A recent meeting with NACD Chair Reatha Clark King has revealed some compelling thoughts on why good corporate governance matters and why we at NACD do what we do.
Over the last 37 years, NACD has researched, documented, and published leading boardroom practices including Blue Ribbon Commission reports, handbooks, white papers, and surveys. Our intent is to advance exemplary board leadership.
As I dug into the question of why we do what we do with directors who serve on NACD’s board, I used a classic marketing approach to define higher order, emotional benefits. A benefit-oriented discussion enables one to organize responses into a pyramid-shaped format. Product attributes serve as the foundation and subsequent perspectives provide product and end benefits, ultimately leading to emotional benefits. Capturing the emotional essence enables one to develop a sustainable, differentiated position.
When I asked the “why we do” question, I received responses such as:
To help directors make better decisions
To ensure that the perspectives of all stakeholders are heard
To do the best job I can
To represent the shareholder
To increase the value of the enterprise
While these responses are appropriate, there was an obvious follow-up question: “Well, why does that matter?” It reminded me of conducting in-home ethnography research and one-on-one interviews when I was in marketing at Kraft Foods–sessions that were typically enjoyable for me, but a bit painful for the participant.
The culmination of responses to “why we do what we do” can be summarized in two remarkably simple bullet points:
To me, this perspective is both impactful and relevant. First, the answers are brief and to the point. Second, each bullet point contains what I would describe as a lightning rod word–sustainability and stakeholder–and each of these words can have a variety of meanings depending on the audience.
Enterprise sustainability means, quite simply, that the company is around for a long time. An enduring enterprise provides long-term benefits to its employees and their families, to suppliers and vendors, to the community in which it operates, and to those who provide financing–bankers, investors, and donors. Further, enterprise sustainability means that the leaders of companies, both in the boardroom and the C-suite, remain aware of current and emerging issues that may impact these companies, and are engaged in robust dialogue about strategic implications. I call this strategic agility.
As a result, stakeholder confidence is established, reinforced, and bolstered. Regardless of how a company is structured–public, private, nonprofit, mutual, or family owned–all enterprises have stakeholders, and the long-term viability of the enterprise is overseen by a board of directors.
Therefore, everything that NACD does–from our NACD Directorship 2020® initiative to our expanding range of events, resources, and services–provides unique value to NACD members to advance exemplary board leadership. The intended outcome of all of our activity is NACD members who demonstrate a commitment to not only continuously learning, but also demonstrating the courage to question the unknown and working to sharpen their strategic agility. Once this is achieved, NACD members are poised to help create sustainable enterprises and bolster stakeholder confidence.
I welcome your feedback on this topic. Please join me in sharing your views of why we do what we do.
Amid reports on the Olympics and presidential race, the flagging economy has been firmly in the news this week. In the second quarter of 2012, U.S.economic growth slowed to an annual rate of 1.5 percent, even slower than its 2 percent growth in Q1 2012. This lack of growth suggests the economy is at risk of stalling, a sentiment echoed in NACD’s Board Confidence Index (BCI), which dropped over 8 points in the second quarter to 52.4. The BCI’s second lowest score since its inception in September 2011, this overall index denotes directors’ uncertain view of the state of the economy.
Since its introduction in 2010, NACD’s BCI has trended with peer indices—showing fluctuations and improvements, but generally not enough to support a fully recovered economy. The University of Michigan and Thomson Reuters’ measure of consumer sentiment for July followed suit, dropping to its lowest point since December 2011. However, after the Conference Board’s Consumer Confidence Index dropped to a five-month low in June, it regained several points in July, moving to 65.9 from 62.7. According to Richard Curtin, chief economist of the University of Michigan Consumer Sentiment Index, the continued decrease in confidence is the result of consumer expectations, specifically the belief that “current economic policies are incapable of solving the problems facing the economy.”
This lack of confidence in the government’s ability to address economic issues early is evident in the boardroom. When asked about the nation’s progress in the past three months, as well as expectations for the next three months, levels dropped below 50 points, indicating little confidence in the nation’s short-term prospects. Confidence in the economy’s progress over the last year took the largest hit—dropping from 64 in the first quarter to a slightly more than uncertain 56 in the second quarter. In its history, it is not unusual for director confidence in the short term to waver in the 50s. However, when long-term scores drop to this range, it is not uncommon for the overall index score to significantly drop.
Current fears of a stalled recovery are not going unnoticed, however. Following its two-day meeting this week, the Federal Reserve is prepared to launch another round of stimulus to bolster the economy. While the bank has not yet formally announced this intervention, if unemployment and growth continue on the current path, it is only a matter of time.
Confidence in the economy is a broad topic to discuss. Just as one area starts to show positive growth, the world is shaken by a different downturn or disaster. In an article last month in the New York Times, economist Paul Krugman discussed the increased complexity of the current economy, compared to the months following the most recent financial crisis. In late 2008, the world’s collective attention was on the falling stock market. Today, there are many areas contributing to overall economic confidence: inflation, employment, oil prices and so forth. As Krugman notes, “we’re living in a world that is characterized not so much by the sum of all fears as by some of all fears.”
NACD’s most recent Board Confidence Index (BCI) reflects this conflicted view. In Q2 2011, the Index fell from 64.9 to 63.1, the first time it has dropped since its creation in the autumn of 2010. When asked to characterize the current state of the economy compared to one year ago, directors registered a confidence index of 68, a decrease of five full points since Q1 2011. Directors also feel less confident in the progress made in the short run—looking at changes in conditions over the past quarter, confidence dropped to 59 from 61.
However, the slight decline in confidence is countered with a more optimistic view for the coming months. Just this week, Federal Reserve Chairman Ben Bernanke projected increased growth for the next six months in remarks following the Central Bank’s Beige Book release. According to Bernanke, policymakers will be focused on the labor markets. According to the Q2 2011 BCI, the boardroom agrees. Despite slowed growth, nearly half of corporate directors (43%) plan to expand the workforce in the upcoming quarter. In addition to hiring practices, directors are generally more confident regarding the future. Expectations for the next year stand at an assured 67.
Recently released data from The Conference Board (TCB) echoes the caution seen in the boardroom. Despite higher predictions, TCB’s Consumer Confidence Index fell to 60.8 from a revised 66 in April. Unsurprisingly, American consumers are troubled by the current combination of increased costs for food, the increased cost of oil and the depressed real estate market.
The Board Confidence Index is conducted by NACD in conjunction with Heidrick & Struggles and Pearl Meyer & Partners. Q3 2011 results can be expected in September.