“Getting to the Board Means First Being a Good Executive”

Luis Manuel Calleja on what makes boards effective

28/05/2015 Barcelona

Luis Manuel Calleja
“The board should always act independently and professionally,” says IESE Professor of Strategic Management, Luis Manuel Calleja / Photo: Archive

The board of directors is an essential management structure. If your board is functioning poorly it can spell disaster for your company. If it runs smoothly, it can lead to harmony and stability.

"Being a board member is a complex task. A board member has to be able to convince others to act, rather than taking action directly," says Josep Tàpies, professor of strategic management at IESE.

Tàpies was talking this week at a continuous education session for alumni in Barcelona. He was joined by Professor Luis Manuel Calleja, who also teaches strategic management at IESE. "Getting to the board is a kind of ‘mutation’," said Calleja, "because you become a board member by first being a good executive."

In order to make "ethical decisions," he added, board members have to "delegate technical details. In order to handle the extraordinary, they have to delegate the ordinary. And in order to work toward the future, they have to delegate the present."

The Role of the Board

Unlike the management committee, to be effective, the board has to integrate all areas of the company and deploy a strategy to monitor the pace of its investments and profits.

In Spain, 64 percent of boards of family businesses have a direct relationship with the management committee, outside of board meetings. This degree of interaction is lower than the European average of 78 percent, according to a study carried out by Russell Reynolds Associates and published by the IESE Chair of Family-Owned Business. Entitled "Corporate Governance Practices in the Family-Owned Business in Europe," the study analyzes the cases of Germany, the UK, France and Italy.

But ... Where to Start?

Understanding the business of the company and promoting the diffusion of power are fundamental duties of all boards.

A thorough knowledge of business operations will allow board member to specialize. This facilitates their work within a given company but limits their mobility to a single industry.

For example, a board member of Ryanair cannot easily switch to the board of Gas Natural or Mercadona. The evaluation of a board member should take into account the learning curve. "The work of an executive can be evaluated after a single operation. But the higher up someone is in a company, the longer it takes to evaluate his or her results," said Calleja.

In terms of promoting the diffusion of power, there should be renewal within the board, either through internal races or external elections. It’s also important to remove obstacles to leaving the board, especially economic ones, and to observe terms of office.

The Importance of a Well-planned Agenda

Having a well-designed agenda is key to the smooth functioning of the board. "It is important to address all important issues over the course of the year, such as succession and crisis management," Calleja noted.

Some rules for the proper functioning of the board include:

  • Establishing a certain number of meetings per year—at least quarterly, although ideally 10 times a year.
  • Structuring meetings with an agenda outlining topics to be handled over the course of the year.
  • Evaluating board members.
  • Evaluating the board of directors.

Conflict Resolution

According to Professor Calleja, conflict is reduced when board members are a good fit for the company, who have been duly elected and who lead the company effectively.

Ideally, a board should be characterized by "harmony, not dissonance," says Calleja. If there is discord among board members, the board must act independently and professionally. The board’s duty is to identify potential conflicts and inform general management about them quickly and efficiently.

Calleja has this piece of advice for resolving conflict: "Keep it simple so that your solution doesn’t become part of the problem."

IESE offers "Value Creation Through Effective Boards" to board members and senior executives looking to deliver sound governance and value to their organizations. IESE’s Executive Education Programs were recently ranked first in the world by the Financial Times.