Posts Tagged ‘information flow’

Inaugural NACD Directorship 2020 Event Convenes 100 Directors in NYC

April 11th, 2013 | By

Without a doubt, directorship has changed. In the last 10 years, the effects of legislation and regulatory activity such as Sarbanes-Oxley and Dodd-Frank have significantly expanded the role of the director. Taking into account the current trends of increased shareholder activism, heightened media scrutiny, emerging technologies, and disruptive innovations, it is expected that this role will continue to morph. As these shifts in the economy increase in amplitude and frequency, it is necessary for those in the boardroom to understand and prepare for the future structure of directorship—today.

With this in mind, NACD has launched NACD Directorship 2020 to help directors define and prepare for the emerging challenges and opportunities expected to impact boardrooms in five to seven years. More than an initiative, NACD Directorship 2020 extends from educational programs and roundtable exchanges to published research. Using topics informed by an advisory council composed of boardroom luminaries, academics, and governance experts, feedback from educational programs will shape ensuing research on leading practices for the future. In the coming months, several symposiums will be held across the nation, and the conversation will be continued at our annual Board Leadership Conference in October.

This week, NACD held the first of such symposiums at the Harvard Club in New York City. More than 100 directors attended the afternoon session to discuss two areas: the future state of the risk agenda, and how to select performance metrics that will engender sustainable organizational profit. The symposium was led by NACD President and CEO Ken Daly; Akamai Technologies Lead Director and Audit Committee Chairman Martin Coyne; and former Bell and Howell CEO, current NACD Director, and Northwestern University Professor Bill White. During the highly interactive sessions, questions were posed to attendees who were then able to discuss and provide thoughts among their peers. Takeaways from the event include:

  • Composition and resourcing is essential to navigating the current and future risks to the boardroom. With the right resources and information and the right people around the table, the boardroom can effectively engage in the critical issues.
  • Inherent in their role as part-time overseers, directors will always run the risk of information asymmetry: management has the full suite of information about the company’s operations that is then selected and parsed out to the board. The challenge for the board is to communicate its expectations on the type and amount of information it needs for effective oversight.
  • It is essential that directors trust, but verify. In the boardroom, the culture should be fostered so the executive staff feels they are able to report on the high-risk items and things that keep them up at night. To verify the information presented, directors should go beyond the C-suite, even outside the company. This can include meeting with the heads of business units, or gleaning outside sources of data.
  • In risk oversight, the board can informally meet with senior management and the internal audit team to develop a list of the top organizational risks. After these risks are identified, the board can have an executive session with an outside expert to gain more knowledge of the areas.
  • Industry experts on the board may not anticipate the disruptive technologies that have the potential to pose either a huge risk or opportunity to the company. While extremely valuable at the table, industry experts may not always be able to see beyond their acumen. Boards can recruit experts from other industries—who bring the perspective and knowledge of different risks and market forces—to serve as directors.
  • Total shareholder return (TSR) and financial and operational metrics reflect hindsight. These data can be bolstered with a healthy balance of “early warning” metrics derived from the company’s strategy, such as customer and employee satisfaction, dollar investment per employee, or retention.
  •  Metrics are the operationalization of strategy. If the strategy’s underlying assumptions are flawed, however, the metrics have less significance. Is the board looking at metrics that question the strategy itself? This could include a measurement of the organization’s adaptability changes in the marketplace.
  • Reputational and stakeholder risk is an area that should receive boardroom attention. Directors should encourage metrics that foster stakeholder engagement as a strategy for risk mitigation.
  • The long-term health of most companies is determined by its success in being innovative. The company should establish early warning metrics that monitor how its innovation systems generate sustainable cash flows.

The next NACD Directorship 2020 events will be held July 16 in Chicago and Sept. 10 in Los Angeles. Between events, NACD’s blog will feature viewpoints and research from our NACD Directorship 2020 partners—Broadridge, KPMG, Marsh & McLennan Companies, and PwC—that will take a deeper look into the emerging issues and trends that will redefine directorship.

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Posted in Corporate Governance, Investor Relations, Risk Management, Technology | 1 Comment »

Recapping Master Class: The Intersection of Strategy and Innovation

March 7th, 2013 | By

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.

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Posted in Board Composition, Board Evaluations, Corporate Governance, Inside NACD, 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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