The Case for Activist Directors

Proactive board meetings begin with some management presentations, but then include authentic discussions about issues confronting the company. The meeting runs according to an agenda of major corporate decisions voted on by a majority of members present. (Hours and hours of management reports and pontificating are not tolerated at these board meetings.)

Directors are expected to develop a depth of knowledge about the business they represent, and understand and question the assumptions that the plans are based upon. These boards expect directors to be so engaged in the business that they can make independent decisions about whether the plans presented by management are realistic or pie in the sky.

However, directors aren't the CEO's golf buddies and fraternity cronies. The proactive board actively recruits a diverse group of independent, professional, corporate directors who represent various points of view, industry experience, and skills relevant to the business.

Proactive boards believe that making decisions about the corporation doesn't mean there can't be any discourse among directors; in fact, they encourage healthy debate about the im-portant issues. And if board members don't conform to the groupthink, they aren't forced off the board; others work toward consensus with them. Dissenting opinions are respected by other directors. These best-of-class boards constantly ask themselves whether they are being sufficiently vigilant about the performance of the business, its future and growth, and the health of its key financial metrics.

Being a director on a proactive board means representing not only shareholders, but also employees, customers, and suppliers. Although these directors are elected by the shareholders to represent their best interests, acting with "due care" also means they have legal and other obligations to all stakeholders.

Proactive boards insist that the business has systems to encourage ethical behavior and compliance with all laws, regulations, auditing and accounting principles, and the business's bylaws and other governing documents. These boards expect the utmost integrity and ethical behavior from their directors, and are adamant about total disclosure and transparency.

Finally, proactive boards are vigilant about their role in keeping the CEO and other senior managers accountable. They regularly evaluate the performance of the CEO, including selecting, monitoring, evaluating, and properly compensating the CEO and other senior executives. And these boards have disciplined systems to ensure smooth management succession.

Serve, Don't Sit

If boards have a collective responsibility to be proactive, individual directors should have a personal commitment to be engaged and active in the companies they represent. Activist directors are those who realize that their number-one priority is to preserve, improve, and create value for a company's shareholders. They actively listen to what shareholders, employees, major customers, vendors, suppliers, and analysts have to say. They visit stores and manufacturing facilities. They find ways to keep their finger on the pulse of the company, which in turn keeps their opinions and questions sharp and focused.

And while activist directors operate and think independently, they can also be good team players. They pay little attention to the bygone "code of congeniality" at board meetings and never succumb to groupthink.

Engaged, activist directors are aggressive about management achieving agreed-upon goals, suffering fools and excuses terribly. The exchange of ideas at board meetings energizes them. And they insist that the board conduct itself in a way that advances the interests of shareholders, employees, and other stakeholders, and not the social or collegial culture of the board.

The desire to win burns strong in activist directors, and they abhor processes that don't contribute to that end. Proactive board members are change agents because they are not afraid to challenge the status quo, have a strong sense of urgency when a company needs to improve its performance, and value "doing it" over "planning for it." Active students of corporate governance and leadership do not sit on boards—they serve on boards.

So, let's start a new trend. The only directors labeled "activist" don't have to be hedge or equity fund managers. The best corporate boards and their directors are also activists, raising their overall level of engagement and emotional intensity about the businesses they serve. At your next board meeting, just ask yourself, "Would we rather be a proactive board with activist directors or be run (or replaced) by activist investors?"