Peter Crow
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If directors get serious about strategy, what are the consequences?

31/10/2014

4 Comments

 
If you listen carefully, you can hear it. A drumbeat, almost inaudible at first but getting louder now, has been beating a new tune in corporate boardrooms: that directors need to get serious about strategy. If the recently published NACD Blue Ribbon Commission's report is any indication, the era of boards meeting to review past performance and satisfy their compliance obligations (as their sole responsibility) may be drawing to a close. 
While I was initially non-commital, the BRC should be applauded for its report, and the NACD congratulated for having the courage to commission it. That the BRC has produced a set of strong recommendations is great news for shareholders, the markets and other parties interested in effective corporate governance and the achievement of great company performance outcomes. However, the recommendations are not without consequences: 
  • Directors will need to become more active in learning about the business of the business they govern. That will mean spending more time in the market; more time in the business; and, more time reading and critically analysing information from a wide range of sources. 
  • Directors will need to become adept at strategic thinking and more comfortable with the strategic management process. This may mean that the balance of expertise around board tables needs to change; from legal, compliance and accounting towards innovation and strategy.
  • Directors will need to revisit whether independence and distance (between the board and the Chief Executive) is actually the best basis of board practice. History—actually, the agency theory—has taught us that independence and separation are good, even though no one has produced any research to demonstrate that independence drives performance. If these recommendations are embraced, collaboration may become the order of the day.
  • Alpha-male and queen-bee CEOs may well be threatened by the board encroaching on 'their space'. However, there is no suggestion here that the board should take strategy away from them. The paper I presented in Boston (copy on the Research page) earlier this year discusses this.
These consequences will place downward pressure on the number of boards that any given director can sit on at any one time, without doubt. Three concurrent board appointments is probably a reasonable maximum for any one director, and possibly two if one appointment was a chairmanship. However, that may introduce a whole new set of concerns, not the least of which might be requests—from directors more interested in earning than serving—to shareholders to increase the size of the directors' fees pool! Notwithstanding this, I hope directors and boards take heed of the calls to action—for they are beating loudly now. 
Finally, my current research work, and experience in practice, suggests that the calls to action make very good sense. They are likely to lead to better company performance outcomes—but if they are followed.
4 Comments
Tom Doorley link
31/10/2014 18:14:41

Peter is right to raise the flag on this issue. Year after year Durectors say inovelment in strategy is a top priority Somehow they don't get there A few years ago I led NACD's Masters Class on the role of Directors in the Stategy Dialogue. Of 60 Directos only four, one being one I served, said they were adequatelt involved Directors have the tools. Get involved. Peter sets up one big issue, namely, the time it takes to know enough to contribute. Commitment is a critical criterion for success. It takes time and effort to be a good Director.

Reply
Peter Crow
1/11/2014 02:51:58

Thanks Tom, great to hear from you. I harbour fond memories of our time together in Boston earlier this year.

While commitment is crucial, directors and boards need to 'man up' on the accountability front as well: to put in the effort, to admit and accept mistakes, and to learn and grow in their contribution to business success, Easy to say, much harder to convince directors to do, I suspect.

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Henry Stoever link
31/10/2014 19:24:18

Great summary Peter, thanks. Proactive, and continuous, engagement is how I summarize the recommendations for NACD's Blue Ribbon Commission report.

Read the executive summary and the full report at www.NACDonline.org/Strategy.

Also see another great summary and a video discussing the project at http://tinyurl.com/ovnvpb9.

Reply
Peter Crow
1/11/2014 02:53:56

Thanks Henry.

I've been amazed at the wide spread response and high level of support to this posting. Hopefully it augers well for a much needed change in the corporate governance community, in our respective home countries and well beyond.

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Peter Crow PhD CMInstD

Company director | Board advisor
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