The Role of Training for Boards of Directors
by Herb Rubenstein and Paul E. O’Flynn

Introduction

Today, new Board Members in for-profit businesses and nonprofit organizations often receive little or no training regarding how to serve as a successful Member of the Board of Directors. In the days when the Chairman/CEO wanted to keep a Board in the dark, keep them ineffective and Board meetings were just ol’ boys clubs’ reunions at the shareholders or donors’ expense, this made sense. Today, in the new environment where Boards must be proactive, investigative, accountable and actually govern a company or nonprofit organization, no serious company or nonprofit organization can omit Board training.

There are two types of Board training available in the marketplace. One form is generic, where someone takes an executive education course to “learn” how to be a good Board Member. Topics like fiduciary duty, the role of the audit committee, and other important and up to date topics of general interest are explained to Board Members. While these seminar types of educational programs are useful, they are not sufficient.

This article describes a thorough Board training program that each company or nonprofit organization can tailor to its own Board of Directors. We expect in the future as litigation heats up against Boards of Directors, the first area where the lawyers will try to hit home runs is to accuse a Board of Directors of not being properly trained for their role. Today, most Boards of Directors are sitting ducks and defenseless against this expected charge.

The Context for Training

The largest training organizations in the world, the military services of the United States, create specific training programs for specific environments and engagements. These training programs devote extensive resources to simulating the expected duties and challenges the military will face. They train solders and support networks to achieve specific, articulated goals. They regularly assess the quality of their training and improve the training programs based on the feedback they receive.

The same rigor must be put in place for training for Board Members. Therefore, in order to design useful training for a Board, your company or organization must have a clear understanding of exactly what roles the organization wants the Board to fulfill. Through knowing these roles, the organization can amass the resources it needs to train its Board. Without a clear picture of the role of the Board, the training will be hit and miss at best. And, since Board Members are generally very busy people, there is no time to waste in the one day of training that an organization is likely to devote to training the Board on an annual basis.

To solidify exactly the expected role of Board of Directors, each Board should create a "charter" that outlines the role for the Board. In addition, it is good practice that each Committee of the Board also have a charter explaining its duties and responsibilities. Once an agreement is in place “defining” the roles of the Board and its Committees, then the Board (or senior staff of the organization with or without outside consultants) can design specific training for the Board that lasts at least one full day on an annual basis.

This article lays out some of the basic elements of such a training program. It identifies what should take place prior to the one day Board of Directors training program in order to prepare the Board, what happens on the day of the training and then what should occur on an ongoing basis for Board training throughout the year.

Key Steps in Training Your Board of Directors

The first step in any training program is to define all of the objectives of the training program. Therefore, we start with the question: “What is the first objective of a Board training program?” The answer is obvious, but often overlooked.

The first objective of a Board training program is to make sure that the Board is educated and trained in “KNOWING THE COMPANY OR ORGANIZATION.” While this may seem obvious, actually many Board Members do not understand the following items about the company or nonprofit organization where he or she serves as a Board Member:

  • fundamentals of the company or nonprofit organization’s business or financial model;
  • values of the organization, in rank order;
  • unique (or desired unique) position in the competitive marketplace;
  • competitors;
  • unique value proposition;
  • cost structure;
  • profit zone;
  • key strategic alliances;
  • channels for distribution of its products and services;
  • membership or “customership” base;
  • marketing plan;
  • fundamentals of its human capital strategies;
  • value or how to exploit its intellectual property asset base;
  • basic elements of the strategic plan or long range plan for the company or organization;
  • learning the proper road to advancement to chairmanship of committees and gathering additional responsibility on the board.

In addition, many Board Members do not understand:

  • the basic financials of the company or nonprofit where they sit on the Board;
  • know how to read and analyze financial statements;
  • know the full import of a “reportable condition” (under the standards established by the American Institute of Certified Public Accountants) as specified in the organization's Independent Auditor’s Report;
  • know exactly the lead revenue sources and their drivers for the organization;
  • know the intellectual property base of the organization and its value;
  • know the human capital base of the organization and its relative strengths and weaknesses;
  • understand the manufacturing procedures used by the organization;
  • know the loss leaders and growth inhibitors that prevent the company or nonprofit organization from growing.

Therefore, the first part of any training program for Board Members must be to create the background materials and a workshop (either in person or virtual) to explain each of these items, plus explain the business model and organizational framework of the organization. Each Board Member needs to know the evolution of the organization, needs to have access to all previous business plans and strategic plans and needs access to the following information to become fully informed about the organization:

  1. Current and all previous copies of business plans of the company or non-profit.

  2. Outline of the latest research on the competitive landscape for the industry/sector involved.

  3. Summary of the recent investments or large scale donations made in this industry by venture or seed stage investors or donors. With regard to a company seeking investors, it would be useful to provide an explanation of the valuations used to form the term sheets of the other investments.

  4. History of all prior investments and donations in the organization.

  5. Current operating budget (annual) for the company or non-profit for the past year and all previous annual reports. Complete financial history of the company or non-profit, including annual financial statements, auditors independent reports, 990’s, tax returns and standard financial reporting documents over the past three years.

  6. Resumes of all key personnel at the board level and senior staff level, including those expected to come on board over the next year.

  7. All graphics, logos, key words and phrases used to describe the company or non-profit.

  8. A graphic presentation of the business model employed by the company or non-profit.

  9. A graphic that compares the company's or non-profit’s current or proposed products against all competitors.

  10. Time line documents showing all milestones that the company or nonprofit organization expects to achieve in the next twelve months to achieve key goals.

  11. A memo on all key risk factors dealing with the company or non-profit and the marketplace.

  12. A memo on the company's or non-profit’s risk management strategy and all legal protections for the company's or non-profit’s branding, logos, technology and intellectual property.

  13. All previously used marketing materials of the company or non-profit.

  14. A copy of all company commissioned research, white papers and books prepared by the company or nonprofit.

  15. A copy of all acknowledgements, press releases, press coverage and articles about the company or non-profit and its principals.

  16. Copy of all private placement memoranda used by the company in the past to raise money, including current PPM. In the case of the non-profit all previous donation solicitation materials.

  17. List of all accrediting organizations.

  18. Firm or organization resumes of all outsourced partners (legal, accounting, etc.).

  19. A thorough list of frequently asked or anticipated questions with detailed answers to each.

  20. List of all investigative reports by all government and accrediting bodies.

The most efficient way to disseminate this information is to create a web based shared documents section that is password protected on the organization’s website or virtual private network. Each Board Member must know the business, mission and all key facts about the organization in order to govern the organization effectively. Each Board Member must be given access to staff and other Board Members who can answer questions. A listserve system can be developed so that all questions and answers can be emailed to all Board Members and posted on the password protected section for all Board Members to view.

Second, each Board Member must, before the “day of Board training” starts, KNOW EACH OTHER BOARD MEMBER. This requires an active effort to collect and share resumes, bios, and other key information about each Board Member with each other Board Member. Board Members must be encouraged to pick up the phone or go in person to visit other Board Members to get to know them.

Third, each Board Member must know why he or she was selected for the Board and the role each is expected to play in the organization. In baseball, every player knows his or her position long before spring training starts. Similarly, Board Members must be individually oriented regarding how his or her specific and/or generalist type of expertise is expected to help forward the organization through their service on the Board of Directors. And, after this is sorted out for each Board Member individually, this information needs to be communicated about each Board Member to every other Board Member, so that everyone will know the strengths that each Member brings to the Board of Directors.

Fourth, before the “day of training,” each Board Member must be given three reports prepared by senior staff and the Board on:

  1. CURRENT CHALLENGES OF THE ORGANIZATION

  2. REPORT ON THE FUTURE OF THE ORGANIZATION

  3. HOW THE ORGANIZATION DEFINES SUCCESS

Since the Board’s job is to help contribute to the future of the organization and to be held accountable for all current shortcomings of the organization that an active Board could correct, these reports are critical to teaching a Board Member what he or she needs to know to be successful.

Fifth, Board Members must be educated and trained on the basic procedures and operations of the Board, including parliamentary procedures.

Generally, the material called for above should be presented to Board Members in a BOARD MANUAL. All of this information, once approved or in discussion drafts, could be placed on the web for the Board or sent in a Board manual in paper. Today, many Boards do not have a Board manual. This is another invitation to litigation disaster (and productivity disaster) as lawyers will ask each Board Member how he or she knew the full scope of his or her job as a Board Member. Without such a manual or map, a Board Member will be in a hopeless position to explain how he or she knew how to operate as a Board Member. In football, it would be like not having a playbook or in the movies, it would be like trying to shoot a film without a script or even an agreed upon plot.

A typical Board Manual in addition to the items listed above should have access to the following items:

  1. Articles of Incorporation
  2. Bylaws
  3. Guidelines for Evaluating the Board
  4. Guidelines for Evaluating the CEO
  5. Code of Ethics
  6. Organization Chart of Board
  7. Organization Chart of Senior Staff
  8. Description of the Roles of the Board
  9. Board Charter
  10. Charters for All Committees of the Board
  11. Board Calendar for Next 12 Months
  12. Prior Year’s Board Meeting Agendas and Minutes
  13. Auditors Letter for Prior Year
  14. Description of Key Strategic Alliances
  15. Basic HR Policies
  16. Copies of Directors and Officers Insurance Policy

Another step in the Board training process well before the “day of training” is to assign each Board Member another, more senior, Board Member to serve as the junior Board Member’s “mentor.” In addition, it is important to assign each Board Member a “staff liaison” that the Board Member can access via phone, email, letters, fax, etc. for questions, advice, information and other support that the Board Member needs. One staff member could possibly serve in the staff liaison role for all Board Members, depending on the size and complexity of the organization and its Board. Even for Boards where all Members are long standing, creation of this mentoring and staff liaison system is essential for Board Members to work efficiently and effectively.

The next step in this process, and the last step before the full day of training, is to confirm that before the official day of training, all Board Members have fully completed the education called for above, and are taking full advantage of the mentoring and staff liaison services available. Also, one might want to provide for “cross introductions” where one member is assigned to introduce another board member at the actual training event. This would require a board member to meet with the person who will introduce them for one-half hour before the training day.

Then, after completion of these initial steps, the Board of Directors of the organization is ready for its annual “day of training.”

The One-Day Board Training Program

First, it is assumed that the date for this training program is set at least four months before the actual date to insure that every Board Member can attend. Second, it is important to schedule this training day many months ahead of time to give the organization time to complete the five step process of getting Board Members ready for this day of training outlined above. Attendance should be mandatory and this training should take place each year. It could be set the day before a scheduled Board meeting.

Third, a company or nonprofit organization can use either an outside consultant, a Board Member or a senior management official of the organization to conduct and lead the training.

Fourth, it is assumed that by the day of the training, the issues of Board and Committee roles, the roles of the individuals on the Board, a thorough understanding of the current challenges of the organization and projected future of the organization have been presented to and analyzed thoroughly by each Board Member. These will not be topics discussed in great detail on the day of training. At training camp in football, the purpose of football is not discussed.

The day of training is geared around how to execute the Board and Committee Roles as they have been developed. It is not a day to hold fights over the role of the Board or how individuals fit it. It is not a day for exploration or contemplation of some future role for the Board. It is a day where all Board Members come to the training knowing the organization in depth, knowing the agreed upon role of the Board and its Committees, know their individual roles and are ready to delve into the “HOW TO’s” necessary for the Board of Directors to help lead the organization forward to success.

The morning session is for Board Members only. The afternoon session can be attended by senior management of the organization. A typical framework for the morning and afternoon sessions would look like the following:

7:30 – 8:15   Tour the Facility
     
8:30 – 9:00   Explanation of the Day and Invitation to Board Members to Add Discussion Items for 2:30 - 3:30 slot
     
9:00 – 10:00   Current State of and Evolution of the Law Pertaining to Boards of Directors
     
10:00 – 11:00   Current Best Practices of Boards of Directors Relevant to this Board
     
11:00 – 11:15   Break
     
11:15 – 12:30   Board Committee Duties, Reporting Systems, Rules for Bringing New Items to Board’s Attention, Role of Technology in Supporting Board, Calling Special Meetings, Promoting Board Member Initiatives, Role of Staff Support and Board Budget
     
12:30 – 1:30   Lunch – Discussion of the Role of Philanthropy in the Organization, the Role of Board Member donations and contributions to the organization
     
1:30 – 2:30   Description of The Work Of the Board Between the Meetings: Explanations of the Expectations for Board Operations, Productivity, Output, Success and Limitations; The Role of the Staff of the Organization in Assisting the Board
     
2:30 – 3:30   Open Discussion by Board Members and Senior Staff on New Topics Suggested at the Beginning of the Day
     
3:30 – 3:45   Break
     
3:45 – 4:45   New Ventures/Directions and the Future of the Company
     
4:45 – 5:45   Explanation of The Board as a Self-Improving Mechanism, Procedures for Evaluating The Board of Directors
     
5:45 – 6:30   Wrap Up; Action Items Discussed

Conclusion

This process is time consuming and requires a substantial investment by the company or nonprofit organization even if internal personnel are going to do every step in the process. The days when organizations could get away with not training their Boards of Directors are gone.

This board training effort needs to become part of the general activities of the Board. Whenever a new Board Member is brought on, for that Board Member, the training must start at the beginning of his or her service to the organization in a form that at least brings that Board Member up to speed sufficiently to be a productive Member of the Board. Each year the “day of training” should be informed by and improved by Board input throughout the year. It would be wise for Boards to form a Board Training Committee, especially if an outside consultant is not brought in to facilitate the process.

Today, there are no published standards for training Board Members. In fact, when one types in “Board Training Agenda” on Google™ in June, 2004, only 27 hits show up.

While this article in not written to form a comprehensive set of standards or Board training procedures, it does show the rigor that Board training demands today in order to meet the challenges that Boards face today. While each Board will need to tailor its pre-training educational program, its mentoring program, its staff liaison system and its agenda for the one day Board training session, this format suggests an approach that would, if implemented, represent a great leap forward for 95% of the Boards of Directors in operation today.


Herb Rubenstein is an attorney and the CEO of Growth Strategies, Inc., a leadership and management consulting firm. He is co-author of Breakthrough, Inc. – High Growth Strategies for Entrepreneurial Organizations (Prentice Hall/Financial Times, 1999). He also serves as an Adjunct Professor of Strategic Planning and Leadership at George Washington University, is a founding director of the Association of Professional Futurists, and is the author of numerous articles on boards of directors, leadership and strategic planning. He has his law degree from Georgetown University, his Master of Public Affairs from the LBJ School of Public Affairs, a graduate degree in sociology from the University of Bristol in Bristol, England and was a Phi Beta Kappa/Omicron Delta Kappa graduate from Washington and Lee University in 1974. His email address is herb@growth-strategies.com and he can be reached at (301) 718-4200 in Bethesda, Maryland or (202) 236-7626 in Washington, D.C.

Paul E. O’Flynn, FACHE, is Executive Director of Kentucky Organ Donor Affiliates. He has served as Senior Administrator of the University of Chicago Hospitals, the Health Care Unit Administrator of the Joliet Correctional Center, the Administrator of the Department of Medicine at Cook County Hospital, and is a Fellow of the American College of Health Care Executives. He has a MPA from Roosevelt University in Chicago and both a BA and BS from Ohio State. He has recently been elected to the Board of Directors of LifeNet, Inc. in Virginia Beach, Virginia. He can be reached at (502) 581-9511 and his email address is poflynn@kyorgandonor.org.

Many more articles in Corporate Boards in The CEO Refresher Archives

   


Copyright 2004 by Herb Rubenstein and Paul E. O’Flynn. All rights reserved.

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