Board Bookshelf: Adapt or Fail! A 5X5 Governance Framework for Boards of Directors by Frederick (Rick) Funston and Jon Lukomnik. 2025 DeGruyter

Adapt or Fail! A 5X5 Governance Framework for Boards of Directors aims to help directors of public companies develop adaptive governance amid uncertainty and increasing competitive pressures. The book is written primarily with directors of corporations in mind, and its many case studies of corporate misdeeds and failures lead to a recurring question: “Where was the Board?” Mutual fund boards, hopefully, never will have to face Enron-like debacles or Kodak’s missed opportunities, however the essential lessons in Adapt or Fail may help boards improve their effectiveness in fund oversight, decision-making and governance.

The authors are governance experts and adjunct professors with decades of experience in leadership. Frederick (Rick) Funston has over fifty years of experience in the profit and non-profit sector and between 1998 and 2010 was the National Practice leader for Deloitte’s Governance and Risk Oversight Services. Jon Lukomnik is a trustee on the Van Eck mutual funds board and chairs the governance committee. He also is managing partner of Sinclar Capital LLC and senior fellow at High Meadows Institute.

Funston and Lukomnik correctly gauge the complex climate for boards and top issues of the day -- cybersecurity, artificial intelligence, domestic and global politics, and shifting regulations, to name a few – that are heightened by performance and competitive pressures on corporations. In this climate, agile governance is key as shifts can happen quickly. “The pace of change has outstripped conventional collective decision making,” they write, recommending an adaptive governance framework to enable faster and better decision making. For fund boards, agility and improved decision-making are essential in a consolidating industry steadily shifting from traditional mutual funds toward less costly, more novel products and an evolving regulatory regime.

The essential lessons of Adapt or Fail! show how boards can develop agility, resilience and appropriate collective decision-making processes to help their organizations succeed through extreme uncertainty and instability. The authors present a framework focusing on five essential powers of the board and how boards may deploy these powers effectively through five steps.

The 5X5 Framework
The five powers of the board are to:

  • Conduct the business of the board;
  • Set direction and policy;
  • Approve key decisions, then prudently delegate;
  • Oversee the execution of direction within policy; and
  • Verify before trusting.

The authors discuss in detail each power of the board in separate chapters and practical ways for boards to implement these powers. Each chapter also summarizes key lessons to be learned, important for absorbing the highlights of the principles presented.

The discussion and insights on conducting the business of the board presents important governance for fund boards, including pertinent questions a board might consider including:

  • Do we have a high-performing culture that promotes value creation, ethical behavior, transparency and accountability?
  • Do our board dynamics enable consensus building and make the highest and best use of everyone’s time?
  • Do our committee assignments and board members’ expertise effectively address the organization’s specific issues and challenges?
  • Do we effectively plan director succession, including the nomination and compensation process?

Though fund directors do not engage in company strategy or hire the executives and officers of the firm, fund directors will find value in the case studies and lessons learned aimed at avoiding the pitfalls of inertia and complacency.

The chapter on setting direction and policy was illuminating. While it’s not the fund board’s role to set direction and policy of the adviser, a fund board may consider and ask questions about the adviser’s strategic plan for addressing existential opportunities and threats and whether management remains on track to meet its stated strategic goals. Adaptive boards maintain a long-term perspective, the authors write, and it is important that boards remain alert and adaptive to oncoming shifts.

In the coming months the MFDF plans to have Jon Lukomnik discuss Adapt or Fail with the fund director community.