That expression will be familiar to readers who have served on boards of directors or have had some decent board governance training. They will agree with it or not, often largely depending on their relationship with the company. Since I have served on, and chaired, a couple of mid-sized nonprofit boards and currently sit on the advisory boards of two privately-owned companies, I’ve had more than a little experience helping fellow board members understand, and adhere to, those four words.
The phrase, for those not familiar with it, refers to the level of involvement of directors as they work with CEOs of the companies on whose boards they serve. The concept of “noses in” means board members need to know their company, monitor its activities, and ask the hard questions about all those areas that impact the success or failure of their companies. The job of a director – whether in a public or private company, or even a nonprofit organization – is to try to make sure no surprises will damage the company or cause it to lose an opportunity to be better, and to strive to make the company more successful because of their participation. They do that by asking the questions, evaluating the quality of the answers, supporting the good responses and pushing back at the bad ones.
But none of that implies they should burrow into the details of company operations and try to direct management team activities, or give orders to anyone on the management team (other than for fiduciary boards in very specific circumstances, the CEO). That’s the “fingers out” part. The fiduciary board has authority over the CEO. The CEO has authority over the management team. That authority gives the board the right to hire, evaluate and fire, if necessary, the CEO. They do not have that same authority over the CEO’s management team, or the actions of those team members. And that’s where it sometimes gets messy. Board members are often corporate leaders in their own right, and accustomed to having their expectations acted upon by those under them. It’s sometimes hard for them to keep in mind that they’re not in charge when they serve as directors. But it’s critically important they do just that.
Interestingly, I’ve had more than a few opportunities to guide the thinking of directors who felt their power was broad enough to dip their fingers into the operating processes of a company. At one board meeting I had to call aside a director who had just spoken to the CFO in such harsh tones that she left the meeting in tears. His thinking may have been clear, but his words in that moment were very inappropriate. He no longer serves on that board.
On the flip side – there’s always a flip side, don’t you know – what if the answers to directors’ questions just aren’t right, or a situation has arisen that the CEO is clearly not prepared or willing to handle? If it involved outsiders – lenders, investors, regulators – the hands-off approach may expose directors to liability because of their responsibility to the company. Yet, if they were in a “fingers in” mode when the situation came up, they may even be deemed a part of the problem, and they could even find their D&O insurance less than supportive.
The best course of action for a director? Diligent review of the information you get; alert monitoring of company operations in support of approved strategic plans; share your concerns with the CEO and perhaps the other directors. In a worst case situation you may need to enlist the board to back you up if the CEO is not sufficiently responsive. But don’t try to be the backup CEO. That’s not your job.
And make sure your insurance is solid, just in case….
Yes, we do serve on company boards in selected instances, but other than that…
We are your CFO for Rent.
