Category: Board Evaluations

Know Your Audience: Understanding the Board’s Expectations

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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

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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.

Recapping Master Class: The Intersection of Strategy and Innovation

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One theme resounded in each session at NACD’s Master Class held in Scottsdale, Ariz., last week: the nature of directorship is in flux. In the 1990s, boards were subject to considerably fewer regulatory requirements. Sarbanes-Oxley created the “gatekeeper” of compliance, as observed by NACD President and CEO Ken Daly. Fundamentally, if boards fail to meet compliance requirements, little else will work.

But “you can’t comply your way to success,” according to opening speaker Bill Reichert. Today, long-term value creation necessitates innovative and inventive strategic planning—from management and the boardroom. As such, leading directors are shifting their focus not away from, but through, compliance efforts to the “next level.”

This concept of the “next level” was consistently brought up during discussions across the board. In some sessions, this meant critically assessing the skills and actions necessary to make the board a strategic asset to the company. In other sessions, “next level” addressed the information flow between the management and the board: how to fortify directors with the necessary knowledge to enable them to ask the “second layer” of questions that delve deeper into the data presented by management.

Innovation, however, brings risk—a concept Master Class attendees understood all too well. As noted in the 2009 NACD Blue Ribbon Commission Report on Risk Governance, “without risk there is no reward.” Risk is no longer limited to financial statements, though. The list of areas that pose potential threats to the organization has expanded over the last several years to include fields such as cybersecurity, emerging technologies such as e-commerce, and social media. Throughout the event’s sessions attendees discussed various methods that boards can use to assess and oversee these risks without becoming mired in granularity.

NACD’s Master Class in Scottsdale convened panelists with considerable experience in innovation, strategy, and risk oversight to lead attendees in discussions on how to effectively and intelligently ensure their company is ready to meet the challenges posed by the new economic climate. These panels were punctuated with multiple “deep dive” sessions in which participants could focus on specific topics of interest with experts and peers.

The next Master Class will be held in Boston, Mass., June 13-14.