Everything will change. If you come away with anything from this blog, it is an understanding that it is critical that Boards of Directors and Executives understand that to succeed in today’s business environment, they must take a giant leap and embrace the digital transformation. Boards and executives are facing a myriad of challenges and can only successfully address them by leveraging artificial intelligence, data analytics, and digital communications. Everything will change – how board members interact with each other; how they make decisions; how they address issues from governance to corporate social responsibility; how they recruit and retain high performance executive teams; and how they will communicate with both shareholders and stakeholders.
Innovation is fast. For instance, Moore’s Law claims that computer processing capabilities will double approximately every two years and surprisingly, this has held true for over 50 years since it was first predicted. Innovations change societies, industries and lives. My mother’s parents both passed away at the age of 97 and I was always amazed at the fact that throughout their lives they witnessed the adoption of things such as trains, cars and airplanes that transformed travel; radio and telephone technologies that transformed communication; and at the end of their lives computers and the internet that continue to transform everything (i.e. the internet of everything). Similarly, my wife and I have installed several Google homes throughout our house and as a result, our two very young children will most likely never know a world without access to a virtual assistant and as a result, I often wonder what the lives of today’s children will be like and how new technologies will influence and change their lives.
Good board members ask good questions.
Risk exists in every organization and it is a board member’s role to probe until they are convinced that management is not incurring any undue risk or risk that is outside of the boundaries they helped to establish. Board members must be cognizant of the lengthy list of risks that exist. Be it:
An essential question asked by board members is how can we improve our performance? While there are many possible answers to solve this riddle, making sure your board composition is set-up as intended is key. An increasingly prevalent tool used by boards in evaluating their board’s composition is the Board Skills Matrix. According to a 2017 study by Equilar, 307 U.S. and Canadian public companies disclosed the use of a Skills Matrix within their proxy statement. A Board Skills Matrix strengthens an organization’s overall governance practices by identifying the current skills, knowledge, experience and capabilities of current board members. The matrix is a relatively simple table that lists all board members along the top with a board’s view of the essential skills and experience required by the board to be most effective.
“Tim Hortons is hiring -- Canada's No. 1 coffee chain is looking for a new leader after the abrupt departure of its CEO. The company announced Wednesday that Don Schroeder, 65, no longer serves as president and CEO after three years at the helm and two decades as an employee.” 1 [i]said in a 2015 press release.
The board’s number one responsibility is CEO succession planning, yet so many boards ignore the criticality of proactively discussing the senior leadership succession plan. While industrial psychologist researchers have identified that some of the most successful CEO successors are those that have been hired from within, most organizations do not have the depth of talent necessary to identify the new captain of the team.
This year’s FIFA World Cup highlights the importance of using defense to create a top-notch offense. The same can be said for Boards of Directors. The board’s best offense is a good defense, and good defense starts with a great fundamental base. That base, in the world of compensation, is the Compensation Philosophy, and that philosophy needs to mirror the business strategy of the company.
To ensure good governance practices, Board members must acknowledge and adhere to three primary fiduciary duties, which was the message that I recently delivered in education sessions to public pension plan trustees and board members for not-for-profit organizations.
Board assessments are a powerful tool that can be used to evaluate the ongoing performance of your Board and ensure that you are following proper governance practices.
Board assessments can range in scope from simple, post Board meeting questionnaire of 5 to 10 questions on how to improve future meetings to detailed reviews at the end of the year that cover not only Board performance, but also director’s views on Committee performance and their peers’ performance. While organizations tended to conduct these types of assessments internally in the past, more and more organizations are relying on independent third parties to help them during the assessment with 45% of Boards reporting the use of consultants during their Board assessment, according to a recent Global Board survey, conducted by InterSearch and Board Network.
There is a wide array of organizations that exist in the market place:
- privately-owned/publicly traded
- public sector/private sector
And unfortunately, with this variety, there tends to be a false assumption that there shouldn't be a similar array of board governance standards.
The truth is that ALL Boards of Directors operate under the same three fiduciary duties: