THE BOARD EXPENSE GUIDELINES PARADOX

Unquestionably, the tone of a company is set by the top leadership. In Letter 5 “The Pull of Hubris” I talk about a company’s atmosphere, the air all employees breathe. I propose that it is made up of a special kind of oxygen, an oxygen that “comes from the very top of the organization.” When this oxygen begins to be tainted (as I believe visibly happened with a number of companies a few years ago) it can affect the whole organization – often without anyone being aware of it until it is too late.

So, how appropriate is it for top executives to receive what might be considered special treatment when the company at-large is being asked to be frugal? How does one draw the line between expenses that conserve performance capacity,– such as flying first class to ensure that an executive is rested when reaching a far away city to engage in a difficult and crucial negotiation– versus the travel and entertainment policy for the rank and file that insists on the cheapest fares? A tough balance.

It is not surprising that the question arises with the Board of Directors, as well. And here I have always found myself in a conundrum. While I was CEO, I applied the principle that if I wanted to fly first class or stay at a particularly luxurious hotel I paid the difference out of my own pocket unless it applied to all my senior management for a particular situation. But for the Board, I maintained the philosophy that I was privileged to have high powered Board members serving my company, and would do everything in my power to make their time with us as comfortable – and attractive – as possible. So I insisted that our Board members fly first class, and arranged for them to stay at the best hotels. Was I irresponsible? Did I squander shareholder money?

In Footnote 31 of the book I presented my “Rule of 3” to attract a Board member:

First, get the person excited about the vision;

Second, assure them that association with my company will never tarnish their reputation (this assurance is best done by pointing to who else has agreed to serve;) and,

Third, be super-respectful of board members’ time.

I should have added a Fourth rule:

Make the Board member as comfortable as possible so as to take away any hindrance to his or her fully focused presence and engagement in your company’s affairs while they are with you.

In the same footnote 31 I talk about the imperative of getting the best of the best on your Board. A Board offers a unique opportunity to harness enormous experience – often well beyond what you can afford to hire into your company. So when the CEO draws on a Board member’s time, principally at in-person Board meetings, you want to extract all the accumulated wisdom of the individuals’ extensive business experience.

Most Board members I have attracted do not “need the job” nor are they doing it for the payment. They do it because they enjoy sharing their experience by guiding companies whose missions they value and whose management they respect. They could be doing many other things with their time, and often we are asking them to interrupt other activities, travel many hours to be with us for only a day or two, and then “work them” hard when they arrive.

My philosophy: make it a pleasure for them to come. The price is well worth it!

Do you Agree? Disagree? Am I missing something?

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