoc reports by management), and, in either case, ensuring that management reports convey a full picture of such matters. In addition, boards should actively follow up on red flags relating to the failure of a mission-critical company issue and be willing to question management’s assessment.
3 Takeaways
- Boards may consider documenting explicitly how mission-critical compliance issues are overseen by the board.
- Boards should consider taking steps to ensure that management apprises the board of these mission-critical issues in a holistic manner.
- Where a board’s reporting system reveals red flags, best practices may include following up and questioning management’s assessment.
3. Many boards getting insufficient info on post-Covid work strategy, survey finds
Earlier this month PwC polled 65 board directors from Fortune 1000 and private companies, along with other C-suite executives, about business priorities and decisions they’re making around the future of work.
Asked to characterize their board’s involvement in the development of the company’s strategy for the future of work that will be in place this fall, fewer than half (45%) say the board has received sufficient information from management to assess the strategy.
The authors of the PwC report take the view: Management teams will definitely benefit from better leveraging board perspectives. The decisions companies are making about the future of work today are unprecedented in their scale and scope, and in the long-term consequences of the potential changes. Directors can be a sounding board for these foundational decisions and provide valuable insights.
Monitoring WORK STRATEGY decisions closely over the short- and medium-term, including the impact they have on workplace culture, must be on every board’s agenda.’
4. How To Deal With A Bad Board Member
You’ve likely seen it before: the director who frequently misses meetings or shows up completely unprepared; who displays antagonism toward staff, disrupts meetings with a toxic attitude; who lacks sufficient financial literacy to help make informed business decisions.
In other words—the Bad Board Member.
But how best to handle what’s almost always an awkward and uncomfortable situation? While asking a board member to resign might be the final outcome, there are other ways to work around a prickly board member’s counterproductive behavior.
- Understand the bad behavior. Are they truly a troublemaker, or are they raising legitimate concerns? It’s okay to be passionate about a topic, as long as you remain respectful to others.
- Do damage control. Are they recruiting allies and planting seeds of doubt, or simply asking for more information and transparency? The Board Chair (or his/her alternate) should collect, document and present the facts (evidence) to the offender, then the governance committee, with honesty and transparency—and avoid personal attacks.
- Limit the offender’s role. If your bylaws prevent you from removing a repeat offender, try reducing their involvement in certain areas. Sometimes, the bullies will give up and go home (i.e., resign). BTW, consider changing your By-laws to enable removal of the toxic ones.
- Conduct anonymous peer evaluations. When everyone else agrees Bob is a troublemaker, Bob should get the message and either shape up or ship out.
- Consider term limits, which give boards a way out of an uncomfortable situation and gives the director a chance to step down gracefully.
Whatever you do, don’t ignore the bad behavior of a toxic board member who can adversely affect a board’s productivity and decision-making efforts, and ultimately cost an entire organization time and money.
