Author Archive

Information Flow Beyond the CEO

July 16th, 2013 | By

As a delegate to NACD’s Advisory Council on Risk Oversight recently said: “Directors don’t know what they don’t know.” This Fortune 500 director was referencing one of the challenges facing corporate boards today: asymmetric information risk.

Asymmetric information risk refers to the risk inherent in the imbalance in the information flow between management and the board. Directors serve in a part-time capacity while the management team operates full time. Naturally, senior-level executives have a much deeper knowledge about the organization’s operational processes and risks than the board. As such, directors rely on senior management for the information necessary to carry out their oversight duties.

In our experience working with boards, we’ve found an effective solution for mitigating asymmetric information risk is to develop a systematic process in which the board is given access to the executive team – beyond the CEO. Examples of senior staff with whom the board should regularly meet include the chief risk officer, chief compliance officer, head of internal audit, chief ethics officer, general counsel, CFO, and chief information officer. NACD’s C-Suite Expectations: Understanding C-Suite Roles Beyond the Core helps directors understand the types of information they should provide.

One way to ensure that this systematic reporting occurs is to include a recurring slot for key executives and functional leaders to present – perhaps during the board and or committee executive sessions. The goal here is to help the board understand what keeps these executives up at night and anticipate issues in advance.

The board is responsible for providing oversight on the appraisal of strategic and enterprise risk. The inherent nature of a director’s role, however, results in a reliance on the information presented in the boardroom and between meetings, by select members of the management team. For the board to mitigate this natural imbalance in information flow, directors should have in place a systematic process for engaging with key executives, in addition to those limited few who traditionally participate in board meetings.

For more on leading practices in risk oversight, read the latest Summary of Proceedings from the NACD Advisory Council on Risk Oversight.

Know Your Audience: Understanding the Board’s Expectations

April 29th, 2013 | By

Know your audience–it’s often the first lesson in Public Speaking 101, but it’s also an important mantra for senior executives looking to improve the quality of their interaction with the board of directors. An issue my team often identifies when working with boards is a disconnect between the information the board needs and what the management team actually presents. We’ve seen this gap occur at companies of all sizes, industries, and levels of sophistication.

How management provides information to the board makes or breaks directors’ oversight role. Providing directors with the information they need to execute their duties is essential to fostering an environment where directors can succeed and be of most value to the company.

Through all my years of serving as general counsel, I have never received formal training on what directors require for their oversight role. Some questions that may arise are: What are their expectations for management? What perspectives do they bring to the table? What keeps them up at night? How much information is enough?

To help executive teams answer these questions, NACD recently introduced  Executive Professionalism: Understanding Board Expectations, an innovative program that allows the executive team to step into the boardroom in order better understand the fiduciary and strategic responsibilities that influence the questions directors ask. Led by seasoned directors, this in-boardroom program is specifically designed to help the senior management team better understand the role of the board, deliver the information directors need, and understand how to best engage with their board to meet and exceed expectations on both sides of the table.

In addition to my team’s direct experience with our clients, the issue of gaps in expectations between the board and management is raised by NACD’s members much more frequently. NACD has developed two tools to help companies address this gap:

Honest Assessments Can Reveal, Repair Gaps in Engagement

March 28th, 2013 | By

Regardless of company size or the level of experience on the board, an issue frequently encountered is the disconnect between senior management and the board. From the perspective of senior management, directors can become “comfortably numb” and not sufficiently engaged.

This is not to say management does not respect board members’ expertise and knowledge. Instead, the executive team can grow disappointed if the board is not operating at its full potential. After long periods of service with little inspiration and challenge from senior management and/or board leadership, directors can reach a point in which they are not as engaged as a highly challenged new director may be.

These directors need to be encouraged to be an influential voice on the board, using their skills and experiences to pose the necessary questions on issues presented at meetings.

But how? As head of NACD’s Board Advisory Services, I’ve observed that honest and thorough director evaluations can help boards identify, address, and bridge the gaps that may develop in effectiveness and engagement. The full board and senior management should perform an honest self-assessment in order to get critical and actionable feedback on their skills, participation, meeting preparations, and any other relevant areas.

Recently, NACD announced its Directorship 2020 initiative, encouraging directors to identify where their board and company should be positioned in the year 2020. Once this vision is established, the board can identify where skills gaps need to be filled in, or what additional efforts should be undertaken. This is particularly relevant–especially with today’s rapidly changing regulatory and technological environment–as boards must quickly meet new rules and changes. Even the most successful boards today need to ask themselves if they are well positioned on the path to 2020.