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Owning Up: The 14 Questions Every Board Member Needs to Ask Hardcover – Apr 13 2009
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From the Inside Flap
Your world as a director has suddenly changed. You've seen members of other boards take the heat when their companies imploded. The managements of Lehman Brothers, Bear Stearns, Merrill Lynch, and Washington Mutual clearly failed, but so did their boards. Now the board of every company beset with problems is coming under scrutiny.
The pressure is on. Your board must own up to its accountability for the performance of the corporation. Governance now means leadership.
Boards must change their modus operandi to address the new and complex issues that are emerging. These include
- Ensuring liquidity in the context of the global financial crisis
Setting CEO performance targets in a very uncertain economy
Assessing strategy and enterprise risk under extreme volatility
So what should boards do now? What should they be talking about in their meetings and executive sessions? What decisions must they make? How assertive must they be regarding company priorities and operating goals?
In Owning Up, business advisor and corporate governance expert Ram Charan answers these and other burning questions on the minds of directors and business leaders. He describes best practices that are emerging in boardrooms he has observed firsthand. And he provides practical recommendations on a range of issues, from compensation to dealing with external constituencies. Wisely attuned to the human side, he confronts the need for some boards to refresh their composition and for others to rebalance their board dynamics.
Directors, CEOs, general counsels, and operating executives will find here the guidance they need to meet the new and rising standards for corporate governance in this demanding business environment.
About the Author
Ram Charan is the go-to adviser for corporate directors and CEOs. Known for his insights and practical wisdom, Charan has counseled some of the world's most successful business leaders. He is coauthor of the bestseller Execution and author or coauthor of 14 other books including Leaders at All Levels, Boards That Deliver, and Boards at Work. He serves on three boards and was named one of Directorship's top 100 directors. He has an MBA and a doctoral degree with corporate governance as a field of study from the Harvard Business School.
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0. What Boards need to know
1. Is our Board composition right for the challenge?
2. Are we addressing the risks that could send our company over the cliff?
3. Are we prepared to do our job when crisis erupts?
4. Are we well prepared to name our next CEO?
5. Does our Board really own the company strategy?
6. How can we get the information we need to govern well?
7. How can our Board get CEO compensation right?
8. Why do we need a lead director anyway?
9. Is our governance committee best of breed?
10. How do we get the most value out of our limited time?
11. How can executive sessions help the Board own up?
12. How can our Board self-evaluation improve our functioning & our output?
13. How do we stop from micromanaging?
14. How prepared are we to work with activist shareholders & their proxies?
I was a little surprised about #3 above. I expected the question to read more like: "Are we doing all that is necessary so crisis does not erupt?" And #4 was a little off in my humble opinion, too. Why only be ready to name the next CEO? What about all the other important executive level officers that are critical to the running and operation of the company?
I was surprised there was not a chapter on conflicts of interest and appearances of impropriety. And I was surprised there was no chapter on whether the company does good internal audit work and the Board has a stellar audit committee.
All in all, I found this book to be a good read and certainly topical in today's economic and business environment where large corporations are being run by people who really don't know what they are doing for the good of the order. They do know what they are doing for their own benefit, though. The book's content is not earth shattering. Nor is it particularly long. If it were priced no higher that $22 I would not complain. But the suggested retail price of $29.95 seems a little steep to me. 4 stars!
This "go-to adviser" for corporate boards and CEOs, also says that boards must "own up" to its accountability for the performance of the organization and reinvent the content of their work and modus operandi. He preaches, "Governance now means leadership."
Board governance often has fuzzy boundaries and is never easy, but this excellent author/authority has 14 cringe-type questions. If you're a long-time reader of my eNewsletters and/or my Amazon reviews, you may recall my enthusiasm for two of Charan's other books: the best-seller Execution: The Discipline of Getting Things Done, with Larry Bossidy, and Leaders at All Levels: Deepening Your Talent Pool to Solve the Succession Crisis (J-B US non-Franchise Leadership). His stuff is reliable, insightful and best of all, highly practical.
Charan doesn't waste words, firing this question onto the board table in the first paragraph of Chapter 1/Question 1: Is Our Board Composition Right for the Challenge? He writes, "The role of the board has unmistakably transitioned from passive governance to active leadership with a delicate balance of avoiding micromanaging. It's leadership as a group, not leadership by an appointed person." He adds, "With the right composition, a board can create value; with the wrong or inappropriate composition, it can easily destroy value."
He recommends that every board member and board prospect complete a "skill assessment matrix" to assess the board's overall strengths and weaknesses. "The process is important because a board full of generalists is not good enough anymore," he warns. Reference checking of board members (well beyond the basic level) is now an absolute necessity. The biggest red flag to avoid: a board nominee with a big ego.
The discussion of board member succession is worth the price of the book. Insights: 1) the process may take up to three years; 2) many CEOs are limiting their service on other boards to just two, or often just their own board; 3) to get the right mix of board members--for rapidly changing needs--many boards are encouraging incumbents to step down early. (Not easy--but critical.) Perhaps most critical: "Board service is always more attractive when the prospective director knows the board has its act together--that the board is thorough in covering its bases and functions well as a group."
Effective boards will want to use this book at an annual board retreat--or address one or two questions per board meeting over the next year or more. The book can also be read topically, based on your current hot issues. I started with Question 13: How Do We Stop From Micromanaging? All 14 have zinger qualities to them. My favorites, based on my board consulting work, include:
--Question 11: How Can Executive Sessions Help the Board Own Up?
--Question 12: How Can Our Board Self-Evaluation Improve Our Functioning and Our Output?
--Question 2: Are We Addressing the Risks That Could Send Our Company Over the Cliff?
--Question 4: Are We Well Prepared to Name Our Next CEO?
--Question 5: Does Our Board Really Own the Company's Strategy?
The best practices for the strategy question are both brilliant and practical, but the CEO will need to dramatically increase face time with board members. But the pay-off could be huge. He notes, "Strategy should always be in the back of directors' minds. It helps to have the strategy brief or a two-page sheet of bullet points in the binder for every meeting." Then Charan cautions us, "If the board and the CEO have lasting substantive differences, they have a choice: stay with the strategy or replace the CEO. Consider that management has a shelf life too, just like the strategy."
Former CEO of DuPont Jack Krol describes this book as both practical and wise.
My own sense is that people will have one of two reactions to this book: (1) concise, focused, and on target and (2) vague and idealistic. For example, Charam states that "the role of the board has changed forever. `Governance' now means leadership, not just over-the-shoulder monitoring and passive approvals." If you think that is an easy concept, then you have not been doing a lot of board work recently!
Charam raises a number of thoughtful questions. Question #1 "is our board composition right for the challenge?" And his response is that in too many instances, the answer is "no." Boards tend to over focus on functional/industry expertise and systematically overlook over factors. Charam provides a useful Director Skill Matrix for the benefit of the Nominating & Governance Committee.
We think people who lack significant board experience will find this book abstract and preachy. Those with board experience who also find the book abstract and preachy are probably the same board members who waste too much time talking about how great things used to be before Sarbanes-Oxley. Those with significant board experience and who are thinking about the future will find this book provocative and challenging.
Larry Stybel & Maryanne Peabody
Board Options, Inc.
Tel. 617 594 7627
"Specialists to Nominating & Governance Committees on Board Talent"
"Governance" now means leadership, not just casual monitoring and granting passive approvals. The bulk of "Owning Up" consists of 14 questions identified by Charan after interviewing a number of respected board members.
"Owning Up" is not comprised of pagefuls of useless generalities. Charan, for example, points out that a board full of generalists is not good enough anymore - they also need domain expertise, be it in IT, logistics, or Indian culture. (When the need for domain expertise is only temporary, Charan suggests bringing in a consultant.) Continuing, Charan also warns that boards with deep operating expertise and limited exposure to strategy naturally skew towards productivity improvement or cost-cutting, and could easily ignore areas like innovation and future market development. And a board with a purely domestic orientation might miss asking questions about global context.
Selecting board members with constructive personalities is also emphasized by Charan. He depicts two extremes - 1)someone hyper-interventionist and contrarian, and 2)someone who never opens their mouth. Identifying helpful personalities is aided by Charan's suggestion for asking a candidate how he/she helped the CEO of another board - this should help the evaluator determine if the individual was in fact a nit-picker without the ability to contribute broad strategic thinking.
CEOs selecting buddies, probably the most prevalent selection method, is not good either. A strong governance committee should handle this task, with consultant assistance, if necessary. The governance committe should also be responsible for evaluating current members to determine if they meet the corporation's future needs, identify who should leave, and report annually.
Other key questions addressed by Charan include "Are we addressing the risks that would send this company over the cliff?" and "How do we get CEO compensation right?"
Bottom Line: Charan's "Owning Up" clearly illustrates how the responsibility of corporate boards nees to be expanded, identifying key areas to think about. Sometimes his proposed solutions are more difficult than one would wish - however, that's what is required and why board members are paid the "big bucks."