NACD’s thought-leadership forum, Master Class, convened in Fort Lauderdale, Florida, late last year to discuss how corporate governance is adapting to the current operating environment. Dialogue among directors and session leaders at the event revealed 10 insightful takeaways:
Board engagement in strategy development is a sign of healthy board-management engagement. The board’s role is to question the CEO’s strategy assumptions, offer alternatives, and ensure a long-term value creation. Senior management’s job is to execute the strategy.
Given the complexity of today’s operating environment, it is even more important to stay attuned to disruptive competition in the company’s industry. Spend time outside of board meetings learning which changes—in technology, policy, or through stakeholder demands, for example—are emerging and how your company should address those disruptions.
Demonstrate directors’ commitment to continued education in communications with shareholders, employees, and other stakeholders. While your board may feel that current director evaluations and education requirements are sufficient, review your director education program to ensure that board members’ skills are being enhanced to keep pace with the changing operating environment.
Consider taking a few steps to enhance recruitment of and onboarding for new directors:
Consider not only the board’s recruitment needs in the next year, but also in the next several years as directors leave the board and as company strategy evolves.
Establish a requirement that the director pipeline includes candidates from diverse backgrounds.
Tailor new-director onboarding programs to individual directors.
Convey a sense of your board’s dynamics with each other and with management to both prospective and new directors.
Determine whether the skillset matrix tests for skills that are necessary for the company strategy. While directors currently serving on the board may have had the skills to help the company achieve its prior strategy, realize that the directors sitting on the board today should be measured against the new ruler of current and future strategy expectations.
Review your board’s bylaws and committee charters to determine whether the documents offer any detail about how directors oversee cultural risk. Probe management about culture. Given recent corporate scandals relating to unhealthy corporate culture, consider adding language to your bylaws and charters to demonstrate a commitment to healthy company culture. Take this commitment a step forward by probing management about how the company currently cultivates a healthy, ethical culture.
Look beyond the information management has presented you to determine the company’s cultural dynamics among not only senior management, but also lower- and mid-level managers. Review online employee satisfaction websites to gauge morale and determine whether behaviors incentivized are realistic and healthy.
Question the quality and volume of information being given to the board on enterprise risks. If the board is receiving 1,000 pages of information monthly about risks, ask whether the board can realistically absorb that information. Ask the chief risk officer to provide the board with a more brief and concentrated view of the risks that need to be addressed, and spend time drilling down on the most pertinent risks, including those that may be sleeping giants.
When stumped on strategy, go back to the beginning. Ask often why the company was founded and what problem the company should help clients or consumers solve. Having a renewed vision of the founder’s mission can help provide fodder as to how to revive that vision in light of today’s operating environment.
Dive deep into consumer trends and behaviors, when considering appropriate strategies. While it may be easy to become mired in the highly technical nature of directorship and oversight, realize that great insight can come from aligning company strategy so that it satisfies customers’ needs and wants.
Nominations to the 2017 NACD Directorship 100 are open until March 31. And while we tally this year’s annual list of the most influential people in boardrooms and corporate governance, we’re sharing responses to questions from 2016 honorees about their perspectives on directorship.
Honorees underscored the importance of creating a strategic-asset board, reflected on the joy of their life’s work, and shared why board leadership can be fun. Selected responses from the 2016 D100 class follow, complemented by photos from the D100 gala held at New York City’s Gotham Hall on Nov. 30, 2016.
What do directors need to keep top of mind in the next five years?
Deborah DeHaas Vice chair, chief inclusion officer, and national managing partner, Center for Corporate Governance, Deloitte LLP
“Often the most effective boards draw on a diverse set of individual strengths, skills, and experiences from their directors. When brought together with the right leadership, diverse talent in the boardroom can help the company address almost any governance challenge. Such capability doesn’t just happen. It takes rigorous commitment to the principles of board composition, refreshment, and accountability to reach the level of top-performing boards. It also requires a deep understanding of current issues and challenges, anticipating those in the future, and determining what critical skill gaps need to be addressed among directors.”
Stephen R. Howe, Jr. U.S. chair and managing partner, Americas Leading Partner, Ernst & Young LLP
“Complacency with a company’s current strategy may open companies to long-term vulnerabilities. Boards must constantly assess and anticipate competitive forces and threats and drive enterprise-wide cultures of innovation and agility. They must recognize that digitalization and sector convergence will continue to disrupt business models and markets. They must oversee organizations grappling with increasingly complex and global forces resulting from ever-shifting political and regulatory agendas such as those getting underway in the United States following this year’s elections.”
Daniel Laddin Founding partner, Compensation Advisory Partners
“Do not be afraid to stick out and use a less typical design if you believe it is in the best interests of shareholders. I believe we are going to see that many of the best performing companies have unique compensation designs linked to their strategies that do not necessarily fit neatly into the paradigm into we see today.”
Paula Loop Leader, PwC Governance Insights Center
“Boards will need to stay current, and that alone will be hard work. They will need to be up to date on consumer trends and technological changes, to geopolitical and other risks, to name a few. Even those directors who are immersed in all of this disruption and change are finding it hard to keep up. The board of the future will have to fully understand the landscape the company is operating in and recognize the potential disruptors that could affect the company and its strategy. To do that, directors will have to spend a lot more time educating themselves, and boards may have to consider reaching out and finding their own advisors from time to time.”
Michael McGuire CEO, Grant Thornton
“Directors need to keep the probability of rapid disruption top of mind, and then marshal the right resources and habits of mind to stay ahead of it. What are those resources? Imagination. Curiosity. Agility.”
Deborah D. Rieman Director, Corning and Neustar
“Boards are inherently risk averse and may devote too much of their attention to avoiding mistakes. In a slower world, that may have sufficed, but today, slow and steady can be fatal. Successful boards in the years ahead will be the ones that encourage the disruption of their own businesses, because if you don’t disrupt your own market, somebody else will.”
James K. Wolfe
James K. Wolf Managing partner, Meridian Compensation Partners
“Regulations and statutes should continue to protect a board’s business judgment, but boards should understand that the general public will have increasingly more information from which to reach their own evaluations and verdicts about a board’s governance.”
What’s the most fun you have had while serving as a director?
Mary Ann Deacon Director, Lakeland Bank
“It has been exciting to be a part of Lakeland’s success. Our accomplishments over the years have given me enormous admiration for our wonderful employees, who make it all possible. And by far, the most fun has been interacting with all the members of the Lakeland family. It’s important for directors to step out of the boardroom and connect with people. I think of this as leadership by walking around—letting employees, shareholders, and customers know that the board is interested in and fully engaged with their needs.”
Edward B. Rust, Jr. Director, Caterpillar, Helmerich & Payne, and S&P Global
“Growing up during the initial buildout of the interstate highway system, I became fascinated with big earth-moving equipment. Later in life, I started buying antique Caterpillar tractors to restore. Joining the Caterpillar board was a natural move. I had a connection to my past but also a fascination with the rapidly changing world of manufacturing. The real fun is when we tour the proving grounds and have the opportunity to operate some of the really big equipment. ‘Getting in the dirt’ is a joy for an old farm boy, and even a director.”
What was the greatest challenge you’ve faced in your career?
James W. DeLoach
James W. DeLoach Managing partner, Protiviti
“I never worked harder in my life to build the Protiviti brand. But the most gratifying part of the experience for me personally was working side-by-side, shoulder-to-shoulder with men and women who were as committed to our collective success as I was. Protiviti’s market presence today is one of the treasures of my working life.”
Data from the World Bank show that if the global nonprofit sector were its own country, that country’s GDP would represent the sixteenth largest economy in the world. In 2013, the most recent year for which data were available, the nonprofit sector contributed $905.9 billion to the U.S. economy, which is representative of nearly 5.4 percent of U.S. GDP. The nonprofit workforce also accounted for nearly 10 percent of U.S. employment, according to the Bureau of Labor Statistics’ latest calculation.
Nonprofit organizations frequently are managed by an impassioned group of people with a focused mission or social objective. Often equally passionate are the organization’s board of directors, elected to oversee the organization and ensure its long-term viability.
Nonprofit boards, however, aren’t beholden to the same regulations from the government and listing requirements that their public company peers are, nor do their organizations experience the same pressures from investors that their private company peers do (though, in some ways, a nonprofit board may have to cater to donors in a similar way that private companies cater to their investors). Though all company and organization types face some similar challenges, it can be reasonably expected that the governance landscape for nonprofits might evolve differently than that of private and public companies.
NACD recently analyzed the current state of nonprofit governance in its latest 2015-2016 NACD Nonprofit Governance Survey. The survey report was based on the responses from more than 600 directors serving a variety of nonprofit boards that have 16.4 members on average—much higher than the 8.9 directors on public company boards and the 7.6 directors on private company boards.
On the subject of director recruitment, 49 percent of respondents identified “experience specific to the organization’s mission” as the most sought-after attribute a new director could offer the board. A significant portion of respondents also gave priority to leadership experience (34%) and financial expertise (22%). Other sought-after attributes for director candidates include fundraising experience and commitment to the mission.
Related findings include:
80 percent of respondents report that their boards use personal networking to identify new director candidates.
20 percent of respondents from large nonprofits indicate their boards use search firms to identify potential board candidates, up from 12 percent in 2014.
A distinct aspect of nonprofit board service is the expectation that directors will actively participate in fundraising efforts for the organization. Sixty-eight percent of respondents indicate their organization engages in fundraising as a part of their business model. Yet, 51 percent of all nonprofit survey respondents say they feel unsure about the organization’s expectations for them to fundraise.
Related findings include:
54 percent of respondents from organizations that do engage in fundraising indicate that there is a documented fundraising strategy for the board.
34 percent of respondents say their boards have a fundraising committee.
A strong majority of nonprofit respondents are satisfied with the quality of information provided to them on corporate performance (86%) and on strategy (84%). However, paralleling private and public company trends, nearly a fifth (19%) of respondents would prefer more information on the organization’s strategy—both short- and long-term objectives.
Related findings include:
60 percent of respondents report that their board does not receive enough cyber-risk information from management.
More than one-third of respondents reported they are dissatisfied with the quality of information provided to the board on risks related to technology (37%) and cybersecurity (48%).
For more research and analysis on the current state of nonprofit boards, please click here to access the full 2015–2016 Nonprofit Company Governance Survey.