Future proofing the boardroom

Tough questions for corporate directors

 

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In an inspirational video for the National Association of Corporate Director’s annual conference, one speaker remarks, “Directors, you hold much of our future in your hands.” Another said “More government is not the answer—we are.”

These statements are not exaggerations. Layers and layers of regulation and compliance are dragging corporate governance downward. Value creation and strategy have been largely marginalized by many boards, my research suggests. America is in danger of experiencing a lost decade since the financial crisis, given its debt and political intransigence. Corporations and their boards need to lead the way.

The American economy (and the world) is dependent on the revitalization of corporate boards. But they need to do so in a way that puts their own interests and reputations at risk. They need to be ruthless in recreating—and think only of the best interests of their enterprises. They need to “future proof” in other words, which is the theme of the NACD conference.

Future-proofing the boardroom means preparing for the future with no regard for the individuals currently on the board. This is extraordinarily difficult to do for any group, let alone corporate boards.

Here are some tough questions good boards should be struggling with:

Do we have the right directors?

Do we as a whole have the right competencies and skills, but more importantly do we have courage to replace those directors who do not? If we are one of those directors, do we have the courage and integrity to ignore our own self-interest and step down? Tough conversations need to be had with directors who refuse to go.

Do we have the right chair?

Does our Chair (or Lead Director) have the independence, attributes, experience and track record that the company and senior management needs and respects – to lead the board, hold management to account, and focus on value creation? If not, a tough conversation needs to occur.

Do we focus on strategy and value creation?

Assuming we have the right directors and Chair, do we spend enough time on the strategy and value creation of the enterprise? Is at least 50% of our time spent here? If not, why not and how do we fix this?

Do we have a long-term focus and the right metrics that drive management to focus on the long-term as well?

Do we measure and reward performance in areas such as innovation, health, reputation, talent, culture, satisfaction and engagement? Do we do it a way that is aligned with our product and risk cycle? These metrics are key to value creation. Or are we subsumed by the short-term? If we are (as most boards are), how do we change this?

Do we really listen and communicate with our shareholders?

Do we engage meaningfully and authentically with our major, long-term shareholders? Do we listen to and act on their concerns, or do we entrench and are we defensive? If we do not listen and act, then why not, and how can we structure ourselves differently?

Are directors sufficiently independent from each other and from management?

Do we bring on directors who are not previously known to us or to management? Are we scrupulous in not allowing directors to be compromised, and act when we see that a director is? Do all directors disclose when they are compromised?

Do we embrace and understand technology?

There is an enormous transformation afoot. Do boards have the ability to understand and predict how their company and industry will change? If not, recruit director who do.

Do we establish the right tone at the top?

Lastly, do we direct management to establish systems, controls and an ethical culture that rewards proper risk taking? Do we lead by example, and are we ruthless in acting at the slightest deviation from proper business conduct and integrity?

The above questions are adopted from a larger paper I authored focusing on strengthening public company boards, in which I interviewed 40 activists, private equity leaders, NACD 100 members and CEOs, here.

The answers to the above questions are fundamental for corporate boards and their directors. More importantly, candid answers will have implications for the way a current board is constituted, is led, and functions.

Answering the questions truthfully, unbiasedly and void of any personal interest whatsoever will be the toughest part for any board.

Richard Leblanc is a governance lawyer, academic, speaker and independent advisor to leading Canadian and international boards of directors. He can be reached at rleblanc@boardexpert.com.

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