Institute of Corporate Directors is a not-for-profit organization that inspires directors to make meaningful contributions in the boardroom. The conversations that take place in the board rooms are very important for any organization. As the CEO, it’s your job to make sure that every chair is aligned with each other. Join Douglas Nelson as he talks to the CEO of the Institute of Corporate Directors, Rahul Bhardwaj. Join in the conversation to learn more about governance and how it can be improved in the social profit sector. Find out what makes effective relationships between board members and CEOs. Know how to engage with your board today so you can lead your organization to success.
Listen to the podcast here
Institute Of Corporate Directors With Rahul Bhardwaj
This is our first edition of 2023. We are thrilled to be bringing you Rahul Bhardwaj, who is the CEO of the Institute of Corporate Directors. Our conversation is about governance, raising the standard of governance across the country, especially in our social profit sector around the board table and the CEO suite.
What makes effective relationships between board members and CEOs? How can management teams keep their board members at a strategic level and engage them where they are at their best, giving advice and helping to lead the organization? This conversation is one you won’t want to miss. If you are curious about learning more about the ICD, we encourage you to do so. Please enjoy my conversation with Rahul.
Rahul, thank you for joining us.
It is my pleasure.
As we ask all of our guests who come on the show this important hard-hitting first question, tell us about your first memory of giving back and community service.
It goes back to the fall of 1996 and I can feel specific about this because I joined the Board of United Way in Toronto. My first board activity was the kickoff to the campaign at Nathan Phillips Square in Toronto, which was a walkathon and was a fairly big deal. I was a young practicing lawyer and I was new to this. What made it especially unique was in July of 1996, my daughter was born. It was my first child.
I went to Anne Golden, who was then the CEO of the United Way. I said to Anne, “It would be a big deal if I was able to bring my baby in arms up on stage with the rest of the board. I can say that we started our work as community service as a family at an early stage.” I stood at the back with my baby in my arms and you can still tell, I am putting a smile on my face. My daughter is 26 in 2022. She got a 23-year-old brother in 2022. Both of them are very involved with city building and it is all through community service.
You started as a corporate lawyer at a top law firm and transitioned into the social profit sector by becoming CEO of the Toronto Foundation. What drew you to that role? What was that transition like for you?
It was an interesting transition. In between that, I went from corporate law to Vice President of Toronto’s Olympic bid. That was a year of learning about city building in a way I could never have imagined. It had everything to do with understanding the impact that a global event could have on reimagining a city. It spoke about how the crucible of something like that brought all types of leadership together to think about city building.
It had the political and infrastructure element. It was a 101 on city building in a way I hadn’t imagined before. It took me in a direction that sparked my interpersonal desires, passions and interests in doing some big-picture things. That led to working with United Way quite a bit to what we turned into a city-building foundation. It was the Toronto Foundation, which was one of 196 community foundations across the country. At one point, I had the privilege of being Chair of the Community Foundations of Canada. You get a lens on how different communities are building their communities and how they are bringing all the resources together, whether it be political, corporate or philanthropic.
It is that national perspective on the issues that face communities. From there, you go to the Institute for Corporate Directors. You were reporting to a board and decided, “We got to get these folks organized. I’m going to put together a designation and tell them the way it should go.”
That was an interesting transition for me. I will explain why I did it because I had to explain to a lot of people why I didn’t stay. First of all, I had an extraordinary run at the Toronto Foundation. We were doing good work. At times, it is ready for the organization and the individual to grow. There was an opportunity presented through conversations and that was around building trust. That was important. In a couple of ways, I had done the director’s education program. I was an ICD.D. I could see the power and the strength of learning, education and particularly this program for the development of boards. That was one thing.
Secondly, I was also hooked into the whole concept of leadership development, whether it was in the philanthropic world, the city-building world or the corporate world and the ability to influence and develop leadership and, in the case of ICD, board leadership was an extraordinary opportunity. At the Toronto Foundation and through Community Foundations of Canada, I was focused on building social capital.
In social capital, trust is an important part of that. When I got into the conversation about potentially coming to ICD, the conversation I had with the board at that time was, “If you want to build trust in Canadian institutions, that aligns with something I’m interested in.” It led to us doing that. Trust is built right into the purpose of what we have done at ICD.Trust plays an important part in social capital. Click To Tweet
It is hard to imagine any of our readers that don’t know about ICD but as it relates to the social profit sector, what is ICD? How is it relevant in the work of the sector?
For those who don’t know, it is the Institute of Corporate Directors. We are a not-for-profit. It is an association of directors coast to coast in Canada. We got about 17,000 members. A lot of folks ask me, “Is it only for corporate directors?” All corporations have boards of directors. We have those publicly traded and regulated industries to community service not for profit and charities.
What is interesting is many of our traditional corporate directors have also had a lot of experience working with not-for-profits, whether they are on charitable boards, foundations and other types of community not-for-profits. We got a lot of not-for-profit directors in our association. We probably got about 40% to 50% that is focused on not-for-profits and about 50% that is focused on others, which is typically in the corporate commercial as people would know them.
A lot of things that we see in our work with organizations across the country are many of the board members wanting to be on those public boards or crown boards and working in the social profit sector to establish their credibility as directors. Not training those but it’s the first start for a number of a couple of things.
A lot of people do start their board journey on not-for-profits, particularly earlier in their careers.
Over the course of my career, I had the opportunity to report to a few boards and then work with boards daily. The idea of governance in our social profit sector has changed significantly over the last number of years. It is someone who has been not only a part of that change but leading that change. What have you seen change over the last several years as it relates to social profit governance?
I’m a lot more sophisticated because it had to be. Everything from public scrutiny and donor expectations to the fact that the risk profile for a company’s not-for-profits, in particular, in a social media world, has changed. You don’t have as much leave. The old saying about you don’t want to see you above the fold in the newspaper was something that a lot of boards would talk about. We would talk about reputational risk.
You would find that members and donors have much higher expectations in terms of transparency, reporting, governance and above all, avoidance of conflicts of interest. Not only do CEOs and senior management need to understand the environment of corporate governance differently but boards have up their games so they could be transparent, responsible and trust-building with donors. You also got directors that are coming onto those boards saying, “There’s a lot of personal liability reputational.” For the purpose that we are here for, let’s make sure we are doing it.
It is fascinating to see several organizations that are caught somewhere in that evolution and going back several years where several boards adopted the Carver model and have moved away from it because it doesn’t work well in the social profit or charitable sector for lots of reasons. That could be another episode. Maybe it is a rant that I will have in the mirror one morning.
The organization is caught in the transition for how they govern. In communications, everyone thinks they are good at it. They bring their perception and bias to it. What are some of the challenges that you see, particularly new board directors or people seeking out the ICD designation, that the assumptions that they have about governance may get in the way of them being fully contributing around the table?
It goes back to having clarity around what fiduciary duty means in the context of their organization. A lot of those early on, if we take not-for-profits, for example. Let’s say community-based. People get involved in those because they want to make a difference. They are seized with the issue. It could be housing, sport or whatever but they are seized with that. When they go into a governance role, they have to be able to make that step across the line from thinking like a manager and executive into oversight of culture, strategy and risk.When going into a governance role, you have to go from thinking like a manager to having oversight of culture, strategy, and risk. Click To Tweet
In some organizations, they need hands-on directors. As they grow, they need to get to a point where the directors are no longer managing or management but they are there to oversight. Some directors have a challenge knowing when to let management do their job or get involved. As we say, “Fiduciary duty starts with knowing what is in the best interest of the corporation and taking that lens to it.” Secondly, we say to particularly a lot of not-for-profit directors, “Your job is to hire or fire the CEO. Make sure you know what the role is, get the best CEO you can and you’re there to provide oversight, not to do their job or to tell them what their job is.” Some take a little longer to understand how that plays out.
A lot of boards are frustrated that they have few tools at their disposal when it comes to governing or running the board. They know it is the hiring and firing of the CEO but they also want to have a strong opinion about how the head of fundraising is doing or how the CFO is performing. It is a challenge for board chairs and CEOs to maintain that line. When they come out of the ICD program, all of those issues are resolved, I assume. Everybody got clear sight and they know.
They are better equipped than when they came in. We have done several programs. We got our GEP program, which is Governance Essentials Program. It used to be known as a not-for-profit. It is slightly shorter. It is only a couple of days but it is an intense couple of days to get the lens that you need to be a contributing board member of a not-for-profit in particular.
Build your experience. You are going to want to get into a more sophisticated organization. There already could be a crown corporation or commercial. You got the director’s education program that gives you the opportunity to get the certification or designation of the ICD.D. In both cases, you start to appreciate what fiduciary duty means, what it means to be acting in the best interest of the corporation and what oversight of culture, strategy and risk means. To your earlier comment, you are right. Some directors want to have a say in a lot of rather operational things. You can do that if you understand you do that through strategic conversation.
The management board collaborates to a certain degree on developing a strategy that the board will ultimately approve their KPIs or Key Performance Indicators, which are milestones that the board says to management. Those are the things we are expecting you to achieve and the outcomes you want to. Those are what you’re being held to account and that is the lens they will bring into the relationship with management. It is a whole other conversation about how management leverages the board. We can go there if you like to.
One short story. When I first started the Discovery Group, I’m having reported to boards. Now we are going to be working and supporting boards in a different way to be better boards. My idea was that many of the people around the table didn’t have an idea of what fiduciary responsibility meant. It was often used as an expression of, “I’m uncomfortable with this.” They say, “I’m concerned about our fiduciary responsibility.” It was a red flag that would go into the middle of the room and everyone would stop. It was a way not to resolve or understand issues. It was a way to stop discussion.
With the first two engagements that I had, I had this smart idea. We are going to get everybody to write down their definition of fiduciary responsibility on a piece of paper. We are going to collect it and mix it up with some of the other accounting designations on how ICD defines it. We are going to put them all on the slide deck and put that up after the coffee break at 10:00. It turned out not to be very good news at all. There was a lot of variation in terms of how people were defining whom to share responsibility. There was some good conversation about how to come up with one that worked for the organization that was there in the room.
The biggest lesson I learned is the way to build trust with the board is not at the coffee break to point out they don’t know what they are talking about. It is a definite facilitation here. It did highlight that the primary role of that significant role is the boards around fiduciary responsibility. People assume that everyone has the same definition they do. Time it again, we see in our work they simply don’t. What advice would you give to a board chair who got that variety of definitions looking around the table as they are trying to move forward with something significant for an organization?
I like to keep it simple. I would say, “Follow what you described.” Your example, you spoke as a board chair. What a good board chair would do is be able to read the room and say, “Where are we? Where do I see gaps?” More importantly, how do we create an environment where the board has a shared view of what corporate performance means? Whether it is a not-for-profit or a public company. What does good mean? How do we know we are doing the right thing and the good thing? What do we want to achieve?
There are not enough boards that spend time talking about that. Mature boards will do that within the context of a strategy. If you are in strategic planning or conversations, a chair that is engaged in reading management and board members will be able to see where there is an opportunity and take the time to say, “What does good performance look like for us?” That is where you start to develop that shared narrative and define what is in the best interest of the corporation, which is at the heart of what’s our fiduciary duty.
One of the other challenges that I’m interested in your perspective on and sharing with a lot of our readers is CEOs working with boards. One of the number one fears or challenges that CEOs face in working with their board is often not wanting to appear defensive. They are wanting to be collaborating and work actively and proactively with their boards.
Sometimes when the board members will crossline in operations, they say, “Stay back.” That defensiveness over time tends to erode credibility with the board in general. From your perspective, having been the CEO, now advising and creating generations of board directors, what advice would you have for CEOs that are concerned about appearing defensive with their boards?
We have a course for senior management called board dynamics for executives precisely to help senior management perform better in the board room, not just build excitement around the board but to get things done with their board to understand what the board lens is. The lens that directors are bringing to board meetings. Many of us have been on boards before where a good group of senior managers will come in, they will make their presentations, you go in camera and the board looks at each other and says, “What the heck was that? Did they ever miss the mark?” These are accomplished executives but there seems to be, at times, a bit of a disconnect between what the management team is doing and what the board’s expecting.
If I were to paraphrase it all, sometimes management teams go into board meetings, giving them the weather report, “These are the list of things that we have done.” You put the kitchen sink on the table and they look at the board and say, “Now, what do you think?” There is this notion of reporting and where the board is often coming in saying, “We want to be engaged with the issues and the strategy of the organization. How do we bring our best to the table?”
If you want your board to bring their best to the table, you need to come to the board and say, “This is what we think the important issues are. This is why they are important. This is how they are connected to the strategy of the organization. This is what we are recommending. Let’s dig into these issues.” They will find it more successful. They will be more excited because they will get engaged volunteers who are bringing their best to it.If you want your board to bring their best to the table, you need to go there and say what the important issues are. Click To Tweet
Doug, I would also go back to the point that you need a CEO working closely with a chair to build an agenda that facilitates that conversation that over time builds the culture. It is not about the weather report because every management group says, “We got a board meeting. Drop everything. Get the packages together.” There is this crazy flurry. They get it all on the table in the board meeting. They are exhausted. Everybody goes home and does it again.
Smart boards or management teams are looking at it particularly saying, “We see these challenges, opportunities and risks. There is a little bit of reporting to be done but on board, where we want you to focus on is the future. This is what we see coming. This is what we’re thinking about it. Help us engage on that.”
Particularly in the social profit sector, the real advantage of the greatest value of boards is often the advice they provide and the exploration they do with the management team as opposed to the decisions they make around the information. Your comments resonate with me. We get to management teams and start working with them. They are saying, “Our board keeps coming into operations.” I say, “What is the information you are giving?”
It is not a perfect correlation but there is a strong correlation between we are going to report all of the things we do, the tasks we accomplish and the milestones we have hit. We will show all these operational details and then wonder why the board is asking questions about operations. I said, “We got smart people who are responding to the information you are putting in front of them. If you don’t want them to talk about those operations, don’t lead with operational details.” It does take a while for the culture over on the board table in any organization to move from, “Let’s go through what is in the kitchen sink,” to those future-forward discussions you would discuss.
There is a particular tactic that helps bridge that as well. I know a lot of boards in a camera are talking about, “How do we focus the agenda on more strategic conversations and less compliance?” More mature boards are getting better at using the consent agenda. A lot of those things that are for information get him on the consent agenda and leave the big strategic pieces at separate items. That signals to the board, “Read this stuff if you got questions to ask but this is where we want the input.” That is where a CEO can talk to a board chair to say, “This is where we need the input.”
One of the other tactics that I have seen be effective for some organizations is leading with the CEO report. You do the consent agenda and the first thing you talk about is the written CEO report. The CEO should say little in that 90-second to 2-minute introduction to the report that they put in the package. Let’s talk about the issues that are in there. The CEO report can’t be a list of all the things they have done over the last couple of months.
The other issue that comes up around boards, particularly in the social profit sector, is the role of management, not directly sighting but advising who comes on the board. That is a trend that we have seen and the correlation I would draw here is that long-serving CEOs tend to have more involvement in selecting their boards, which you could infer that it means they have a greater survival instinct and are choosier. I do think it is an open question for a lot of organizations. What would your advice be?
That is an important piece of the equation. Board composition is critical to the success of the organization and all of the oversight pieces. From my perspective, if done properly, a good management team will be strategic and their contributions to the conversation with the board and the governance committee about whom to bring onto the board.The board's composition is critical to the success of the organization and all of the oversight pieces. Click To Tweet
Before you even get onto the who though, it is around the board matrix. That is where the real conversation around strategy takes place. I can imagine a conversation typical of the type I have had with my chair where we look ahead and say, “We got three vacancies coming up.” “We will sit back and say, “Strategically, where do you think we are going? Where are some of the gaps?”
The management says to their chair, “We are doing a lot more digital. I could use some more support digitally here. There is an area we wanted to expand on. I don’t think we got a lot of bench strengths there. I could see it becoming more important. It would be great to get that on the board matrix. It could be geographic or anything.” You might say, “We need to enhance our diversity on the board.” It has created more space on the matrix.
If you can get a good conversation around what the matrix looks like, you get into, “Who are the individuals that fit those?” That is a separate related conversation. Most management teams would get the most benefit from the strategic conversation about the matrix. If there is alignment around there, there are a few boards that I think would not seek input from their CEO. Given that they all agree on the matrix, you got to justify your decision aligned with the matrix.
If they don’t want to include the CEO, there is probably another issue. I want to ask a couple more advice questions. The relationship between the board chair and the CEO is critically important to the health of not-for-profit organizations. Often we see the transition in chairs as an inflection point for many organizations. Their greatest risk for CEO continuity occurs around that time. What are the elements or hallmarks of a successful relationship between a board chair and a CEO in the social profit sector?
Those organizations that have vice chairs or chairs of the governance committee that people have a good sense would be the incoming chair gives folks time to get to know each other and gives a chance for a CEO to gauge the level of engagement of a potential incoming chair to make sure that they learn to work together. They spend some social time together as well. As soon as they get thrown into the cold room of those roles, they adopt the roles and suddenly, they got different stakeholders that they are looking at.
Giving the opportunity to have that warmup earlier helps a lot because it creates the opportunity where an incoming chair can say to a CEO, “I’m considering this role. How would you see this working? What would you see over the next couple of years? What is your career trajectory? Are you going to be here in three years? I’m going to be here. I’m hoping. What do you feel about it?”
There are many important conversations to be had before anybody agrees to that. If you got an incoming chair that is anticipating making significant changes, it would be wise to have that conversation with the outgoing chair. The outgoing chair can play an important role in bridging this conversation if they see any significant changes coming down the pipe.
That is a great piece of advice to make that a three-way conversation and then focus on the continuity that may or may not be there. What advice would you have for a new CEO coming in who is new to the organization coming in and doing reasonably well, not coming in a time of crisis? How can a new CEO be successful in their board relations right out of the gate?
First of all, make them a priority. I don’t even call them a stakeholder. It is way more important than that. As you are getting to know your donors, community partners and staff, it is important but makes the board and the board share a priority. You got to communicate. It is a great idea to pick up the phone if you can’t meet them face to face and spend 30 minutes or 1 hour with them to get their sense of the organization and the challenges in the opportunities. Why are they there? What motivates them to be on the board? What does good look like to them?
The same thing to your board chair to understand that a little bit better because these are critical relationships. Building trust with your board and your board chair are critical to your ability to go forward. You are going to need them as ambassadors because your whole community of stakeholders and donors will be looking to signals from your board as your staff as well, saying, “Is this the new CEO? Any good? Are they on track? How are they doing?” If they get the thumbs up because people know about it, they will feel good about it.
When I have gone into my roles, I have spent a lot of time sending notes quite regularly to my board to remind him I’m here and the flow of what is going on. It helps build them right down to show up to work every day. Every week he is there. Otherwise, they are not phoning. They don’t know. They assume you do but they will get the flow of it. By the time you get to the first board meeting, they are accustomed to your voice, tone and energy. It is time very well spent.
One of the biggest value losses that I see in our sector is if you ask a board member who is not a committee chair, not on the executive or not an officer of the board, how much time do you think the CEOs spend working with the board? The answer is typically 10%, 15% or maybe 20% of their time. If you ask a committee chair, they usually say about 25% and a board chair will say maybe 1/3 or 25%. Most CEOs that I speak to, particularly ones that are less than ten years in the role, will say, “50% or 60% of my time.” That includes using them to help support fundraising and other advocacy issues but they are spending a lot of time with their boards. A board member thinks that is 10% of your time.
As a CEO, if you are spending 60% of your time on your board, there is this giant value loss and perception of value loss that a lot of CEOs are at risk or put themselves in a risky position by not being clear about how important the board is, how seriously they take the relationship and what it requires in terms of their time and attention. From my perspective, if a new board member comes on to a board, understanding that the CEO is spending a great deal of time. If boards are concerned about it, there is a healthy conversation about how to reduce the amount of time a CEO may need to spend with the board. There is a lot of room around a lot of board tables to close that gap.
That is a big number if you are spending 60% of your time with board members. If they are helping fundraise and stuff, I get it. It is a slightly different context but efficiency and communication are important. If you are doing 60% with your board, you got a lot of stakeholders out there that maybe the board is hoping you are in touch with that you might not be doing as much of.
They were like, “Why aren’t you doing that?” He was like, “I’m spending all my time talking to you.” They were like, “No, you are not.” There are a lot of expectation management issues that come up from that. As we come to the end of our conversation, I want to ask you one of my favorite questions to ask people who are positively contributing to the sector and country. What are you looking forward to in your role as CEO at ICD?
As it relates to the organization, I have been buoyed by the last several years. We are over 17,000 members. When I started, we were over ten. It is not to say, “Look at the number.” The relevance of the organization, the work that we do, corporate governance and leadership are important. It is gratifying to see that. I’m seeing an optimistic leadership conversation taking place in Canada from coast to coast.
If we can be a part of knitting that together and being a platform for these challenging conversations to take place, that is great because the country has got a lot of challenging conversations ahead of it. Part of it is the makeup of some great leadership and that is having those conversations. On the one hand, it is a daunting challenge and on the other, we got good assets of leadership to manage those. That leads me to a sense of optimism.
The work that you and your colleagues do and the movement that you are forming around the importance of governance in a corporate setting, certainly in our social profit sector, elevate the conversation. It helps individuals up their game when they take these positions on boards and choose to serve. Thank you and your colleagues for all that you do. Thank you for being a part of the show.
It is my pleasure.
About Rahul Bhardwaj
As President and CEO of the Institute of Corporate Directors, Rahul Bhardwaj leads a Canadian not-for-profit association of more than 16,000 members committed to improving national outcomes by growing the board leadership and governance capacities within Canadian businesses, agencies and not-for-profits. Mr. Bhardwaj currently serves on the boards of Waterfront Toronto, the Institute of Corporate Directors, the Canadian Foundation for Governance Research as well as the Leader Council at the Ian O. Ihnatowycz Institute for Leadership at Ivey Business School. He is also Chair, Global Network of Director Institutes and Director Emeritus at the Rideau Hall Foundation. His corporate governance vision has made Mr. Bhardwaj a sought-after presenter, speaker and media commentator, in Canada and across the globe.