There is Much More to Fiduciary Responsibility Than You Think

A New View of Fiduciary

How far does Fiduciary Responsibility extend? Aside from delivering the highest value to shareholders, what about fiduciary responsibility to other constituents? What does fiduciary responsibility really mean? Let’s look at few common definitions:

• From the Latin fiducia, meaning “trust,” having the power and obligation to act for another under circumstances which require total trust, good faith and honesty.
• Involving trust: “the company has a fiduciary duty to shareholders.”
• A fiduciaryrelationship extends to every possible case in which one side places confidence in the other and such confidence is
• One often in a position of authority who obligates herself or himself to act on behalf of another.
• Essentially, a fiduciaryis a person or organization that owes to another the duties of good faith and trust.

Of course, the shareholders of the organization are a critically important constituency – after all, Board Members represent shareholders and are elected to serve their interests. At the surface, some may think that shareholders simply care about the price per share and the potential upside of the stock’s value. However, even a novice investor understands that the underlying health of the company, its growth strategies, treatment of employees and customer service, etc. are what really drives the metrics reported on a company’s stock profile.

Fiduciary Responsibility to Customers?

Let’s continue with a constituent group, whom without, the organization wouldn’t exist: Customers. You might argue that there’s no room in your role as a Director on the Board to influence the realm of “customer” for the organization. Think again! Board members provide guidance, advice and governance to the leadership team on their strategies and long-range plan – if you don’t see the customer and customer service success metrics powerfully reflected in this plan, then perhaps some dialogue at the Board level is appropriate. Proactively directing the leadership team to consider taking care of the customer may not be a traditional role, but it’s needed. Corporate leaders’ priorities are influenced by the Board – leaders will make serving customers a priority if the Board insists.

Rather than view customers as those “pesky people” who drain your customer service resources and demand low prices, it is a Board Member’s responsibility to connect with what makes customers tick and Directors should insist that innovative solutions be offered to help them solve problems they may not even know they have – and to help customers better serve their customers. As customer driven revenue pays the bills, and actually determines an organization’s viability, isn’t it critical to safeguard customer opportunities to grow and extend their relationship with your organization? Thus, fiduciary responsibility to clients and customers!

Would you rather face the flip-side of proactive customer focus? It may be easier to imagine your Board Member role in Governance when sales are down, market share is down, net income is down, customer ratings are declining – quoting your fiduciary responsibility in crafting your punitive response to these reports. What’s the traditional Board going to do? Point your finger and lay blame on leadership or management? Change leadership “horses,” incentivize differently? React in disappointment, disdain or even anger (when in danger or in doubt, run in circles, scream and shout)?

Consider an alternative scenario when the Board is more in-touch and understands the real business dynamics of the marketplace and the associates who serve it. Good news or bad news on the customer front, Board Directors are also responsible.

Fiduciary Responsibility to Employees?

Let’s move on to another constituency: Employees. What responsibility does a board member have to the organization’s associates? From the warehouse worker all the way to the C-Suite, the organization is comprised of real people who deliver value to the company – they perform in a way that causes customers to come back, pay more, influence others to buy (or in contrast, do the opposite and customers buy somewhere else). While there is no place for over-involved, interfering and overcontrolling Board participation in the day to day business matters of the organization, Boards do need to contribute to a “Fiduciary Partnership” with an organization and its leadership.

Board Members naturally fear crossing over the line – away from “directing” and closer to “managing.” That fear may drive members to a point of detachment, rather than working for the right balance. Further exacerbating this issue is the literal separation between Board Members and employees. In some organizations employees are even instructed to be “seen but not heard” when a Board meeting occurs. In the name of segregation of duties, Board Members are sequestered and not encouraged to walk the halls and meet the heart and soul of the organization. When Leadership addresses the Board about their employee base, they use reports, numbers, charts and statistics. Aside from the Compensation Plans they approve, and the presentations they receive from Leadership on specific strategies, risks and accomplishments – interaction with anyone outside of the C-Suite is limited.

This can lead to isolated, “overly-managed communications” to the Board. It’s a tradition that is well rooted in our corporate culture. However, is there a lost opportunity in this tradition? What if leaders spent energy creating interaction opportunities with their Board rather than actively isolating members from rank and file staff members – going beyond inviting board members to employee town halls to sit in the front row and applaud. If the Board, either as a group or at an individual level, felt that they were more connected with staff, linking faces to a few names, seeing the people behind the numbers – wouldn’t that lead to higher engagement for both groups?

Here’s a good test. If a Board Member can walk through the halls of your organization, and employees don’t recognize them (outside of the fact that they are wearing a suit), it may be time to rethink how engaged they are. Or, if a Board Member is given the opportunity to meet a group of employees in the lunch room, but politely declines, you are seeing the tradition work against you. How can a Board Member feel a responsibility to the entire organization if that relationship is limited to the select, and very few individuals they hear from at their meetings? Are you more afraid of what a Board Member might learn by interacting with line level employees, or that they might dig deep into the day to day operations? Trusting board members to engage with, but not manage staff is key. Help them, prepare them, go with them at first, make connections part of the culture. See what happens, both in the organization and with Board Members.

Again, this does not mean operational interference or over-controlling activities, but it does mean the Board needs to contribute to a “Fiduciary Partnership” with an organization’s leadership.

Other Essential Views

Fiduciary responsibility to communities. Yes, Board oversight and responsibility must include an organization’s relationship with the communities in which it does business – it is the right thing to do and also happens to be good business!

Fiduciary responsibility to develop and prepare Board candidates. To identify, recruit and develop high-potential Board candidates. What are you and your Board doing to ensure the pipeline of future board members meet these criteria and are interested in relating to all of the constituencies mentioned above – not just the shareholders?

Supporters of reality over legacy. A Board’s influence is greatly enhanced as a calm, experienced, encouraging voice – and as intense advocates for clarity of situation implications and future scenario planning. The Board should not tolerate reports of un-anticipated circumstances, nor those who only see surprising problems as un-intended circumstances (without a thought of responsibility for not anticipating a situation). This accountability helps leadership teams and organizations observe more, think more, accomplish more – to anticipate, “see around corners” and be one move ahead of competition.

Your collection of the best, brightest, most talented and experienced must come together as a team – in a partnership of excellence with the management team – to influence customers, surprise markets, engage suppliers, excite associates and benefit communities. Rally around the goal of having more fun and making more money.

Hopefully it is becoming obvious that Boards must walk and chew gum at the same time. It’s time to get in the game. A Board’s “Fiduciary Partnership” is essential to all constituents and the continuing competitive viability of the organization – it is not just management’s fault when things go south, it also the Board’s performance that is questionable.