Month: September 2019

Admiral Grace Murray Hopper’s point: leadership can make a dramatic difference to the people who make up an enterprise and, therefore, to the enterprise itself. For that reason, Leadership is one of every board’s three Priorities (the others are Strategy and Execution). A board’s role in Leadership focuses on three areas: Board, the C-Suite and Workforce.

Board Leadership

The board is a body of equals. It chooses its own leadership structure, typically either an independent or executive Chair or a Lead Director, and leaders.

The board identifies the need for and establishes its own committees, consistent with requirements of listing standards and regulations, its discretion, and its own governance guidelines. The board also assigns directors to committees.

The board benefits from continuously developing its own members’ individual knowledge and effectiveness through activities such as self-evaluations, individual director education, and training. The evaluations, required in part by various rules, lead to improvements in the board’s operations and its collective development as a governing body.

Committee chairs and members change over time; rotation is seen as good practice. For these reasons, succession planning is as necessary and beneficial for the board as it is for company executives.

Moreover, periodic reviews of board composition can identify gaps in Directors’ experiences and perspectives. Finally, each vacancy is an opportunity for the board to reassess and to bring new perspectives into the boardroom.

CEO and C-Suite

Boards meet regularly, but most not even monthly. Day-to-day, executives must manage the enterprise. Choosing a CEO is the most impactful decision a board makes. It must choose well, based upon articulated criteria and company strategy. Notably, a board can wait too long to replace a CEO because it does not have a “ready now” CEO successor or the commitment to replace a failing CEO.

Below the CEO level, either a committee or the full board assesses and confirms the CEO’s choice of top executives.

Executive compensation is of great interest to investors, media, activist shareholders, employees, and regulators. Interest exists because compensation programs drive priorities, decisions, and behavior, and, hopefully, company results. Compensation strategy, annual and long-term performance goals and awards, and compensation policies are part of a board’s work to ensure an effective C-Suite. Efforts to explain a company’s compensation philosophy, programs and decisions can take up one-third of a public company’s proxy statement and considerable time during investor engagements.

Workforce

The board makes some decisions that affect the entire workforce – even a global workforce. The board should understand, for example, management’s compensation philosophy (i.e., pay parity, target the mid-range versus top of the industry) and Management’s program for achieving and leveraging diversity within the workforce to achieve competitive advantage. Finally, the board can lead by example.

By thoughtfully planning board and committee agenda and processes and devoting appropriate time and effective deliberation to its Leadership priority and these three focus areas, a board can make a significant difference in a company’s performance.

About Foresight®

Foresight is the first complete corporate governance software solution for boards of directors at public companies. The cloud-based software simplifies board planning and enhances board compliance and performance. Foresight is designed for corporate secretaries, general counsel, CEOs, and lead directors.

Foresight enables users to:

• Plan board priorities annually and meeting by meeting
• Generate board and committee meeting agendas, minutes, and compliance reports
• Compare meeting agenda topics to regulatory and other stakeholder obligations and expectations
• Identify regulatory exceptions for timely correction
• Export selected meeting and supporting documents
• Generate draft “ready-for-editing” minutes
• Generate and manage follow-up items after every meeting
• Measure board performance against industry benchmarks  
• Get tips for improving board priorities and performance throughout the year

CEOs often complain about their boards’ intrusion into management’s affairs. During over 150 extended interviews we did of CEOs, directors, and General Counsel, one CEO said it best: “My board is meddling in the minutia! They need to let me run the company.” 

How does that CEO help his board get out of the minutia? By looking at the decisions he is asking the board to make; that is, from board and committee meeting agendas. We analyzed the complaining CEOs’ agenda from a year of board and committee meetings. We saw that he was asking his board to spend time on many topics that management can handle better. In short, this CEO was unwittingly filling board and committee agenda with “Execution” agenda topics. Execution is one of three major Board Priorities that we use in Foresight’s proprietary board analytics. (The other two Board Priorities are Leadership and Strategy. More about those in later posts.)

Execution agenda topics tend to have a short time horizon: today, this quarter or this year. The board, as a body, has the least impact on these agenda topics as they require day-to-day attention. The board’s role here should generally be “noses in, fingers out.” 

The Execution priority includes monitoring (but not managing) three focus areas:

Profitability and Disclosure	Balancing short-term profits and long-term growth/gain. Ensuring integrity and accuracy in disclosures.
Compliance, Quality & Integrity	Leveraging these to create a competitive advantage.
Transactions	Evaluating and approving transactions consistent with the company’s strategy.

These agenda topics are not about the goals, processes, systems, or people to spur a company’s future growth and innovation. These Execution agenda topics relate to the past. They are indicia of results – and management’s success or failure. They are well suited to scorecards and summaries. These Execution topics are suitable for vigilant monitoring by the board rather than deep intrusion. The key is management’s ability to summarize the relevant information in pre-meeting materials in a manner that the board trusts so the board can spend less meeting time to effectively monitor management’s performance.

Here’s one important exception to the “fingers out” maxim: if as it monitors these Execution agenda topics, the board sees a warning sign of business or leaders going off course, then it must address an emerging problem. More importantly, if the board doubts management’s information, quick board action is required.

Companies must strive to establish the appropriate balance among the three Board Priorities: Leadership, Strategy, and Execution over time.  No one of the three Priorities should dominate the others. That is why we developed Foresight as a tool for understanding, analyzing, and adjusting the board’s agenda.  Our analytics tell the CEO, the board and its leaders, the General Counsel and the rest of the C-suite what the annual, meeting by meeting priorities of the board were as the year progressed, compared to their intentions.

Overemphasizing Execution agenda topics deprives the board time and energy for agenda topics in Foresight’s Leadership and Strategy Board Priorities. The board can add more value when considering these agenda topics and should elevate them above Execution.

So, to the CEOs who complain about their boards “meddling in the minutia”, we say “You must measure how you are asking your board to allocate its attention amongst the three Board Priorities (Execution, Leadership and Strategy).“  Let Foresight help you rework your board and committee agendas and get your board working on the agenda topics that can better leverage your board members’ strengths and drive your company’s success.