High Performing Boards Play Offense vs. Defense
Forward-looking boards foster a culture of continuous improvement working offensively on strategy and risk management. Unfortunately many board agendas are focused on looking backward. Considering the dynamic nature of technology and other advances influencing corporate strategy, focusing on critical issues and opportunities are crucial to the future direction of the business that may yield shareholder value and potentially mitigate risks. Many Directors are overly focused on their fiduciary responsibilities, details of compliance, regulatory issues and are often ill informed about the fundamentals of companies to truly add value. Senior executive leadership is often focused on the short-term view delivering the quarter-to-quarter results to meet investor and board expectations. As a result, boards need to find the balance with the senior management team to invest the time to play offense – looking ahead.
High performing boards are taking a look forward and playing offense. The world economy is impacted by rapid changes in technological, demographic and economic trends as well as unpredictability with events that can dramatically impact company performance. Boards need to take the lead in looking forward to anticipate changes, risks and identify opportunities.
Building a forward-looking board requires a culture shift with an existing board and the senior leadership team. The cultural alignment with the board and senior leadership team needs to include the continued focus on fiduciary responsibilities as well as a desire and a commitment to being a forward looking board. It starts with creating a board agenda with specific forward-looking activities and the appropriate time allocation at each meeting over a year. This requires discipline to adhere to the agenda and prioritization of shaping the future of the company. This can be challenging when a team is down 24 – 0 at the half. In these situations often Directors and senior leadership shift in to defense mode and fail to be forward thinking. High performing companies are committed and adhere to a disciplined approach to shaping the future of the company.
Collaboration on Strategy with Management
How many boards are actively engaged in the company’s strategy vs. approving or slightly modifying a CEO”s strategic plan? Active engagement in strategy is essential for each board member. A clear framework is required to create an environment where the CEO and board can collaborate effectively on strategy. The CEO needs to see the board as a valuable resource and partner in establishing the strategy for the company.
- Comprehensive market intelligence and competitive review
- Board member due diligence
- Annual framework
- Explore broad options
- Assessment of options
- Refine options
- Review key performance indicators
- Investment proposals & ROI
Risk & Resilience Planning
A more proactive approach to risk management involves resilience planning. Risk management should involve identifying and preparing proactively for any and all risks that would adversely affect the achievement of the corporation’s goals and objectives. The board has a responsibility to do everything it can to insure a resilient corporation through adverse conditions. Does the board need a Risk Committee separate from the Audit Committee? Risks extend beyond financial and compliance to strategic and operational risks. The National Association for Corporate Directors (NACD) recommends the following risk categories: governance risks, enterprise risks, Board-approval risks, business management risks and emerging risks.
Risk & Resilience Planning Activities
- Definition of corporate risks
- Scope of the Board’s risk oversight responsibilities
- Comprehensive identification of potential risks
- Risk review and mitigation approaches
High functioning boards build a culture and an expectation that ongoing education is required to complement the experience and skill sets each member brings to the board. This requires a time commitment well beyond attending board meetings, committee work and pre-reading of board materials. Education may include inviting subject matter experts to speak at board meetings, engagement in new technologies and developments of interest to the company’s strategy, assignment of a competitor(s) to conduct deep analysis and more.
Board Education Activities
- Attend industry conferences
- Spend time meeting with team members in Operations, Technology, Sales, R & D and other areas critical to the company strategic plans.
- Meet customers with sales team members.
Board Effectiveness & Evaluations
Board evaluations and rejuvenation can be challenging and sensitive. A regular process of evaluating the board’s performance to identify strengths and weaknesses as a group and as individuals is critical for a forward thinking board. Considering the dynamic nature of technology and other advances influencing corporate strategy, tenure of some board members, the corporate needs may have evolved beyond the experience that an individual brought 5 – 7 years prior. Does the board have the right composition, experience and expertise? How are the team dynamics working? Well-conducted evaluations can be positive change agents for the board and company.
Board Evaluation Activities
- Determine evaluation process and tools
- 360 degree
- External provider evaluation
- 360 degree
- Board committee evaluations
- Outcomes and action plans for board enhancement
Talent Assessment & Succession Planning
Current board level conversations about talent are too heavily focused on an annual conversation about compensation due to the CD & A required as part of the annual proxy filing. These discussions are focused on a far- too narrow segment of the employee population who will have a great impact on the future success of the business. Boards need common metrics assessing competencies and milestones for measuring progress with regard to talent at regular intervals, not, just once a year. Forward thinking boards want to understand the strengths and weaknesses of the senior leadership team as well as the next level down, the future leaders of the company. The head of human resources should report to the board with regard to leadership, career development, retention strategies, identification and development of high potential talent, and succession planning. Ultimately talent is essential to execute on strategy and is a critical differentiator of corporate performance. Forward-thinking boards embed talent strategy in to every strategic planning session.
Talent Assessment & Succession Planning Activities
- Establishment of talent evaluation & review objectives
- Critical talent and segments for business success
- Leaders for today & leaders for tomorrow - talent “bench” – 3 – 5 year outlook
- Employee engagement
- Employment value proposition
- Workforce planning
- High potential employees
- Succession planning
- Ethics & compliance
- Talent risks
Forward-looking boards are highly committed to a disciplined approach committing the time and energy necessary for real growth. Indeed, the best defense is a good offense.