The Phases of Board Development

Ram Charan, expert in corporate governance classified the board evolution into three phases: the Ceremonial Board, the Liberated Board, and the Progressive Board.

The Ceremonial Board: The board in this phase is characterized as passive board. CEO is powerful. This phase is before the Sarbanes-Oxley regulation. Management tightly controls information flow. Information is summarized at very high level, and presentation run long. Board is rubber-stamps CEO’s decisions. The boards do only compliance only.

The Liberated Board: Most boards left their Ceremonial board status after behind the passage of Sarbanes-Oxley. A next generation of CEOs now expects boards to contribute. Directors free to speak up in boardroom but dialogue is fragmented and most of the time no concensus is reached. Boards promise to improve but they focus on mechanism solution and do not act on self-evaluation with conviction. Management wildly makes company transparent to board but it is frustrated by ad hoc demands by some directors that leave management complication. Board asks for more information but what they get is not packed well and does not help the directors understand the guts of the business. Board desires to make contribution but overwhelmed by issues, become driven by compliance and routine operating issues.

The Progressive Board: Directors work as a group. Mutual respect and trust among each directors and management. Everyone participates and consensus is very frequently achieved on key issues. Self-evalution gives tool for continuous improvement and directors take results seriously. Information is focused, timely, regular, and digestible. Management anticipates board needs. Directors learn the business. Board and CEO jointly set twelve month agenda. Board focuses that are vale-added and anticipatory, as well as those that are compliance related.

Source: Ram Charan, Boards that Deliver: Advancing Corporate Governance from Compliance to Competitive Advantage, John Wiley & sons, Inc., 2005