Leading Boards Are Becoming More Engaged in Strategy

One of the findings from KPMG’s recent 28-city Audit Committee Roundtable Series is that leading boards are becoming more engaged in strategy as they pay greater attention to risk.

As boards take a hard look at their risk oversight process, they naturally turn to the risk element of the company’s strategy. The SEC’s proxy disclosure rules will require boards to take a good hard look at how they oversee risk. “If there isn’t a clear framework in place, that’s probably job number one” according to the roundtable report.

As boards engage in risk discussions, they are becoming more insistent that management provide alternatives and choices regarding the company’s strategy, as opposed to the “review and concur” approach of the past. In this way, some boards are helping to develop and determine the company’s risk appetite.

As one director said, “It takes time, effort and calories to do this right, but digging into the strategy is the only way to really understand what risks the company should or shouldn’t be taking.”

Smart CEOs look to the board in the strategy process.

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The Power of an Individual Director

John Gillespie and David Zweig offer “solutions” to their indictment of corporate boards in their book, Money for Nothing: How the Failure of Corporate Boards is Ruining American Business and Costing Us Trillions. In addition to their recommendations to split the chairman/CEO role, to allow shareholders to call an extraordinary general meeting, add some clout to say-on-pay, they cite individual talented and committed directors who have helped to improve governance.

Jack Krol is cited for his role in helping Ed Breen to restore Tyco after the Kozlowski debacle, Ralph Whitworth is lauded for the ways he restored governance to Waste Management and Michele Hooper for her leadership in changing board culture and spreading those changes to multiple boards.

“Drawing on her early experience on Target’s now legendary board beginning in the 1990s, Michele Hooper, a financial expert with a University of Chicago MBA, has brought those lessons to Warner Music Group, PPG Industries, AstraZeneca, UnitedHealth Group, Seagram and DaVita. Hooper learned from Target the value of having “a boardroom that allows for open and collegial discussion around the table without people getting upset or having a CEO who is going to put the kibosh on conversations.”

Michele has modeled excellence and has been generous about sharing what she’s learned. As the president of the Chicago chapter of the National Association of Corporate Directors, she volunteers her time to lead one of the strongest chapters of NACD, distinguished by its highly highly effective seminar programs. A board member of the national NACD, she facilitates training sessions for directors. In her day job, she is president and CEO of the Directors’ Council, which finds candidates for boards.

By highlighting the impact of directors like Michele, the critics Gillespie and Zweig demonstrate that boards of directors are still our best hope for providing oversight to our management system.

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Directors, Your Image Problem Isn't Going Away

The current issue of Newsweek features an interview with John Gillespie, one of the authors of Money for Nothing: How the Failure of Corporate Boards Is Ruining American Business. The title alone is fairly daunting for directors who have served and are serving on boards. Even if the public at large doesn’t read the book, the broad reach of Newsweek will brand boards as “inept.”

Charles Elson, the corporate governance expert at the University of Delaware, traces the origins of shareholder activism to the anger shareholders were feeling that they were being ignored.

The truth is that there are strong energized boards and business leadership dedicated to delivering durable long-term value through sustained economic performance, sound risk management and high integrity and through meaningful consultation with shareholders. But the new book paints a dark picture because so little was known about corporate governance until the financial collapse.

Good directors should be concerned about ”Money for Nothing.” If they thought the legislative changes were merely grandstanding efforts by politicians, they are wrong. Actions by the SEC and Congress reflect the general concern that governance isn’t being carried out effectively.

Good boards are stepping up to the new environment to demonstrate that they can make corporate governance more effective to serve the company, its shareholders and stakeholders. It will take reevaluation and rededication.

In this era of transparency, everyone will be watching. The public won’t settle for less than effective oversight.

Directors Have an Opportunity

The Deloitte/Directorship survey demonstrated that opinions from both ”Main Street” — journalists, policymakers, analysts and the “C-Suite” including CEOs and directors as well as teachers, laborers, policymakers, doctors, students and community leaders have a relatively poor opinion about the effectiveness of the current corporate governance.

Smart CEOs and boards will see this as an important opportunity to use the current proxy season as a way to reach out to shareholders in a credible way. By drafting CD&As in plain English that are designed to explain the board’s philosophy in devising pay programs that reward performance rather than failure.

The InterimCEO is a worldwide network of interim, contract and project executives. Their website has posted my comments on board leadership on their home page. The InterimCEO network serves as a rich resource for executives and companies that are looking for assistance.

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