Warren Buffett’s 10 Commandments for Board Leaders

Warren Buffett is perhaps the most recognized name in the history of American corporate governance. As the leader of Berkshire Hathaway, a multinational conglomerate holding company, Buffett has become one of the most accomplished businesspersons of all time.

Warren Buffett's 10 Commandments

Because of his immense success, Buffett’s advice carries with it great weight and authority. Many of his essays and letters have been collected for publication, and he’s known among journalists for his quotable quips and reasonable advice for investors.

Recently, a George Washington University professor named Lawrence Cunningham compiled a list of Buffett’s most important guidelines for corporate directors, which was published in the latest edition of NACD’s Directorship magazine.

You can read a condensed and edited version of that article here. These “ten commandments” for business leaders, as Cunningham calls them, are what Buffett cites for his vast amount of boardroom triumphs.
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The Pros and Cons of Going Public

Going public IPO

If you’re a board member for a large or fast growing company, there may come a time when you and your colleagues will be asked to determine whether that company should “go public.”

Investopedia explains, “Going public refers to a private company’s initial public offering (IPO), thus becoming a publicly traded and owned entity. Businesses usually go public to raise capital in hopes of expanding.”

Companies that decide to go public are not only faced with enormous opportunities to grow their organization, they also have to deal with the downsides or challenges associated with the transition.

According to a survey by The Next Million, these are some of the major challenges of going public:
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How to Strategically Build a Board of Directors

build a board of directors

Outstanding board members certainly don’t grow on trees. In fact, finding the right group of business leaders to impact your organization for the better is a true challenge.

Not only must you consider individual fit and ability, but also how the group will work together. Here are some tips to help you tackle this undertaking in pursuit of exceptional corporate governance.

Think strategically about the organization of your board

Before you can expect directors to think strategically about your organization’s future, you need to think strategically about your board. First, take some time to consider what size board makes the most sense for your organization. Perhaps you’ve been operating with 7 members, but changing to 9 members makes sense for tactical reasons.

Don’t choose a number at random; be sure you can back up the decision with consideration and research. Next, update your board member job descriptions. Make sure that the expectations for directors are clear. You can’t anticipate success from anyone unless you’ve provided them with an outlook for their role.
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Higher Ed Boards: Finding the Governance Balance

higher ed boards

As the role of the higher education board widens, members are often faced with the reality of appearing too distant or as an interfering entity. Universities, in particular, place the role of the board in a difficult window of power.

Board members must respect the open and forward-thinking nature of a campus setting, but they must also protect the trajectory of the college—especially in relation to its financial wellbeing.

As David G. Turner writes for Trusteeship magazine, “Business models are shifting, funding sources are unpredictable, and learning channels are evolving; therefore, institutions must evolve and adapt in order to survive and thrive in the days ahead.”

As these shifts in higher educational systems continue to occur, board members are tasked with finding the unique balance between authority and negligence. One of the best ways to achieve this balance is by turning the board’s attention to strategic thinking.

Oftentimes, higher ed boards become bogged down in the smaller aspects of campus life. Unlike with their corporate counterparts, strategic thinking and planning regularly get pushed aside for topics that are considered to be more “pressing.” This is a mistake.

Although boards exist to financially protect the entity they serve, it’s difficult to achieve that if boards aren’t looking to the horizon for a vision of future growth and evolution.
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The Rise of the Chief Audit Executive

The rise of the chief audit executive - compliance

The recent Wells Fargo disaster reminds us that for companies, the best kind of watchdog is the internal kind. For some reason, Wells Fargo’s internal watchdog (or Chief Audit Executive) didn’t suffice in this instance, though.

Whether that means they overlooked unethical sales practices or whether their reports to management went unheard is unknown. What we do know, though, is that Wells Fargo probably wishes they had dealt with these concerns internally before it became the debacle playing out in our daily news headlines.

Chief Audit Executives play a vital role in a large corporation’s system of checks and balances. Simply put, they exist in order to operate as a fully independent audit assessor, who also often supervises other aspects of risk and compliance. These executives, who typically report to the board’s audit committee, are becoming more sought after with each passing day.

In fact, “Chief audit executives hired by large companies now command total pay packages approaching $1 million—about 30% more than a decade ago,’’ said Scott Simmons, a managing director at Crist|Kolder Associates, which recruited nearly 15 current CAEs.
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Best Practices for Planning a Smooth CEO Succession

Best Practices for Planning a Smooth CEO Succession

As most corporate directors know, CEOs come and go. For that reason, boards must be adequately prepared to facilitate smooth transitions between leaders regardless of whether the current CEO is exiting due to a new opportunity, retirement, or because they’ve been asked to leave.

Although it can be a stressful time for any company, CEO succession can be a highly strategized and monitored evolution.  Here are some of our CEO succession “best practice” suggestions:

  1. Craft a written succession plan. 

This may seem like a no brainer, but it must be said. This policy can and should include emergency plans in case of sudden death or a completely unplanned vacancy.

Russell Reynolds Associates suggests, “The entire board, together with a senior human resources executive, should review the succession plan twice a year, including an examination of the relevant bylaws and succession procedures and a review of the baseline capabilities requirements for the next CEO.”

  1. Set and communicate clear time frames.

Nothing throws a company into turmoil quite like a period without clear leadership. Employees start to get antsy and worry whether the transition will have an adverse effect on their position. To avoid this unsettling time as much as possible, the board should establish clear succession time frames. As Ivey Business Journal shares, “CEO succession planning must begin immediately following the installment of a new CEO.

The planning must be a constant, ongoing process that is managed as closely and attentively as any of the company’s critical business issues.”
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Finding the Balance Between Board and Management

balance between board and management

Boards of directors and management executives are integral to the success of any major company and finding the right balance in board management is key. Although they’re constantly communicating, they serve in very different roles.

The board, which is meant to contain an appropriate mix of “outside” and “inside” directors, acts as the guiding force for the company while the CEO and other c-suite leaders carry out their plans for the future.

That’s not to say that forward progress and change can’t come directly from the CEO, though.

Duties of the Board

At the end of the day, the board has the final say when it comes to making major decisions for the organization it serves. The entity is expected to uphold its fiduciary duties to the shareholders above all else. In addition, the board hires/fires CEOs, votes on important policies, safeguards resources, and more. For a more in depth explainer of these responsibilities, visit our Board Membership 101 blog series.
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Board Membership 101: Evaluating CEO Performance

Once a board has hired a capable CEO, it’s important that they continue to offer their guidance and support. For some boards, evaluating CEO performance is a bit of an afterthought. Stephen P. Kaufman, CEO at Arrow Electronics, describes his own first evaluation process as merely perfunctory.
evaluating CEO performance

He explains, “The chair of the compensation committee would pop by my office for just 10 minutes after the year-end closed session of independent directors.

He’d inform me that the board was happy that the company had made its numbers, thank me for my leadership, tell me what compensation it had approved, and express his regret that he couldn’t stay to talk.”

In other words, as long as things appeared to be going well, the board merely patted him on the back and went about its own business. This model, however, does very little to thoroughly evaluate the CEO’s performance.

While it focused on his ability to meet financial goals, it overlooked his influence on company culture, strategic planning, and other aspects of leadership that indicate the development of a well-rounded company.

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Board Membership 101: How to Hire a CEO

Chief executive officer selection and succession planning are among the most important responsibilities for any board of directors. In fact, some business writers will go so far as to say, “choosing the next CEO is the single most important decision a board of directors will make.” In the ever-changing corporate landscape, CEOs will come and go, which is why it’s important for boards to create a reliable process for how to hire a CEO for the organization they serve.
hiring a CEO

Most board members will tell you that finding and hiring the right CEO is a tall order. Directors know that a CEO’s influence and legacy can be felt for years after their departure—in both positive and negative ways, depending on the situation.

If the exiting CEO is merely retiring or moving on to another opportunity on good terms, it’s sensible to involve them in the hiring process. No one will understand the demands of the position quite like someone who has recently experienced them.

If the board lacks confidence in the CEO, though, the lead director should take charge of the process.
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Board Membership 101: The Role of a Board of Directors

Present day corporate directors are faced with increasing responsibilities, expectations, and risks. Over the last twenty years, government standards for board oversight have grown more stringent than ever as the role of a board of directors evolves.

Role of the Board

But why exactly do boards of directors exist, and what is the role of a board of directors? Ultimately, boards exist to provide strategic oversight for a company and to protect shareholders’ financial interests.

In order to accomplish those goals, individuals who wish to serve on a board must be willing to take on the responsibilities expected of a director.

Below, you’ll find eight factors that outline the role of a board of directors.

  1. Provide strategic guidance.

Literally, board members are expected to provide the vision, mission, and goals for an organization. Metaphorically, they’re also responsible for the “big picture” vision for the company: where is it currently headed? Where does the company want to go from here?
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