Late last year NACD released a white paper with McGladrey, Bridging Effectiveness Gaps: A Candid Look at Board Practices, which quickly became one of NACD’s most downloaded resources of 2012 and continues to be the most downloaded in 2013. The paper, based on four gatherings of directors and executives, notes that because directorship is a part-time role, the board must inherently rely on management for information. This can lead to a disconnect in communication, as the information the board needs is not necessarily the information management provides.
In an effort to accurately reflect the thinking of those “on the front lines,” boards often hear from voices outside of the typical four-officer lineup (CEO, CFO, COO, and general counsel). Nearly unheard of a decade ago, the chief risk officer (CRO) provides an example of a non-traditional C-suite officer uniquely positioned to fill an information gap. According to 2012-2013 NACD Governance Surveys, in public companies without a CRO, 64 percent of directors state that the level of information they receive on risk management is good or excellent. On the other hand, among the 28 percent of companies with a CRO, this level of satisfaction among directors increases by more than one-third to 87 percent. The difference is even clearer among private companies–48 percent of directors at companies without a CRO report high levels of satisfaction with received risk management information, and this increases by more than half to 76 percent of directors reporting similar high satisfaction levels at companies with a CRO.
These new and influential voices in the boardroom provide directors with the knowledge and experiences of those working day-to-day in various operational fields. Directors can draw on these diverse sources to ensure they have the breadth and depth of information needed for effective oversight. This solution, however, may present another issue; directors, while comfortable interacting with the typical four-officer lineup, may not have the same level of experience with non-traditional C-suite officers. In the same vein, these officers may not be as adept at providing the board with precise and relevant information.
The report includes position descriptions for, information the board can expect to receive in reports from, and deeper questions directors can ask of, these C-suite officers. A complimentary copy of this white paper is available to all NACD members, and is available to non-members for $15.
Read through this year’s most downloaded resources to see what directors found useful in 2012.
Governance Challenges—2012 and Beyond: Featuring the guidance and thought leadership from six of NACD’s strategic content partners, this publication offers a forward-looking perspective on the issues dominating boardroom discussion. Topics covered range from ten to-do’s for audit committees and the basics of compensation to board preparations for crisis situations.
Bridging Effectiveness Gaps: A Candid Look at Board Practices: To combat the risk of asymmetric information, NACD partnered with McGladrey to host four small gatherings—at NACD chapter locations across the nation—of executives and directors in an effort to find ways of improving the communication and relationships between the board and C-suite. From these candid conversations, this white paper was created.
2012 Risk Oversight Advisory Council Summary of Proceedings: The inaugural meeting of the NACD Advisory Council on Risk Oversight met telephonically during one of the worst hurricanes to hit the eastern seaboard in a century. During the abbreviated meeting, discussion focused on two areas: allocating the work of risk oversight and the new paradigm of reputational risk for corporations today.
2012 Nominating/Governance Committee Chair Advisory Council Summary of Proceedings: The third annual meeting of the NACD Nominating/Governance Committee Chair Advisory Council reinforced the sentiment that nominating and governance committees are navigating an increasingly challenging environment. The Council focused on how nominating and governance committees are revisiting their director evaluation and succession processes in the context of both new regulations and the rapidly changing global markets.
At any NACD education program, the discussion of directorship as a part-time profession with full-time risks is bound to arise. Yet following any corporate crisis, the question is always asked: “Where was the board?” Outside of the C-suite and boardroom, many perceive that directors should be able to foresee and avoid a crisis before it strikes.
This perception is misguided for several reasons. As a result of legislative and regulatory activity, since the 1960s corporate boards have become increasingly independent of management. Although legislation such as Sarbanes-Oxley and Dodd-Frank mandated independence at specific committees, this has extended to the entire board. Today, most publicly held company boards comprise a majority of independent directors, and often the CEO is the only executive director.
The development of independent boards is not negative. In fact, it ensures that the board can effectively carry out its mission and responsibilities, and fairly hold management accountable to shareholders. However, there are a few consequences when directors are selected entirely for independence. Directorship, as noted above, is a part-time role. Inherently, directors rely on senior management for information necessary to carry out their oversight responsibilities. When outside directors are chosen for lack of ties to the corporation, they do not necessarily bring knowledge of the business or industry. Therefore, the benefit created by adding an independent director is largely tempered, as this outsider is reliant on the CEO for the information necessary to his or her oversight role.
To combat this risk of asymmetric information, NACD partnered with McGladrey to host four small gatherings of executives and directors in an effort to find ways of improving the communication and relationships between the board and C-suite. From these gatherings, the Bridging Effectiveness Gaps: A Candid Look at Board Practices white paper was created. As Bridging the Effectiveness Gaps notes, broadly, these gaps were found in the areas of strategy and risk, executive compensation, CEO succession planning, and board evaluations. By convening management and directors from different companies, the meetings fostered candid and open conversation regarding areas where communication tends to break down. However, where communication was generally the root of the problem, it was also the solution.