by Bob Weissman
Former Chairman & CEO of Dun & Bradstreet
Former Chairman & CEO of Dun & Bradstreet
Over the past forty-three years, I have had the privilege of sitting on the boards of eleven public companies, and I can report that the changes in the ways that boards have operated over that time have been stunning.
I have witnessed the rise and decline of the era of the imperial CEO; the transformation of public equity markets from investing markets to trading markets and from individual investing to institutional investing. These changes have created pressure both for management and the boards of public companies to meet the short-term value maximization goals of institutional holders and, at the same time, to respond toregulator’s goal of minimizing risk through mechanisms like Sarbanes/Oxley, Dodd/Frank and Basel III.
Today, the job of being a director is much more complex; it demands more of your time and the personal risks are greater – both financial and reputational.
In spite of this, for those of us who believe that the governance structures employed in American public companies are central to the effective operation of those companies, the essential responsibilities of a director remain constant.
The mission of every public company director, the ‘Prime Directive’ if you will, is the same: To do everything possible to ensure the continuing success of the enterprise over the long-term.
Fulfilling that mission requires unrelenting focus on five areas of corporate activity. They are:
1. The creation and nurturing of an effective program for management development and succession.
Today, far too many boards address only the ‘hit by a bus’ scenario for the CEO and think that they have fulfilled their responsibility in this area.
They have not.
An effective management development program requires a continuing, rigorous involvement by the board, interacting with the management and, in effect, co-owning the responsibility for a skilled, deep management bench. That program entails a level of involvement at least two levels below the CEO.
2. The development of a partnership with management to create an iterative process which supports a continually evolving strategic perspective.
The classic (done once-a-year) 5 year strategic plan is woefully inadequate in the fast moving world we live in. A board that accepts a strategic plan which is driven by Excel forecasts will not be prepared for the inevitable crises.
3. Oversight of compliance.
We live in a world where the burden of regulatory compliance – and the cost to the company and to the directors of non-compliance – mandates that directors maintain an effective process for ensuring a high level of corporate performance in this area. In addition to the traditional areas of financial reporting and securities compliance, things like FCPA and environmental compliance have taken on a new importance
4. Regular review of operational performance.
This is an area of director responsibility where ‘getting to the right altitude’ is critically important. Management benefits from the discipline of responding to incisive questions from the board about processes and results in the operational arena. By asking tough questions, directors will lead managers to make sound and defensible decisions.
What management does not need is a board that directly inserts itself into the regular decisions that are made in the ordinary course of running the business. In other words, ‘flying too low.’ This type of interference undercuts management authority and responsibility and demotivates the organization. If a board feels that it must operate at a low level to ensure good quality decision-making, they probably should instead focus on replacing management.
5. Board development and renewal.
This includes: Assessment of board performance both as a group and as individuals; access to outside training for directors entrusted with specific responsibilities as board members; and interaction with management below the CEO/COO level, not only because effective management development and succession is enabled by a high familiarity with the skills and attitudes of the members of the senior management team, but also because high management team/board contact will educate board members about the business in ways that PowerPoint presentations never will.
There are many pressures placed on independent directors today and they are often in conflict with one another. But pursuing the Prime Directive – to ensure the continuing success of the enterprise, is an objective that makes being a public company director intellectually challenging and personally rewarding.
Would love to hear your feedback.
What do you think? I’m open to ideas. Or if you want to write me about a specific topic, let me know.