Tag Archive: NACD Master Class

Identify the Enemies of Effectiveness and Think Like an Activist: 5 Insights From a Philadelphia Master Class

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At the National Association of Corporate Directors’ (NACD’s) Master Class program in Philadelphia June 3-4, nearly 50 experienced directors engaged with corporate leaders on the key elements that will shape the boardroom in the coming decade.

NACD’s Master Class takes place over two days and comprises eight modules presented as panels, keynote speeches, and intensive breakout sessions. Modules are highly interactive and are led by veteran directors, leading business executives, and corporate governance experts. Each Master Class is organized around a specific theme.

In Philadelphia, discussions centered on ensuring effective boardroom dynamics and strengthening the board’s role in strategic planning, cybersecurity, and mitigating global risks. Below are five takeaways that emerged in Philadelphia.

  1. Search out the enemies of effectiveness. Vague expectations, absence of process, inadequate delegation of authority, and individual sabotage can individually or collectively compromise board effectiveness. Independent chairs and lead directors should be attentive to poor board dynamics, which often have root causes that can easily be addressed. Boards can also help counter dysfunction by establishing a foundation of shared principles that will guide the board’s decision-making, agenda-setting, discussion management, and self-assessment.
  1. Analyze the causes of gradual deterioration in performance. Management often rationalizes small performance drops by pointing to macro-economic trends or solvable business execution problems. Boards should consider adopting a forward-looking posture in order to understand the long-term impact of disruptors on business performance. They can do this by engaging with management in frequent discussions about the assumptions that undergird the company’s strategy and the “what-if” events that could invalidate those assumptions.
  1. Think like an activist shareholder. Activists usually know the industry and sometimes even the company better than the board does. To avoid being ambushed by well-informed activists, boards should learn from the consultants and investment banks that serve their company, industry, customers, and competitors. They must also challenge management’s conventional wisdom about the firm’s current performance and future direction.
  1. Clearly delineate the roles of the board and management in developing and executing strategy. Boards can offer more value by engaging “early and often” in the strategy development process, by pressure-testing management assumptions, and by selecting the appropriate metrics to assess strategy success or failure. When seeking a more active role, boards must collaborate with management on defining the boundary between directing strategy and managing it. Addressing this tension over where the lines should be drawn is a critical challenge that will demand ongoing attention from the CEO and the lead director.
  1. Anticipate the consequences of global disruptors. In a hyper-connected global marketplace, economic and political shifts in distant corners of the world can instantaneously impact company performance through supply-chain disruptions, foreign-exchange volatility, and regulatory activism. Boards can increase their understanding of emerging cross-border interdependencies and evaluate whether management is sufficiently agile to respond when conditions change.

Recapping Master Class: The Intersection of Strategy and Innovation

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One theme resounded in each session at NACD’s Master Class held in Scottsdale, Ariz., last week: the nature of directorship is in flux. In the 1990s, boards were subject to considerably fewer regulatory requirements. Sarbanes-Oxley created the “gatekeeper” of compliance, as observed by NACD President and CEO Ken Daly. Fundamentally, if boards fail to meet compliance requirements, little else will work.

But “you can’t comply your way to success,” according to opening speaker Bill Reichert. Today, long-term value creation necessitates innovative and inventive strategic planning—from management and the boardroom. As such, leading directors are shifting their focus not away from, but through, compliance efforts to the “next level.”

This concept of the “next level” was consistently brought up during discussions across the board. In some sessions, this meant critically assessing the skills and actions necessary to make the board a strategic asset to the company. In other sessions, “next level” addressed the information flow between the management and the board: how to fortify directors with the necessary knowledge to enable them to ask the “second layer” of questions that delve deeper into the data presented by management.

Innovation, however, brings risk—a concept Master Class attendees understood all too well. As noted in the 2009 NACD Blue Ribbon Commission Report on Risk Governance, “without risk there is no reward.” Risk is no longer limited to financial statements, though. The list of areas that pose potential threats to the organization has expanded over the last several years to include fields such as cybersecurity, emerging technologies such as e-commerce, and social media. Throughout the event’s sessions attendees discussed various methods that boards can use to assess and oversee these risks without becoming mired in granularity.

NACD’s Master Class in Scottsdale convened panelists with considerable experience in innovation, strategy, and risk oversight to lead attendees in discussions on how to effectively and intelligently ensure their company is ready to meet the challenges posed by the new economic climate. These panels were punctuated with multiple “deep dive” sessions in which participants could focus on specific topics of interest with experts and peers.

The next Master Class will be held in Boston, Mass., June 13-14.