On Governance is a series of guest blog posts from corporate governance thought leaders. The series, which is curated by the Governance Center research team, is meant to serve as a way to spark discussion on some of the most important corporate governance issues.

Contemporary boards must govern with greater foresight and work ahead of the organizations they oversee. Many cannot.

The gap between a board’s capacity for discovery and deliberation vs. operating management’s marketplace grasp, decisiveness, and pace of execution seems to be widening despite more than a decade of “red flags,” governance education and board renewal effort. Too often, “slow” boards are surprised and unprepared to effectively deal with crisis events; they can unknowingly leave their operating management outflanked by competitors and activist investors. Their board chairmen are often ill-suited to lead agile board processes, compete against aggressive well-informed investors, nor able to shape a nimble, “ready-to-win” company.

Boards are increasingly challenged to be “alert and agile” stewards of their shareholders’ interests. When a so-called “agility deficiency” captures the courage, the culture, and slows the deliberative and operational pace of contemporary organization, the company quickly finds itself on the slippery slope of decline. It is unable to work ahead of the organization it oversees.

The more common features of boards who are not agile are:

• Over-reliant on hindsight; unprepared to pursue foresight;
• Inwardly focused; commercially and strategically opaque;
• Distracted by side issues and backward-looking analysis;
• Collegial and well-intentioned chairs unwilling to grasp “new realities,” refresh board members, or drive change.

When a board isn’t agile, we see that it is penalized by the public markets; activists’ investors begin to poke around. Take note of recent woes at General Electric. Its board failed to ascertain and govern alternatives paths to value effectively and failed to adjust the company’s strategy and leadership when misdirection became obvious to investors via stock pricing. It is accurate to assert that GE was opaque in its candor and guidance.

At Tesla, a truly innovative company, the board finally took action and sought outside advice and yet, questions remain whether this board has the “muscle” and agility enough to guide this entrepreneurial company given its founder’s influence. Meanwhile, until a new board page is turned, confidence in the future of Tesla is in question. Reflecting this risk the stock price has lowered due to governance uncertainty.

The “difference-makers” of agile boards

Below, we share from our experiences the “difference-makers” in assisting boards and individual directors become more alert and agile stewards.

Alert and agile boards:

Use penetrating, informed questions…..not just “wandering around” queries

An agile board is a well-informed one. Sound questioning techniques by directors are at the core of being well-informed and in control of deliberation.

Questioning skills are essential in board/management discussion and decision-making. Sound questions by directors provide invaluable benefits. Targeted, informed questions guide deliberations; they teach lessons of experience and judgment; and thoughtful questions are used to test management’s understanding and agreement.

Being well informed has two sides: collecting information as we discussed above is one side. But agile directors must also have the background to decipher and integrate information gathered via their astute questions. Knowing what information to go after and what to do with the information gathered is an essential “package.”

Engage in independent discovery of the marketplace, capital markets, and emerging regulatory issues

Agile directors must be alert and active learners who seek out both familiar and diverse channels of input to gain broad perspective of the market and likely future paths. Consequently, they often see marketplace opportunity and emerging issues before competitors and use this intelligence to shape strategy and guide management.

During boardroom discussion, agile directors are able to bring relevant and a well-integrated understanding of socio-political- economic macro trends alongside more traditional understanding of the competitive space in which their company operates. Taken together, their insight tends to lift a board’s sights from strictly a reaction to today’s challenges to fully debating and considering how best to evaluate and prioritize activities and resources (human and capital) to chart a path toward value creation.

Are profoundly disciplined with their time and attention

While encouraging independent, full-spectrum deliberation, chairs of agile boards appreciate the importance of time management. They are careful about ascertaining the priorities that they must govern. They avoid the “spin cycle” of continual discussion by establishing and observing ground rules of decorum but with a clear understanding of the outcomes that must be sought and how they must guide their CEO and support such efforts. Agile board chairs know when enough is enough, time and contributions permitting and when it isn’t. An agile Chair promptly drives their board to the “finish line” of debate and onward toward the future.

Are the first to know…..not the last to be told

Directors who “tune” themselves to heed faint signals and perceive risk or opportunity demonstrate agility. Surprises are never welcomed.

A sound working relationship with the company’s internal audit function is perhaps an unexpected “difference maker” of an agile board as it attempts to steer clear of surprise. Protecting the company against risk and crisis as well as anticipating compliance and regulatory violations can free up a board’s time and attention for more strategic pursuits. A prudently organized annual audit agenda can proactively spotlight a company’s vulnerabilities and control real and reputational damage.

Refresh the board when directors’ roles are completed

Agile boards are most likely not suitable for directors with expectations for perpetual board service. In contrast, a more active approach to board refreshment is a common theme among agile boards. Agile boards do seek directors with different perspectives nevertheless relevant to the current times and challenges. In evaluating current directors and inviting others for election, chairs and nominating committees make clear to each director and candidate that unless they are relevant and contributing, they will not be re-nominated.

Ensure the corporate vision continues to inspire passion, enthusiasm, and a quest for noble pursuits

Vision commences with clear, logical, and often noble thinking about future possibilities. The logic in a vision should cause stakeholders to think and believe. The emotion component in the vision must drive stakeholders to act.

Shaping the strategic vision is the core role of directors. However, managing the communication of the strategic vision is often neglected by boards and their management teams. Crafting the message and then backing up the message with appropriate decisions and reinforcing behavior requires a board to attend to those matters that seem important to customers, investors, employees, regulators, and wide-ranging stakeholders. Investors’ Relations is often at the center of this activity.

Wrap up

The implications seem clear. Boards must not just govern better, they must lead differently. Time is not often on their side. And, directors are unlikely to contribute their time beyond 200-300 hours per year. It’s not about working harder and longer.

They must be skilled in forming a transformative board coalition to assess their company from an “outside-in” perspective. Chairs must take a more active and agile approach to their role and navigate their boards toward value creation. Indeed, all contemporary directors must be prepared to think both short and long-term like an activist investor guiding business transformations.

Boards are expected to be more alert and foresighted. They must be prepared for more rapid situational assessment, faster reaction time and creative solutions for creating value and representing shareholders’ interests.

Agility is the critical competence for directors to gain footholds, strategically, operationally, and managerially… to assure their shareholders are well served.

The views presented on the Governance Center Blog are not the official views of The Conference Board or the Governance Center and are not necessarily endorsed by all members, sponsors, advisors, contributors, staff members, or others associated with The Conference Board or the Governance Center.