11 Oct. 2017 | Comments (0)
(Editor’s note: The recent news of the Equifax cybersecurity breach and revelation of the extent of the Yahoo hacking raise the need for corporate board agility, or alertness. That is one of the reasons The Conference Board Governance Center is in the midst of a two-year project to determine the job description of corporate directors in today’s dynamic environment. So far, the Center has held roundtables and panel discussions with proxy advisors, directors, and investors. It has written research reports based on those discussions, interviews, and independent research.)
Chairs and their fellow directors today are in the crosshairs of activists, proxy advisory firms and major investors. The implications are clear. Board chairs must lead differently. They must be skilled in forming a transformative board coalition to assess their company from an “outside in” perspective. Chairs must take a more active and agile approach to their role and navigate their boards toward value creation. Indeed, all contemporary directors must be prepared to think short and longer term like an activist investor guiding business transformations.
It is becoming clear that agility is “THE” critical competence for directors to gain footholds, strategically, operationally, and managerially… to assure their shareholders are well served.
Given the velocity of change there is a new norm…a changing corporate landscape and regular and unpredictable disruptions. Directors are expected to address tumultuous change. As an example, 70 percent of the top 20 companies in the Fortune 1000 disappeared during the 2003-2013 decade while only 35 percent turnover of top 20 companies disappeared in the 1973-1983 decade. We expect this trend to continue, if not accelerate.
To address this new norm, chairs will be required to lead and navigate their boards, with flexibility and agility to address unexpected and unanticipated events (and risks and opportunities thereof) and socio-economic challenges. Consequently, directors that fail to step away from their legacy instincts and don’t act as governing catalysts to fix the broken, redirect and press to be disruptive by reforming and transforming strategies, applying the supporting resources, and are tone deaf to the “environment” in which their companies reside (and may compete going forward), are failing their shareholders and perhaps disappointing their stakeholders.
So, shareholders, and oftentimes stakeholders, are served best and most effectively by proactive board chairs that are “activists inside” guiding their boardroom through uncertainties, what ifs, discovery and optionality.
Why agility can’t wait
With times changing at warp velocity, “passive governance” is highly risky and limits the requisite guidance needed to assure that their company’s ongoing alignment between strategic opportunity and the quality of their leadership are in sync. Being out of sync translates to less agility and to higher risk. Yet, in our work, we have observed board chair who chose collegiality and the “familiar” over the necessary flexibility to address fast paced uncertainty. Simply, these chairs are more comfortable and vested in “yesterday’s” events and reacting as they have in the past, rather than examining and addressing different future scenarios.
Agile board leaders view their role as a boardroom change agent. They recognize the risk of passivity and embody a different non-traditional mindset by embracing the challenges of the unknowns with curiosity and exploration. They guide their boardrooms to govern the gap of “knowns” to asymmetrical unknowns. With agility, these Board Chairs address and review the challenges of “lift” for the benefit of the shareholders that they are elected to serve, while balancing the requirements of board governance and the interests of their essential stakeholders.
Simply, progressive chairs recognize that the increasingly strategic role of their boards requiring a continuing and ongoing examination for delivering shareholder value today while establishing paths (existing and perhaps, new) by adjusting, resourcing and building for future upside. This paradigm requires a board chair that encourages their directors to be more curious, innovative, more aware of, and alert to, changing trends, better informed, and able and committed to rapidly pivoting company direction and resources. And, of course, these chairs must lead with a keen awareness of the link between strategic agility alignment and the ability of their leadership team to deliver the goods. Boardroom cultures although distinct from operating company cultures, must be considered in making these types of judgments.
How to be an agile chair and preside over board optionality
Achieving a board agility mindset, starts with a serious examination of the responsibilities of the chair’s leadership. It now takes an “activist” chair.
Conditions today are such that opportunities and risks are increasing at a rapid clip. Study times have shortened. Opportunities are fleeting and can evaporate as quickly as they present themselves. Yet, risks seem to overhang. Leading board agility is not for the faint hearted.
To achieve chair agility, we recommend the following six guidelines:
Foster a board and boardroom culture that collectively is alert to aspirational opportunity. Establish a more inclusive agenda that prioritize forward direction, continual monitoring of the impact of external factors, strategy and benchmarks. Focus on your Director’s insights on aspirational disruptive opportunities. Avoid “Board Drift” toward “personalities”, the less relevant and mundane.
Set an expectation that your directors be prepared and willing to engage. Encourage candid directors’ discussions between meetings to encourage disparate points of views. Accept dissent and debate as healthy discussion attributes.
Assert your authority to build and maintain a “board culture” of inclusion and respectful collaboration. No longer “over value” the wisdom of “historian” inner circle directors over those that have less tenure but can offer relevant subject matter expertise and insights.
Refresh your board with nominees who will bring differing insight and judgment and continually upgrade the Board’s intellectual and experiential capabilities. Keep an updated list to be reviewed regularly by your nominating committee. Make it clear to your board that you will not support the re-election of directors who are failing to keep pace and aren’t fully contributing. Gain a board consensus on this critical point. Be prepared to move forward as conditions warrant. Conduct effective and rigorous board and director governance reviews annually conducted by an independent advisor.
Seek outside expertise. Be open to external perspective and advice for review, evaluation and comment. Seek out trusted advisors and utilize their wise counsel as guides on boardroom discussions and critical decisions. Going forward to govern effectively, it is critically important to seek independent facts and insight beyond what management provides. Consider an advisory board to supplement your statutory board. Use the advisory board to bring fresh thinking, outside facts and perspective for the consideration and education of board members and management.
Be prepared, in working with your Governance Committee, to rotate yourself out of the chair. At differing times, it is a healthy sign to rotate chairs. Every chair isn’t necessarily the best choice among directors to address and guide their company through all of today’s challenges. Different challenges require varying board leadership competencies. Even beyond fitness to lead, the rotation of chairs demonstrates to its directors, shareholders and stakeholders that the boardroom is open to change and isn’t simply “inside baseball.”
Now is the time for the board chair to bring agility to the board culture and expect fellow directors to build “agile skill sets.” The time of standing still and reacting are over. Shareholders and stakeholders are demanding a higher level of engagement in governing and, given uncertainties, seek to unlock multiple paths to value.
Simply, board chair reputations are on the line.
The views presented on the Governance Center Blog are not the official views of The Conference Board or the Governance Center and are not necessarily endorsed by all members, sponsors, advisors, contributors, staff members, or others associated with The Conference Board or the Governance Center.