In the last decade, the oversight responsibilities of the board have taken on a new level of complexity. Disruptive business models can come from any direction, and the types of risks the board must monitor have multiplied.
Quite often, board succession planning consists of a member announcing to the board that he or she plans to retire next year, and the board then gearing up to find a replacement (who typically differs from the retiring director only in being a few years younger).
Egon Zehnder and The Conference Board are pleased to present a new Governance Watch webcast series that will focus on critical governance and operational issues important to corporate Board members and/or C-suite executives.
There is now broad consensus that having a diverse board, where directors are drawn from both genders and from an array of races and ethnicities, provides the breadth of perspective that is essential in today’s global dynamic environment. But heightened awareness does not always translate to greater progress.
Digital transformation is the defining challenge facing industries such as banking and retail. But the board of directors and the executive committee of companies undergoing such change must remember that they cannot transform their organization on their own.
In the current business environment, supervisory boards are responding to significantly higher expectations by professionalizing their operations. What are some of the steps boards can take in the quest for higher performance?
In 2003, the New York Stock Exchange began to require the boards of listed companies to undergo an annual assessment. At a time when awareness was growing regarding the importance of the board in safeguarding shareholder value, it was thought that this step would provide investors with some transparency regarding how well the board was doing its job.
The annual visit to the doctor for a physical exam is an ironic ritual of modern life. After all the questions and tests, the desired outcome is to hear that nothing is wrong. While freedom from illness is a very good thing, there is a big difference between that and being in peak condition. How much more informative would the annual checkup be if it could tell us not just how to avoid sickness but how to be stronger and more flexible and have greater endurance? Rather than being a chore, the exam’s insights might make it something to look forward to.
For good or ill, activists now are important players in the investor ecology, with increasingly successful records for changing a board’s makeup. At Egon Zehnder, we identified 58 incidents of investor activism against S&P 500 companies over the last two years. Of those, 16 contests involved changes to board composition, urging a “no” vote on the management’s slate of directors or proposing, or threatening to propose, an alternative slate.
For independent board chairmen of global companies, challenges continue to grow while room for error continues to shrink. Shareholders demand more rapid returns. Increasing regulation around the world demands exemplary corporate governance and rigorous compliance. Controversy about executive compensation has taken on new life in the context of rising income inequality.
There is no doubt that the focus on board composition is a positive development in corporate governance, supporting the appointment of directors who can help boards continue to meet their increasingly complex oversight and advisory responsibilities.
The findings of the 2014 Egon Zehnder European Board Diversity Analysis reveal: Women's share of European board seats increases to more than 20 percent, but progress stagnant in executive director and board leadership positions.
Companies with global aspirations require boards with global capability. So why don’t their boards reflect this new strategic direction? The findings of the 2014 Egon Zehnder Global Board Index™ reveal a Global Capability Gap, named by Egon Zehnder to describe the disparity between a company’s global footprint and the global experience of board members.
Boardrooms have long been the domain of executives in their 50s, 60s – and even 70s, now that more boards are loosening mandatory retirement limits. But many boards are also electing directors in their early 30s – very often younger entrepreneurs who are the leading lights of digital transformation.
The traditional approach of filling board seats as they become available must give way to a more deliberate, longer-term perspective on board composition. A well-defined, long-term strategy helps the board give director succession planning the sustained, focused attention that it needs.
The need for greater international experience in boardrooms, especially in the U.S., has long been talked about, but with little real progress. Even S&P 500 boards remain very insular today. Yet the rapid globalization of markets seen over the past few decades will seem modest compared to the coming boom as new countries become top world economies.
Asia has figured prominently in many western multinationals’ strategies. Recognizing this, many of our US and European client boards have sought board members who have deep experience working and leading in Asia. The desire for this experience makes perfect sense, but the most effective boards also recognize that factors beyond this Asia experience will determine whether a new director proves to be a successful addition to the board.
Everyone agrees that CEO succession planning is critical. Yet many Chairmen are concerned that their own companies are underprepared for a change of CEO – and are exposed to the risk of a damaging leadership vacuum. This is the finding of an Egon Zehnder study in which more than 50 Chairmen and CEOs of major companies headquartered in France, Germany, the UK, and the US were interviewed.
Over the last decade as U.S. economic growth slowed, companies in the U.S. successfully chased and found growth opportunities overseas. A quick scan of the American boardroom, however, reveals that the board composition of these new global entities has failed to keep pace with their strategic redirection.
Board diversity is much more than simply a question of fairness. Lack of diversity represents a missed opportunity to bring in new thinking, insights, experiences, and knowledge – with regard to different markets, consumers, practices, and more.
An Advisory Board is a body that advises the management of an organization, foundation or corporation. Unlike a Board of Directors, an Advisory Board has no authority to vote on matters, nor does it have any legal or fiduciary responsibility.
Board succession planning is straightforward and the outcomes reached through objective analysis, dialogue and debate, will ultimately yield a governance body that mirrors the needs of the business and the people it serves.