There is one thing all Board of Directors have in common… they do not function. ~Peter Drucker… Ninety-five percent of Board of Directors are not fully doing what they are legally, morally and ethically supposed to do. ~Harold Geneen
Board of Directors must begin to rethink the meaning of corporate governance in today’s digital world. In addition to existing roles, boards now have responsibility for shepherding their leaders and organizations in the fast emerging global-social-mobile age… And, Board of Directors that avoid this obligation will risk having the organization fall prey to today’s fast moving social networks that are actively seeking corporate reform, accountability… According to ‘Kleiner Perkins 2012 Internet Trends Report’; reality of digital age is creating unprecedented risks-rewards for corporation directors, leaders, shareholders... According to research by MIT and Cap Gemini; enterprises that fully deploy social and mobile technologies to engage their crowds (i.e., customers, prospects, alumni…) in the cloud; produce– 9% more revenues, 26% more profits, and 12% higher market valuation than their peers. According to research; less than 30% of CEOs use social media, despite the fact that more than one billion people, customers, employees… do. The ‘Conference Board for Corporate Governance at Stanford University’ report ; 93% Board of Directors don’t use social-data intelligence to make informed decisions about their networks’ sentiments or engagement. Also, research at University of California at Berkeley and MIT reveals that social media is a leading indicator of stock price movement. As such, Board of Directors of publicly traded companies need to be engaged with their stakeholders and know how they will act based on insights derived from social and cloud networks. Bottom line: Board of Directors must begin to rethink-reshape their role in today’s digital world; more important, they must join the global-social-mobile ranks…
In the article Rules for Corporate Governance in Social Age by Barry Libert writes: Corporate Board of Directors must rethink the role of corporate governance in today’s connected age, for example:
- Rethink Strategy: Board of Directors must align their strategy with where value is found in today digital age. Corporate strategists are rethinking how to use technologies and people with common interests and passions to improve their performance…
- Rethink People: As corporate directors, board members must fully understand that an organization’s next big idea may come from anywhere and anyone. As such, corporate directors must ask their management teams; how they are leveraging their collective wisdom…
- Rethink Processes: Board of Directors must ask management how they are shifting their focus from inside-out to outside-in to drive growth and innovation. Social networks are most often outside the company and to tap this wisdom an organization must shift its focus from inside-to-outside…
- Rethink Technology: Technology is a strategic asset that must be leveraged for success. Boards must play a prodding, if not active role in ensuring that management rethink-reshape its technology strategy, such that it adds value-minimize risks by actively integrating today’s social-mobile-cloud and big-data technologies into everything it does.
- Rethink Leadership: The concept of traditional, top-down management is quickly losing steam in world in which everyone has a voice, including; customers, employees, partners, investors… In context of increasing demand for accountability, transparency and openness involving all stakeholders– corporate directors must rethink the board composition and competencies.
- Rethink Finance: Board of Directors and leaders can hold some historical and framing biases that make it a challenge for them to see and invest in today’s– intangible and unmeasured sources of value– social network, data intelligence… Leaders must rethink capital reallocation strategies, especially given research by McKinsey that indicates; most companies continue to invest in same things as they did last year…
- Rethink Governance: The future for Board of Directors is less about traditional governance and regulatory compliance, and more about network alignment, capital reallocation to new sources of value and technology and business model strategies. However, looking backward through the lens of financial reporting will only go so far. Whereas, leveraging real-time data from social technologies and mobile networks offers a more complete view about the future desires and needs of their stakeholders.
Spencer Stuart U.S. Board Index 2012: This annual study examines the state of corporate governance among S&P 500 companies. The 27th edition reveals critical trends in director recruitment, board processes, compensation… Among the notable takeaways from this year’s proxy analyses are:
- Board of Directors turnover continues to decline: S&P 500 boards elected just 291 new directors in the 2012 proxy year– the smallest intake in 10 years and a 27% drop over the past 10 years.
- Restrictions on other corporate directorships more common: Given the time commitment required for effective board service, 74% of S&P 500 companies now limit other corporate directorships for their board members versus 55% five years ago.
- First-timers and other corporate executives prove to be attractive pool: Board of Directors is recruiting more retired top executives and other corporate executives. Division/ subsidiary presidents and other line and functional leaders now make-up 22% of all new directors, versus 7% a decade ago. 30% of new independent directors are newcomers to outside public-company board service.
- Mandatory retirement age rising: Nearly three-quarters of all S&P 500 Board of Directors –up from 55% in 2002 — set a mandatory retirement age for directors. Of that group, 22% set the age limit at 75 or older, versus just 2% in 2002.
- Independent Board of Directors leadership becoming norm: Only 3% of S&P 500 boards have neither an independent chairman nor a lead or presiding director. And, while only 18 companies report a formal policy to split the chair/CEO role; 43% of boards– up from 25% in 2002 – now split the chairman and CEO roles.
In the article Measuring Effectiveness of Corporate Governance by Dr. Yilmaz Argüden writes: The essence of good corporate governance is ensuring trustworthy relations between the corporation and its stakeholders. Therefore, good governance involves a lot more than compliance. Good corporate governance is culture and climate including: Consistency, Responsibility, Accountability, Fairness, Transparency, and Effectiveness that is Deployed throughout the organization (i.e., ‘CRAFTED principles of governance’). Board of Directors has the basic responsibility to ensure sustainable improvements in corporate valuations by providing strategic guidance and oversight regarding management decisions, as well as, selecting-changing management whenever necessary. Success can only be achieved on a sustainable basis, if Board of Directors behaves as role model for implementing the ‘CRAFTED principles of governance’ as well as, ensuring that the corporation follows the principles in making key decisions. The Board of Directors is the most important element in corporate structures: The tone at the top determines the tune in the middle… The quality of governance must be continuously improved, but what is not measured, cannot be improved. Most attempts to measure the quality of corporate governance focus on compliance-related issues. Numerous rating models also seem to focus on the inputs of governance, such as, the composition of boards and the separation of the CEO and chairman roles. However, they do not pay sufficient attention to the quality of information, decision-making processes, nor link the effectiveness of governance to output measures, such as; brand image, employees, customer satisfaction, profitability, value creation… The backbone of an effective evaluation model must focus on four main areas; three are Inputs and Output, namely; Inputs: • The right people • The right team • The right processes… Output: • Improvement in business results.
In the article Cultural Dependence of Corporate Governance by Bob Tricker writes: The concept of the ‘corporation’ is a creation of the Western world and rooted in the notion that shareholder democracy, stewardship of directors, trust, and the belief that Board of Directors recognize their fiduciary duty to company. But today’s corporate structures have outgrown this simple notion. The corporate concept is now rooted in law and legitimacy of the corporate entity rests on regulation and litigation. The Western world has created the most expensive and litigious corporate regulatory regime the world has yet seen. However, this is not the only approach; and certainly not necessarily the best. The Asian reliance on relationships and trust in governing the enterprise may be closer to original concept. Hence, there is need to rethink-reshape the underlying idea of the corporation; contingent with the reality of power that can (or could) be wielded. Such a concept must be pluralistic, rather than ethnocentric; if it’s to be applicable to corporate groups and strategic alliance networks that are now emerging as the basis of the business world of the future.
The traditional Board of Directors governance model has been challenged for some time. While the model continues to evolve, it is not changing nearly fast enough to keep up with world around it. According to John Griswold; in the new world, the task before Board of Directors is; first, to acknowledge and identify the new priorities; second, to think in nontraditional ways in order to adapt their organization’s processes, policies, people. As business reinvent themselves, so must Board of Directors. Effective boards ensure that they have– the right process, the right people at the right time. Great boards consist of independent directors who are ‘rowing together in the boat’. They see the development of strategy as a collective and collaborative effort between themselves and management, rather than the question of; ‘us vs. them’. The board must review its risk appetite on regular basis. A great board will make succession planning a regular agenda item, and it will start the process as early as possible– even if it makes incumbents uncomfortable… it will also consider succession for chairman and rest of the board. Board of Directors of listed companies has an obligation to build and protect long-term– all stakeholders value and to ensure short-term decisions don’t jeopardize sustainability of the enterprise. Changing models is like changing lifestyles; well-established ideas and patterns of behavior are abandoned and replaced with new ideas, roles, activities… According to John Carver; boards must govern with emphasis on; (a) outward vision rather than internal preoccupation, (b)encouragement of diversity in viewpoints, (c) strategic leadership more than administrative detail, (d) clear distinction of board and chief executive roles, (e) collective rather than individual decisions, (f) future rather than past or present, and (g) proactively rather than reactivity.