Posts Tagged ‘Bridging Effectiveness Gaps’

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:

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C-Who?

March 21st, 2013 | By

Late last year NACD released a white paper with McGladrey, Bridging Effectiveness Gaps: A Candid Look at Board Practices, which quickly became one of NACD’s most downloaded resources of 2012 and continues to be the most downloaded in 2013. The paper, based on four gatherings of directors and executives, notes that because directorship is a part-time role, the board must inherently rely on management for information. This can lead to a disconnect in communication, as the information the board needs is not necessarily the information management provides.

In an effort to accurately reflect the thinking of those “on the front lines,” boards often hear from voices outside of the typical four-officer lineup (CEO, CFO, COO, and general counsel). Nearly unheard of a decade ago, the chief risk officer (CRO) provides an example of a non-traditional C-suite officer uniquely positioned to fill an information gap. According to 2012-2013 NACD Governance Surveys, in public companies without a CRO, 64 percent of directors state that the level of information they receive on risk management is good or excellent. On the other hand, among the 28 percent of companies with a CRO, this level of satisfaction among directors increases by more than one-third to 87 percent. The difference is even clearer among private companies–48 percent of directors at companies without a CRO report high levels of satisfaction with received risk management information, and this increases by more than half to 76 percent of directors reporting similar high satisfaction levels at companies with a CRO.

These new and influential voices in the boardroom provide directors with the knowledge and experiences of those working day-to-day in various operational fields. Directors can draw on these diverse sources to ensure they have the breadth and depth of information needed for effective oversight. This solution, however, may present another issue; directors, while comfortable interacting with the typical four-officer lineup, may not have the same level of experience with non-traditional C-suite officers. In the same vein, these officers may not be as adept at providing the board with precise and relevant information.

In our latest white paper, C-Suite Expectations: Understanding C-Suite Roles Beyond the Core, NACD addresses this disconnect by presenting directors with tools they can use to interact with non-traditional members of the C-suite. The eight positions highlighted in the report are:

  1. chief audit officer;
  2. chief corporate responsibility officer;
  3. chief ethics officer;
  4. chief human resources officer;
  5. chief information officer;
  6. chief investor relations officer;
  7. chief marketing officer; and
  8. chief risk officer.

The report includes position descriptions for, information the board can expect to receive in reports from, and deeper questions directors can ask of, these C-suite officers. A complimentary copy of this white paper is available to all NACD members, and is available to non-members for $15.

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Posted in Board Information, Corporate Governance, Risk Management | No Comments »

Combatting Information Asymmetry

December 13th, 2012 | By

At any NACD education program, the discussion of directorship as a part-time profession with full-time risks is bound to arise. Yet following any corporate crisis, the question is always asked: “Where was the board?” Outside of the C-suite and boardroom, many perceive that directors should be able to foresee and avoid a crisis before it strikes.

This perception is misguided for several reasons. As a result of legislative and regulatory activity, since the 1960s corporate boards have become increasingly independent of management. Although legislation such as Sarbanes-Oxley and Dodd-Frank mandated independence at specific committees, this has extended to the entire board. Today, most publicly held company boards comprise a majority of independent directors, and often the CEO is the only executive director.[1]

The development of independent boards is not negative. In fact, it ensures that the board can effectively carry out its mission and responsibilities, and fairly hold management accountable to shareholders. However, there are a few consequences when directors are selected entirely for independence. Directorship, as noted above, is a part-time role. Inherently, directors rely on senior management for information necessary to carry out their oversight responsibilities. When outside directors are chosen for lack of ties to the corporation, they do not necessarily bring knowledge of the business or industry. Therefore, the benefit created by adding an independent director is largely tempered, as this outsider is reliant on the CEO for the information necessary to his or her oversight role.

To combat this risk of asymmetric information, NACD partnered with McGladrey to host four small gatherings of executives and directors in an effort to find ways of improving the communication and relationships between the board and C-suite. From these gatherings, the Bridging Effectiveness Gaps: A Candid Look at Board Practices white paper was created. As Bridging the Effectiveness Gaps notes, broadly, these gaps were found in the areas of strategy and risk, executive compensation, CEO succession planning, and board evaluations. By convening management and directors from different companies, the meetings fostered candid and open conversation regarding areas where communication tends to break down. However, where communication was generally the root of the problem, it was also the solution.

This report is available as a complimentary white paper on NACD’s Board Leaders’ Briefing Center.


[1] According to the 2012 Spencer Stuart U.S. Board Index.

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