Using Experts in the Boardroom: Handling Risks – Professional Growth Systems

Using Experts in the Boardroom: Handling Risks

Duty of Care: def. – a legal obligation that requires individuals (board members, in this case) to adhere to a standard of reasonable care while performing acts that could predictably harm others.

Why do we need experts?

One element of the legal standard for duty of care is that board members follow the advice of experts who have been hired to advise the board. Experts might include legal counsel, auditors, engineers, chiefs of medical staff, investment advisors, and so forth; people who advise the board on matters in their fields of expertise.

The dilemma of the risks

I use the term, dilemma, here, because following the advice of experts can sometimes be a “damned-if-you-do, damned-if-you-don’t” sort of thing.

On the one hand, if you blindly follow expert advice, you run the risk of relinquishing your responsibility to do what is best for those you represent. The experts, don’t forget, don’t have any such responsibility.

On the other hand, if you ignore the advice of the experts, you can put the stakeholders – and, ultimately, yourself – at risk, for not having followed that advice.

I have seen both sides of this dilemma, first-hand. In some instances, I have seen board members rely far too much on the opinions of the experts, while they ignored their responsibility to do whatever’s best for those they represented. I have also seen the opposite occur: Board members ignored, altogether, the experts’ advice, thus putting their stakeholders, and sometimes themselves, at risk.

The root cause of risk: not enough knowledge

You can avoid risk at both ends of this dilemma only by learning and developing your own judgment in the relevant area.  In essence, you have to have enough knowledge in that area to evaluate the risk you’re being told might be yours if you don’t follow the advice. Ask yourself: What is the probability of an audit exception? A note in the management letter? A lawsuit? These are all judgments based on knowledge.

Using the experts: managing the risk

There are four important elements in managing risk where the use of experts is concerned.

  1. Using experts in the BoardroomFirst and foremost, rely only on those experts you can understand. If, at the end of a presentation by an expert, you can’t state, in plain terms, what their advice means for your organization, you either have the wrong expert, or you aren’t listening to understand.Experts that seek to foster dependence on their advice for their own ends, will often use language that seeks to confuse. That makes you more dependent on their advice. Experts that can communicate complex matters in understandable terms, with examples that you can relate to in your own experience, are experts that you can likely rely on.
  2. Ask questions until you understand the issues. When faced with experts, board members are often unwilling to ask questions for fear of exposing their lack of understanding. Two truths here:  First, the only dumb question is one that is not asked, and second, if the expert can’t get you to understand a concept, the failing is hers or his; not yours.
  3. At the close of the presentation, discuss with your other board members what you understand from the presentation, and what it means to you as a governing board. Force yourselves to discuss this area in which you lack mastery, so you gain greater understanding. Be patient with those members who have the most to learn. Their basic questions might strengthen learning for the entire group.
  4. Focus on understanding language. Ultimately, most misunderstanding and lack of knowledge is rooted in words that are not understood. Each area of expertise (accounting, law, medicine, engineering, for example) that you might deal with has its own terms; its own language. That language is probably the barrier to your understanding.

I once sat in on a presentation by the chief financial officer of a large non-profit corporation. I watched all the members become glassy-eyed as the CFO ran through the financial statements, rattling off a host of accounting terms that the group clearly did not understand. Keeping the board members in the dark might have served the CFO well, but certainly not the corporation as a whole. The CFO exited, and I shifted my presentation to a discussion about the financial status of the organization. “Raise your hand if you can tell me the financial condition of the organization at this time,” I said.  Not a hand went up.

I then took the group through an exercise in which we defined each financial term on the accounting statements. We also evaluated each data element to determine its status: favorable or unfavorable. Board members left the meeting understanding the financial condition. They were also alert and much more confident about making the decisions they were being asked to make during the remainder of the meeting. It was all about not understanding the terms.

The true expert

Experts you can rely on are those who can relay their information in understandable terms, and who are committed to you becoming an “expert” in their areas. If you’re not sure your expert meets these tests, get a second opinion; try out another one.  Most important: Ask yourself, after each expert presentation, what you learned, and what the significance of their opinion is to the decisions before you.