Lucy P. Marcus

Hewlett-Packard has announced that Lawrence Babbio will be stepping off its board, and this comes hot on the heels of the news that Sari Baldauf would also not be standing for re-election. GlaxoSmithKline Pharmaceuticals has announced that James Murdoch will not continue to serve on its board. He has served on GSK’s board since 2009, on its Ethics Committee. Murdoch has been embroiled in controversy this year, which led to loud rumblings as to whether it was prudent for him to remain on the board.

This news brings to mind an issue that comes up time and again when independent board directors gather: inactive, unproductive, distracting or simply “dead wood” board members. It is often discussed in hushed tones, but it is time to address it openly and frankly, and to look upon it as the responsibility of each of us as individual board members, rather than simply an issue for the board or the board chair to tackle.

There are a number of reasons that you should consider stepping off a board:

You’ve served too long.

There is a finite amount of time that anyone can serve on a board in a truly independent manner, yet a surprising number of “independent” directors have served for 30-plus years. The UK Corporate Governance Code‘s guideline on this issue sets out nine years as best practice. It seems hard to fathom that independence would stretch to 36 years, the tenure of Coca-Cola board director James D. Robinson, or 41 years, as is the case with Douglas G. Houser, a director on Nike’s board. Questioning their length of service is not a reflection on their abilities as board members, but rather stating the obvious: It is impossible to remain independent and to serve for that long.

Your expertise is no longer required.

Flux is an integral part of business. Innovative companies shift their priorities and direction routinely, in large and small ways. The object is to have people around the table who reflect the expertise needed for today and tomorrow. As the business changes direction, it may be that the reason you were brought onto the board no longer exists. It is not personal, and it can be awkward to say, but if this is the case, recognize the change and make room for someone else whose expertise is a better fit.

You’re not pulling your weight.

No one joins a board with the intention of going along for a ride. Work and personal circumstances change, and sometimes interest simply wanes. If you find you are missing board meetings or committee meetings, or are not engaging in, let alone beyond, what you are duty-bound or required to do, it is time to look again. If you are “phoning it in” by attending meetings but not reading your board papers fully or are not participating in the meetings you do attend, you can guess that everyone around the table has noticed. Be honest with yourself and exit gracefully.

You’re obstructively disruptive.

I am a strong proponent of healthy creative tension. It is vital to ask hard questions and to be confident about stepping up and taking an active interest in the discussion. However, there is a line. Your behavior should not be a distraction or deliberately combative. It is one thing to have creative tension; it is another to have an all-out war. If discussions become ego-driven, if your contributions are based on concern for your reputation, and if the best interests of the organization and its stakeholders you are there to serve and protect take second place behind that, you have outlived your usefulness to the company.

Your actions, inside or outside the boardroom, bring distraction or disrepute.

We’ve seen a couple of cases of board directors behaving in a way that taints everything in which they are involved. This runs the gamut from insider trading to saying things in public that are ill-advised or off-color. It could also mean being strongly associated with unfortunate decisions made by the board you sit on. If your personal or business actions are bringing disrepute to the company, if you have become the story and thus a distraction for the company, do the decent thing for the sake of the company and step off in short order.

No one wants to be the person everyone around the table feels is not contributing, and you never want anyone else to have to tell you that you have outstayed your welcome. Even worse, you don’t want to be the subject of shareholder activism about whom the things that are said ring true. Although humbling to admit, no one is irreplaceable, and the best service you can give is to step down and help encourage board refreshment. There are several mechanisms that can be put into place to make this process easier for boards to deal with, including term limits, clear job descriptions and regular board evaluations; but really, it shouldn’t take that for directors to figure out the right thing to do — and do it.

When it is time to go, don’t leave it too long, don’t wait to be pushed, step off gracefully, and finally, don’t try to “manage from the grave.”

PHOTO: BSkyB Chairman James Murdoch speaks at the BSkyB Annual General Meeting at the Queen Elizabeth II Conference Centre in central London, November 29, 2011.  REUTERS/Timothy Anderson/BSkyB/Handout

In the past couple of months, several companies have gone through extreme and very public upheaval. Such transitions offer opportunities for fundamental, board-led change for the better, but they are also fraught with significant risks. Recent developments at RIM and Yahoo help illustrate three pitfalls: “managing from the grave,” sequence and timing, and misplaced suspense.

Managing from the grave

One of the big risks at a time of transition is that those who leave the helm of the company are tempted to “manage from the grave,” being more concerned about their own individual legacy than that of the company.

For example, BlackBerry maker Research In Motion (RIM) has finally rid itself of its founders’ disastrous co-CEO/co-chair setup. Yet the stamp of the old management team is still very much in evidence. The founders continue to have a strong presence in the company, with both remaining as board members, and Mike Lazaridis staying on to head a newly created innovation committee.

RIM needs revolution, not evolution, and yet it has chosen to replace its co-CEOs with a company insider, Thorsten Heins, one of RIM’s two chief operating officers. While this may provide some continuity, what RIM needs right now are fresh eyes and ideas.

RIM’s newly appointed independent chair, Barbara Stymiest, has been on the board for five years, and though she comes with strong credentials, she may be too closely associated with past failures to be truly independent. Only time will tell if the former co-CEOs and co-chairs can truly let go and give the company the freedom it needs to right itself. Also in question is whether the new CEO and the board can resist being deferential to the founders or the pull of past strategies. To make the decisive moves needed to stop a death spiral, they must do both.

In another case, Yahoo’s decision to hire a new CEO before refreshing its board may prove to be a real detriment to fundamental change, again demonstrating a desire to “manage from the grave.” Jerry Yang may have left, and several other board members may be leaving as well, but by appointing the new CEO itself, the outgoing board has set the company on a path that a new board with fresh perspective might not see as the best way forward.

Getting the sequence wrong

This brings into a focus a second risk: getting the sequence of renewal wrong. By choosing to appoint the new CEO before a new board takes over, Yahoo’s existing board may have made a fundamental error for the company.

By making this move Yahoo’s current board has lost a significant amount of trust not only in the investment community but also among other stakeholders. The new CEO is potentially less credible to the market, and the new board may find it hard to work with him — or worse, decide that he is actually not the right choice for the job.

Had a new board hired the CEO, it would have signaled that long-term chemistry and commonality of purpose and vision was in place. Instead, this CEO will always be perceived as “of the past board” and will have to work that much harder to build trust with the new board and investors.

Keeping the world in suspense

One last danger is worth highlighting: Both RIM and Yahoo have dragged their feet on making decisions and sending a clear message to the market.

RIM promised to make changes to its governance structure months ago, and by not following through quickly and decisively, it shook the faith of investors and made people irate. It will have to work hard to regain the trust that has been lost. Most worrying, the changes may be too little, too late, and the announcements so far have not done much to quell concerns.

Yahoo’s board continues to leave everyone in suspense as to how many and which board members will be leaving the board besides Jerry Yang. This unnecessarily compounds the uncertainty that already surrounds Yahoo. If the board knows who will go, it should make that clear now. If it doesn’t know, it had better decide fast.

So how can boards avoid these issues when managing through tough transitions?

Take responsibility for the future

Avoiding the repetition of past mistakes is a responsibility that rests with individuals. For those who step down, it means resisting the temptation to manage from the grave — taking some last decision that will bind the company beyond their tenure. For continuing board members it means having the courage to make a decisive break with the past. They need to learn and apply the lessons of the company’s past and not fall victim to them or carry them forward.

The board appoints the board, as it were, but this represents a significant opportunity if those doing the appointing ask themselves who will be the best people to help move the company into the future. It is a tough task, because in times of extreme upheaval it means admitting that perhaps their own actions have been detrimental. The board’s holdovers must ask themselves who can bring the skills and experience needed to provide the stewardship their organization requires in a difficult period of transition.

For incoming board members it means avoiding the danger of being “sold” accounts of the past and establishing for themselves a full picture of the company’s strengths and weaknesses. They should hear from every constituency — board directors, members of the executive team, employees, customers, and investors — and ask probing questions of all those they speak with. Armed with this knowledge and their own skills, they can weigh competing narratives of the past and learn from history rather than become its perpetual victim.

Start the sequence of renewal with the board

When whole swaths of a company need to be renewed, sequence is important. Since the board appoints the CEO, it first needs to look to itself for renewal, including securing trust if it has lost it. Only then will the CEO have a running start.

The process of board renewal prior to appointing a new CEO and executive team may take slightly longer when properly sequenced. However, if done right, it will send a clear message to investors and stakeholders that the board has gotten the message, that it is prepared for and capable of taking decisive action in the best interests of the company, and that its number one concern is the company’s legacy — not its own.

The board must be able to tell when it has put all the right pieces in place. It can then take a step back from the front line and let the newly appointed executive team get on with the job. Here, too, the balance comes in the knowledge that stepping back from the front line of crisis management does not mean disengaging from the responsibility of stewardship.

Managing transitions successfully

RIM and Yahoo are just two examples of companies going through difficult transitions. But many companies, both in and out of the news, are experiencing the same sort of upheaval. Managing transition is an essential skill that boards and their directors must possess individually and collectively. Only boards with the ability to grasp the opportunity presented by periods of transition will be able to lead from the front and avoid being managed from the grave.

PHOTO: A Research in Motion (RIM) sign at its headquarters in Waterloo, Ontario, January 22, 2012. REUTERS/Geoff Robins