Tag Archive: Richard Koppes

Three Ways to Build a Strategic-Asset Board

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The business environment is rapidly and fundamentally changing—and directors are expected to keep pace. In response to this state of extreme volatility, the Report of the NACD Blue Ribbon Commission on Building the Strategic-Asset Board explores how boards can position themselves to capably usher their companies into the future by focusing on continuous improvement. At the 2016 NACD Global Board Leaders’ Summit, Commission co-chairs Bonnie Hill, director of California Water Service Group and former Home Depot lead director, and Richard H. Koppes, director of NACD and the Investor Responsibility Research Center Institute and former deputy executive officer of CalPERS, discussed the Commission’s key findings with NACD Director of Strategic Content Development Robyn Bew.

NACD Blue Ribbon Commission Report on Building the Strategic Asset Board

Members of this year’s Blue Ribbon Commission came to a consensus early in their discussions that “board refreshment”—an increasingly popular term in the corporate governance community as various stakeholders turn their attention to board composition and director turnover—is a limiting, and even simplistic, concept. Instead, directors need to figure out how they can make themselves strategic assets to the companies they serve by instilling a continuous-improvement ethos into the culture of the boardroom. Over the course of the conversation, Hill and Koppes suggested that directors consider the composition and functionality of the boards in the following ways:

How do directors’ skills need to align with company strategy? Businesses evolve rapidly, and boards need to respond in kind. Here, directors need to consider how they are keeping abreast of the issues facing their organizations and whether the skills that initially garnered them a seat at the boardroom table still align with the current and future direction of the company. Sometimes this means deciding to leave the board.

Internally, new-director onboarding practices provide an opportunity to communicate about the board’s culture and governance principles, including reinforcing the idea that board service is not a lifetime appointment. Externally, boards can communicate to stakeholders that a director’s departure was in keeping with the board’s governance practices and does not reflect poor service on the director’s part.

What are the board’s processes for continuous improvement? Maintain a pipeline of boardroom talent and have a multi-year succession plan in place so that open board seats can be filled with highly capable candidates. These plans should include designating successors for committee chairs and the independent chair or lead director. For sitting directors, continuing education programs can help to refine or amplify skill sets. Evaluations, including at the individual-director level, are essential tools for continuous improvement when they are conducted regularly and periodically involve an independent third party. They help ensure that the board’s processes are functioning well, enable directors to be more nimble in their own self-improvement, and ultimately fine-tune the board’s strategic contribution to the organization.

How do stakeholder perspectives affect the board? Shareholders—especially institutional investors—are paying closer attention to issues surrounding board composition. Considering that institutional investors read thousands of proxies each year, the onus is on individual boards to effectively communicate how each director makes valuable contributions. More and more leading boards are going beyond the basic biographical information required by the SEC and listing exchanges and providing additional context. In addition, if there is any concern that a director slate could be a point of concern for investors, boards should reach out to those constituencies well in advance of proxy season to explain their position. Should investor dissatisfaction with the board lead to an activist engagement, panelists agreed that, while sometimes both parties ultimately agree to disagree, the board needs to hear out that point of view and seriously consider if their position might add value.

For detailed recommendations on how to enhance your board’s continuous-improvement processes in seven key areas, download the Report of the NACD Blue Ribbon Commission on Building the Strategic-Asset Board. In addition, read this article from the current issue of NACD Directorship magazine for more insights from Bonnie Hill and Richard Koppes on the creation of the report.

Future Boardroom Processes

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This year, NACD began a series of programs designed to address the changing nature of directorship. Intended to identify the board composition, processes, and resources necessary for the future board, the time frame lends a twist to this launch—no defined outcome has been chosen at this initial stage. Instead, with the awareness that the economy, and the boardroom, is in a state of unprecedented change, NACD Directorship 2020™ is a multi-year initiative designed to help provide clarity to an uncertain picture regarding the future of directorship.

This initiative started with three exploratory meetings in New York, Chicago, and Los Angeles, the last of which concluded this week on the West Coast. In each city, feedback has allowed NACD to continually refine the program design, as well as re-think the questions posed to attendees. Perhaps mirroring the movement of the meeting’s locations from east to west, the conversations have become more focused on the processes directors can implement to meet the coming challenges.

At the SLS Hotel in Los Angeles, more than 100 directors attended the afternoon session to discuss two topics: the future state of information flow between the board and C-suite, and how to select performance metrics that will generate sustainable organizational profit. Sessions were led by NACD Managing Director and CFO Peter Gleason; Akamai Technologies Lead Director and Audit Committee Chairman Martin Coyne; Investor Responsibility Research Center Director and current NACD Director Richard Koppes; and former Bell and Howell CEO, current NACD Director, ContextMedia Non-Executive Chairman, and Northwestern University Professor Bill White. During the highly interactive sessions, each table was given a specific set of questions to discuss and provide thoughts among their peers. Takeaways from the event include:

  • Asymmetric information risk is inherent in directorship. If the board had the same level of operational knowledge as management, directors would be running the company.
  • An imbalance in information can occur within the boardroom as well. Boards are at a higher risk if one director is viewed as an expert in a technical area. In these situations, the rest of the directors may defer to his or her proficiency and not exercise the necessary skepticism. Further, board structure, with committees that delve deeper into technical areas, adds to the potential for information imbalance.
  • The risk of information asymmetry is not an issue, but a catalyst. Discussing the balance of information flow between the board and C-suite can expand into many interconnected topics, including board composition, culture, metrics, and leadership.
  • Board portals may be “greener,” but they encourage information dump. Attendees agreed that their board books have largely grown in length, due to the ease of transferring files rather than creating physical board books. Today, it is more important than ever for the board to communicate what information it needs from management.
  • By bringing more viewpoints to the boardroom, directors that are diverse in skill set and experience are more likely to explore all sides of an issue. Diversity of directors will change the dialogue in the boardroom going forward.
  • Boardroom culture should welcome constructive challenges from directors. It is necessary for directors to ask probing questions on issues without fearing negative repercussions. A culture that welcomes constructive criticism will enable more effective individual director evaluations that address problems head on.
  • There is no one-size-fits-all solution to addressing the current and future challenges posed by legislators, regulators, and stakeholders. While the underlying principles are consistent, application of new processes will be tailored to each company.
  • As a result of the rapid pace of marketplace change, directors need to adopt a mindset that their business is going to be disrupted. This adjusted mindset will allow for continuity planning to be built into the strategy to help offset future disruptions. As Bill White observed: ”If you have the mindset, the metrics will follow.”
  • In the year 2020, metrics will increasingly focus on speed and agility. Attendees largely agreed that there is no such thing as a competitive sustainable advantage, as a result of disruptive technologies. Speed and agility not only apply to the operations (speed of execution, acceptance of new products), but also to talent (willingness to change, ability to adapt).
  • In the era of big data, you can “metric yourself to death.” Directors should not look at metrics and dashboards blindly, but instead they should view them in a broader context, including what implications they may hold. It is also important to counter internal metrics with data that shows how the company is viewed externally.

NACD Directorship 2020 will officially kick off next month at the 2013 NACD Board Leadership Conference. Until then, NACD’s blog will feature viewpoints and research from our NACD Directorship 2020 partners—Broadridge, KPMG, Marsh & McLennan Cos., and PwC—that will take a deeper look into the emerging issues and trends that will redefine directorship in the years to come.