July 27, 2015
Raising the Bar on Director Performance – New NACD Program Outlines 5 Keys to Success
July 27, 2015
The bar for director performance has been raised. A volatile economic environment, increased regulatory scrutiny, impending cybersecurity threats, and shareholder activism have all shifted the expectations for what should happen in the boardroom.
Responding to those growing expectations for directors, The National Association of Corporate Directors (NACD) has developed a new program—called Advanced Director Professionalism®—that focuses on understanding the market forces and “next practices” that will shape the boardroom in coming years.
At the inaugural Advanced Director Professionalism program in Philadelphia June 1-2, nearly 60 directors joined corporate leaders and subject-matter experts to discuss these market forces and next practices. Five key insights from the event follow:
- Avoid the “tyranny of unanimity.” In a structured, interactive, scenario-based workshop, participants were confronted with a board of seasoned directors who were reluctant to dissent from the majority at critical decision-making moments. Such groupthink dynamics preempt consideration of viable alternative strategies and responses—a failure that can lead to disastrous business outcomes.
- A healthy board culture is needed. Even effective boards are not immune to dysfunctional dynamics, such as hasty decision-making, disengaged directors, and too much deference to authority; yet the warning signs of dysfunction often go unrecognized. Continuous and rigorous evaluations can identify unhealthy dynamics early on, while periodic rotation of board leadership roles helps infuse fresh perspectives and approaches.
- Focus on dynamic agenda-setting. Participants learned how to maximize the limited time that directors spend with each other and with management. While some full board and key committee agenda items are mandatory, these need not dominate meetings. Instead, board leaders should ensure that agenda development is clearly linked to major strategic opportunities and risks, and should plan reviews throughout the year in response to changing marketplace realities.
- Cybersecurity is no longer an IT issue but an enterprise-wide strategic risk. The ramifications of cybersecurity breaches now include undermining customer trust, damaging operational effectiveness, and jeopardizing corporate strategy, to name just a few. Ownership of cybersecurity risk is distributed across the entire firm, from the CEO to frontline employees, who must all engage in secure behaviors with respect to system and data access. Boards should examine how effectively cyber risk is governed internally.
- Become the keeper of corporate strategy. Board members often have a longer tenure than the CEO, which enables them to see long-term strategies through to completion. They can help ensure an effective strategy development process and engage management throughout strategy execution. Boards should challenge the fundamental assumptions on which the strategy rests—during periods of stability and steady profits, as well as times of disruption and emerging threats—and provide guidance to management as it considers alternative options.