To recap our series of posts from March 2014 to date:
- Three posts on “Corporate Compliance Starts with Good Governance at the Top” dealing with “Fiduciary Duties of Board Members” (March 27, 2014), “Some Special Areas of Concern for Board Members under Their Fiduciary Duties”(April 10, 2014), and “Protections Afforded to Board Members with respect to Fiduciary Duties” (April 24, 2014);
- A post on “Standards Set by Federal Sentencing Guidelines,” which may be experienced without good governance at the top (May 12, 2014);
- A post on “Best Practices” as a standard higher than fiduciary duties (May 29, 2014);
- Two posts on “Board Evaluations” dealing first with “Why they Are Important (June 12, 2014) and then “How to Proceed” (June 26, 2014);
- A post on “Engaging the Board in Succession Planning among Its Board Members” (July 10, 2014);
- A post on “Engaging the Board in Strategic Planning” (July 24, 2014); and
- Three posts on “Expertise Boards,” with the ultimate goal of good governance at the top, “State Law Encourages an Expertise Board for Corporate Compliance” (August 7, 2014), “Categories of Expertise to Consider for an Expertise Board” (August 21, 2014), and “How to Address Gaps in Expertise” (September 11, 2014).
In order to engage the board and its members in any of these governance topics, we recommend extemporaneous simulation of factual scenarios in which the board participates. We’ve found that engaging a board in a simulated factual scenario is more engaging than a traditional PowerPoint lecture format.
Some of the simulations boards have found beneficial include:
- Penn State: We re-enact a scenario based upon the day-by-day the events faced by the Penn State board over the five-day period of Saturday, November 5, 2011, through Wednesday, November 9, 2011. In this exercise, we challenge the board to review each issue considered by the Penn State board during that period and then vote as a board. The learning objective of this simulation exercise is the importance of protecting one of your organization’s most valuable assets - its reputation.
- Adolph Icon: The board receives a letter from an Adolph Icon on the evening prior to a board meeting demanding a meeting with the board at that board meeting. Icon has a biography that includes getting himself elected to boards and their compensation committees, replacing other members of the compensation committee with colleagues and family members, and eventually firing management and assuming control. The learning objective of simulation exercise is the role of the board and of management in dealing with an unexpected solicitation that can have a draconian result.
- Mass Board Resignation: At the beginning of a board meeting, the CEO announces that a majority of the board had resigned prior to meeting, and legal counsel has advised that the board needs to fill the vacancies. The board is guided in a discussion of what skill sets it wants in new board members and is gently pushed toward building an “expertise” board composed of persons with competencies needed for the future success of the organization rather than a “constituency” board (such as Congress). The learning objective of this simulation exercise is succession planning of the board.
- Unexpected CEO Resignation: At the beginning of a board meeting, the board chair announces that the organization’s CEO tendered his or her resignation effective yesterday and the board will need to determine what skillsets the board wants in a future CEO and how it will find such a person. The learning objective of this simulation exercise is CEO succession planning.
- New Board Member Nightmare: Using stick character cartoon figures, a young person is solicited ¾ and agrees ¾ to become a new board member of a nonprofit organization. This turns into a nightmare when the new board member becomes an ERISA fiduciary, treasurer where the organization failed to file and report employment taxes, and is imposed with Intermediate Sanctions. The learning objective is what questions should be asked, and what red flags should be warnings, before becoming a nonprofit board member.
- Adolph Shepard Requests for a Members Meeting to Change Control: The board members of a membership organization ¾ such as an insurance company or a member nonprofit organization ¾ receive a letter demanding a copy of the names and addresses of the members with the purpose of calling members’ meeting to consider a proposal for a reverse merger that will result in change in control of the organization. The learning objective is to assess the current capabilities of the board, individual directors, and executive officers in dealing with such an unexpected event and review steps needed to strengthen those capabilities.
These factual scenarios are not scripted, but instead simply outlined, in order to allow for a natural reaction to the simulation from the board. After completing the simulation, there is a discussion led by an outside facilitator of what the board did correctly and where it may make some improvements. Except for the “New Board Member Nightmare,” these are generally half-day programs. We find it works best if the board (except for the board chairperson) is unaware of the simulation until the beginning of the board meeting.