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.
America’s economic health is inextricably linked to business growth and sound boardroom practices. And while many decry the corporate scandals that erupted in recent years, NACD believes in looking towards the future and working with directors to better prepare them to lead America’s companies.
How to Be(come) a Director is our new Web-based course designed to educate newly minted directors and help aspiring directors advance their board careers by learning about boardroom best practices that will enable them to become responsible stewards of companies and shareholders. This is not some sterile academic exercise, to be sure. Rather, the 4 hour eLearning course provides real-life lessons from top corporate governance experts, including directors of Fortune 500 companies and scholars at prominent academic institutions. The topics covered in the course are essential to sound corporate management: fiduciary responsibilities, essential directorship skills, the board selection process, understanding committees, and much more.
For just under $400, this self-paced program fills an urgent need, seeking to raise the standards of ethical behavior, accountability and competence in boardroom leadership. It also helps current and future directors cope with an atmosphere of heightened regulation and scrutiny.
Repeat access to the course gives participants the flexibility to review certain sections again for better understanding. In addition, the core course content is supplemented by downloads that can be used to build a personal corporate governance library, as well as video, bonus materials and knowledge checks for participants to see how much they’ve learned.
It is not getting any easier to run a company in this age of intensified public scrutiny and government regulation. However, How to Be(come) a Directorprovides a solid platform to help corporate directors prepare for boardroom success both for their companies and for their own careers.
A recent conversation with one of our members via the NACD LinkedIn Group has prompted me to think about how social media might affect the work of companies, the behavior of shareowners, and thus the leadership of boards of directors.
The conversation started like this: I attended an elearning conference and, inspired by some of the sessions, decided to solicit the views of NACD membership on how the emergence of social media might require new skills and mind-sets from those charged with company oversight: the board of directors.
I had only one response. “Neil” wrote: “Other than the notion that social media plays out quickly, are the oversight issues any different from what they were in the past? In the pre-social media world, companies I served had policies (and less formally, unwritten “understandings”) in place with respect to media/public communications and crisis management. Other than establishing a proper framework that includes setting policy and ensuring there’s a system of assuring (or at least optimizing) compliance and reviewing the policy/program from time to time as appropriate, I see actual oversight (i.e., implementing, monitoring and executing) as the realm of management.”
Hmmm. I had meant the general role of overseer, not just the oversight of social media initiatives. It’s also interesting that my correspondent immediately equated social media with crisis whereas my colleagues at the conference instead saw it as a valuable tool for collaboration. People talking to each other, sharing ideas and swapping stories can be, of course, both a boon and a threat. Perhaps what it threatens most is the long-established idea of control and command leadership, as practiced by so many boards and C-suites. Thus, if implementing, monitoring and executing business activities remain the responsibility of management, oversight of these activities today could, for good or ill, be provided directly by stakeholders, moving at a speed and with a force that is completely out of kilter with the careful deliberations of the best boards.
At the conference, presenter Phil Cowcill (follow him on Twitter here) shared the idea that “technology makes companies naked,” forcing a new transparency that private meetings and closely held notes could once have hidden. “Invite technology into the room,” he advised, “for you cannot keep it out. The value of collaboration is more valuable than the threat of the loss of control. Learn to treat your stakeholders as partners and you will benefit from knowing what they think and feel.” The baseline extrapolation for a board would be to make intelligent use of the social media environment to solicit relevant third-party views on business issues, winnowing worldwide views to supplement the information provided in the board book.
Bob Reisner, former vice president of strategic planning for the U.S. Postal Service, agrees that the speed and ease of information sharing and communications poses leadership challenges for boards and management teams. “Shareowners, customers, employees, suppliers and communities can now insist that they be included in guiding the shape of the future,” he said, “and that will either be frustrating and bewildering for those who seek to maintain control, or enriching and transformational for those who anticipate the wave and act.” Bob is writing a book—provisionally entitled DemocratizingTransformation—and shared some of his thoughts when we talked recently in Washington, DC. “Constituents have access to their own collaborative tools, official or not,” he said. “When they engage the official media and have the same collaborative tools, boards will have to work out how and when to engage them in governing and shaping the future. The democratic impulse can’t be stopped or contained (without new costs), and so it will require leaders to define new rules and embrace a new, collaborative, open, transformational style. Increasing risk and uncertainty has raised constituent activism, and many traditional constituents (and some new ones) will view the future as too important to trust to management [and boards] alone”
You may still receive the information that informs your board decisions via the board book, the newspaper delivered daily to the front door, and your deep experience of the industry and company you serve. You may still cherish your leather seat at the beautiful board table, and the tenor of the high-level discussions that take place behind closed doors. And you may be right that your board has the people, commitment and brain power to continue to act as a strategic asset to the company, and as an effective monitor of management. But keep an eye on the social media tsunami, and follow this drill to ride the giant wave:
Bring stakeowners and shareowners into decision making—solicit information, listen, learn and act, and encourage company managers to do the same. Support company initiatives that encourage collaborative problem-solving at all levels of the organization.