Topics:   Corporate Governance,Leadership,Risk Management

Topics:   Corporate Governance,Leadership,Risk Management

October 10, 2019

Blue Ribbon Commission Cochairs on Leading Boards Into the Future

October 10, 2019

Editor’s Note: What follows is the letter from the co-commissioners of Fit for the Future: An Urgent Imperative for Board Leadership, the 2019 report of the NACD Blue Ribbon Commission.

A century ago, America witnessed a managerial revolution with the emergence of professional executives  and the birth of the modern corporation. The revolution built on new types of expertise in accounting, statistics, technology, engineering, and social sciences to “professionalize” management. Specialization of labor, standardized processes, quality control, workflow planning, resource allocation, and accounting allowed companies to optimize efficiency, build scale, and drive a long period of remarkable growth and wealth creation.

We are now in the midst of another, equally significant business revolution with profound implications for companies and how they are governed. Changes involving markets, global competition, demographics, regulation, and, perhaps above all, technology are reshaping social and economic life in powerful ways. Businesses are confronting a wave of major, simultaneous, and interconnected trends that are redefining how companies create and preserve value.

The accelerating pace and intensifying complexity of change are leading to the emergence of a fundamentally different operating reality than incumbent executives and directors have experienced in their careers to date. However, this dizzying amount of change also creates immense opportunities for companies to out-innovate the competition, to generate value in new ways, and to strengthen their governance.

As the science-fiction writer William Gibson put it, “The future is already here—it’s just not very evenly distributed.” The future belongs to businesses that can truly grasp the scale and scope of change and make the fundamental adaptations in operations and organization that this age demands.

For boards and their  leaders—the  independent  chair  or lead director and committee chairs—this is a period of challenge and transition that entails a difficult balancing act. In exercising their current board leadership responsibilities, they need to perform against heightened, often short-term expectations and to contend with ever-intensifying scrutiny from a wide range of stakeholders. At the same time, they need to meet the demands of the future by fundamentally reshaping how the board thinks, operates, and interacts with the business.

This is a report about leading boards into the future and about positioning boards to help their companies meet the challenges of the future. It argues that the pace and scale of change require a different modus operandi from the board governance model prevalent for the last 100 years, a new approach involving greater speed of decision making, proactive behaviors, adaptability, and innovation.

Boards will need to renew themselves by adding new types of expertise, experience, and capabilities to their ranks. They will need to take a critical look at how they perform and focus on continuous improvement. Their discussions will become more intense, and their structures more flexible. And they will need to carefully fulfill their supervisory and monitoring role while working in close partnership with management to shape business strategy.

In all of this, the role of a strong and effective board leader—the specific focus of this report—is crucial. It is the leader’s job, as ever, to build and maintain a high-performing board.  This is an increasingly challenging task given the demands on boards to ensure that the corporation is fit for the longer term, and it requires new leadership qualities. Board leaders now need to be able to do far more than preside over board or committee discussions. They need to be capable of catalyzing and orchestrating a transformation in how the board is composed and structured, how it operates and interacts with the business, and how it holds itself accountable.

This is by definition not an easy process. It will involve uncomfortable decisions about board members who are not fit for the future, and challenging discussions with management teams whose strategies may be stuck in the past. It will entail painstaking work to reinvent board processes and reshape behaviors, with a view to increasing the quality of information available to the board and the candor and rigor of its discussions. It will mean requiring that all directors demonstrate a commitment to continuous learning and improvement and, in many cases, it will require them to devote more time to their duties outside of formal board and committee meetings.

The report summarizes the leadership qualities required with a word not often used in modern business parlance: fortitude. It’s a fitting term, because it has many layers of meaning. Courage, for sure, but also strength of mind and character, boldness, perseverance, and resilience. These will all be needed, because sustaining the new approach will demand vigilance, even from leaders of the best-governed boards who may have already adopted many of the practices we outline in the report. As a Commissioner put it: “It’s easy to slip into a perfunctory frame of mind. Even big companies and high-performing boards need a reminder that none of the attributes of effective leadership can be taken for granted.” And another Commissioner articulated the required mind-set as follows: “Many board leaders know what they should do to improve their boards, but lack the courage.”

These statements came from directors of large public companies, but all of the above also apply to private companies, and even to nonprofits, which may be disproportionately affected by disruption, and may be more hamstrung by inertia when considering changing their governance approach.

This report takes a deeper look at major, accelerating business trends and their implications for board oversight (Part 1), and recommends specific actions board leaders can take in collaboration with their fellow directors—on board structure, engagement, composition, culture, and disclosures—to position their boards for the future (Part 2). As an aid to implementing the specific recommendations (summarized in Part 3), we offer a set of practical tools, examples, and case studies that board leaders and their boards can use to trigger the changes that we think are essential to keeping the board focused and forward looking—particularly in disruptive and demanding times. This report will help boards to identify and develop leaders capable of renewing the board’s human capital, of adapting board structures and operations, and of delivering incisive board oversight and engagement on critical long-term issues, while demonstrating transparency and accountability. We believe that all of these capabilities are vital for the leaders of today, and that leaders with these capabilities will make an all-important contribution to their companies’ chances of surviving and thriving beyond tomorrow.

Ready to read more? Dig into this year’s Blue Ribbon Commission report here.