Intellectual Corporate Waste

Director Intelligence

Be sure to examine the effectiveness of your board of directors. Are you getting your money’s worth out of their collective capabilities? A board chairman recently asked me if it was possible to quantify the value of his board of directors. We sat down and calculated that with seven board members each being compensated $50,000 annually (with fees and company stock), the organization was spending approximately $350,000 each year on its board. We looked at the multiple of earnings the company’s stock was trading at and determined that it was 10. I told him, “You’ve got a $3.5 million asset sitting around a table once or twice a quarter; have they given you any $3.5 million ideas or advice? What would you expect if you had paid a consulting firm that amount?”

Now that the value of the intelligence found in your corporate directors is in perspective, make sure that your board meetings are productive and challenging, not just a management show-and-tell about what they did last quarter. This is one of the greatest wastes around—a room full of very intelligent, capable directors being preached to by management. In the example I used, if the board meets four times a year, then the wasted meeting cost is $875,000. Directors should ask tough questions and should be engaged in an understanding of the economics of the business—the value creators and the value eroders. CEOs should be discussing strategic issues and tough problems facing the company, so that the board can be informed and offer advice to help the management team develop solutions.

CEO Intelligence

Finally, take a good look at yourself. Are you, as the organization’s leader, being as productive as possible with clear communication and decisions? Do your employees know how their job relates to the company’s strategic direction? Do you have a deep understanding of your customers, market environment, and competitive threats? Are you making decisions in a timely manner, delegating authority, and training new management? Do you react swiftly to problems or avoid them until they grow into a crisis? Do you manage your time wisely?

Maximizing the value that your organization gets out of the CEO’s corner office isn’t something to be taken lightly. William J. McDonough, a recent chairman of the Securities and Exchange Commission’s Public Company Accounting Oversight Board, has said that in 1980, the average large-company CEO made 40 times more than the company’s average employee. That discrepancy could be attributed to the leadership abilities, experience, and risk associated with the CEO’s job.

By 2002, the average CEO’s pay was more than 400 times that of a worker—10 times more that it had been two decades earlier. No matter how hard I try, I can’t believe that CEOs have become 10 times smarter in the past 20 years! Employees and shareholders have a right to expect and receive competent, moral, efficient leadership.

I urge you to assess whether your organization is wasting any of its organizational intelligence. Leading business organizations through the external challenges that bombard us every day—rising interest rates, labor costs, and global competition, to name a few—isn’t easy.

Amidst all this turmoil, give yourself and your business a gift by leveraging something that is within your control: maximize your corporate intellectual capabilities. Doing this may seem a bit overwhelming at first, but just remember that it’s like eating an elephant—impossible to do all at once, but feasible one bite at a time.