A director's 5 rules for difficult times: courage and confidence come from more than just keeping a close eye on cash flow.

• Author: McGarvie, Blythe
• Position: DUTIES OF DIRECTORS - Company overview

JUST RECENTLY, one of my best friends was offered a board position for a public company in a troubled industry. She asked me what she should learn and do as a board member during this economic downturn.

As a general rule of thumb, I advise board members to meet with employees in various parts of the business, learn from the experiences of fellow directors and check with the outside counsel and accountants to get a sense of some of the immediate issues. But, each company has its own way of dealing with economic recessions. Some companies might be teetering on bankruptcy; others may use the opportunity to reduce costs that should have been done during more prosperous times. In any case, it struck me that I follow five rules during difficult times.

Rule 1: Recognize the CEO's perspective

The most critical reference point to learn, as a board member, is the chief executive officer's perspective on the current state of affairs and future. The CEO's worldview shapes his expectations, his confidence, his energy, his integrity, and his ability to deal with volatility and various economic and legal situations that will determine the policies of the company. Good board members may well have to encourage CEOs who appear overly optimistic (delusional) or pessimistic (depressed) to reassess their perspectives in order to reset policy.

Assessing the legitimacy of CEO attitudes may require recourse to outside data. The Conference Board Index measures the confidence that CEOs have in the economy. It uses input from about 100 business leaders from a wide range of industries. It can serve an s a basis point from which to assess the confidence and attitude of any one CEO. The most recent quarterly Conference Board measure of CEO confidence is at its lowest point since the inception of the index in 1976, and has fallen below 30 for only the second time in history. (An index measure below 50, on a scale of 0 to 100, means the CEOs are pessimistic about the future economic prospects for the upcoming year.) The last time the index dropped below 30 was in 1980 when Japanese businesses seemed to have all the answers and all the money. American CEOs saw iconic properties such as Pebble Beach and the Rockefeller Center sold to Japanese investors.

In response, many American companies, rather than wallowing in despair, adopted the Total Quality Management (TQM) techniques promulgated by W. Edwards Deming that had transformed the Japanese economy. TQM measures and continuously improves the relationship between quality and productivity. Making changes to adapt reflects confidence in your business...