Tuesday, February 19, 2013

Governance Challenges for Today's Board of Directors

In a recent McKinsey Quarterly article, William George, a former CEO of Medtronic, and a veteran of ten corporate boards, reflected on common governance pitfalls and how to overcome them. McKinsey Quarterly 1Q 2013

The recommendations offered by Professor George are valuable given his wealth of experience in key roles as a director with leading companies.

I especially appreciate the advice to independent directors to step outside their own spheres of influence to learn more about the business or industry of the company. Of course, this is often easier said than done, given time demands and the speed at which business happens and board decisions must be made, but it invariably will make those directors function more efficiently, and will deepen their commitment to the duty of care expected of all directors.
One area Professor George neglected to mention, but I consider important, is the board’s interaction with outside advisors. Outsiders can be instrumental in prudent board decision-making, especially in pre-IPO or pre-merger deliberations, times of crisis, on compensation matters, and even on succession planning. How directors deal with the advice and strategies presented by these external experts often determines success or failure of the task(s) at hand.
Finally, no review of governance or board performance would be complete without some discussion of the value of including diverse directors in the boardroom. Here, I am referring to ethnic diversity, which continues to be an oft-cited, yet elusive, aspiration for most corporations. Companies, especially those which are consumer-facing, should be guided by the evolving demographic landscape of North America, and indeed the globe, which reveals a preponderance of consumers of color. In addition, our global economy has spawned a new set of corporate expectations. Companies operating internationally should be acutely aware that the totality of their corporate activities are viewed through a new prism—a prism with such facets as human rights, environmental stewardship, fair labor, diversity, inclusion, and sustainability, among other corporate responsibility indicators.
Embracing these new market realities and societal mandates through enlightened corporate policy is both a beacon and a benchmark of responsible companies.
These decisions, rightfully, begin and end with the board. Leading CEOs understand the inter-relationship between the new realities and the advancement of shareholder value, and seek directors who can credibly balance these often competing interests.
(c) 2013.  Adonis E. Hoffman