While companies are attempting to strengthen themselves for the recovery by innovation, brand actions, target customer evaluations, right sizing, balance sheet management, etc., most managerial efforts we observe, are geared to short term actions, attempting to preserve cash flow and capital, in an effort to stabilize their current unstable situations. These actions include revisiting the challenges of business units, cutting costs, and tailoring operations to current conditions, as best as corporate leadership knows them. It is reactionary, for sure, yet absolutely necessary in these challenging times.
Our observation is that the best corporate leaderships, encouraged by their boards, are making every effort to balance actions taken now with longer term implications. The best CEOs and their boards, in our view, deal effectively with economic conditions but refuse to be trapped by daily issues. They are cool under pressure and realize that it’s too easy to fall into the malaise of the moment and yet too difficult to catch up when the tide turns toward the positive. And, the tide will turn.
The great leader today is carefully investing strategically into customers, efficiency, and their brand. And, yes, these leaders are selectively investing in their talent while strengthening their culture. And, yes, their boards, while more engaged given current conditions, are highly supportive.
Unfortunately, as our times are demonstrating, there are far too few great leaders and even fewer great boards!
And, solving the leadership dilemma is not something that can be quickly rectified.
What can be rectified more swiftly are the improvements in the quality and efficiencies of corporate boards.
Many of our forward thinking clients see these times as an opportunity to “top grade” their boards and have begun a process to mobilize their board members for change. Chairpersons of these companies, we are observing, are becoming tougher on their fellow members who are non-performers and non-contributors. Just as companies are trimming back on nonessential managers, boards are doing the same among their members.
Fortunately, the contribution standards for board members are rising.
Many current board members are failing and they know it in their heart of hearts. Their fellow board members know it as well. Intellectually, they know that board responsibilities go well beyond the honorarium of their election and compensation. Its tough work requiring diligence, insight, and a healthy skepticism blended with balancing supporting and evaluating corporate leadership with governance requirements.
In fact, we are predicting, the highest turnover of independent board members in the past decade. While there are many reasons for this turnover…time required interest in standing for reelection, liability concerns, compensation, term limits etc, and we see a new era of corporate governance and a different type of board member evolving.
We are asked almost weekly about board best practices and practices that are new or novel. Fresh thinking is what our board friends are seeking. Breaking through the barriers of the depth of issues is a new mantra. We are observing a conscience effort by the best boards to be fully informed and to be in front of challenges, not always looking backward and reacting to circumstances that they hardly understood or, in many cases, didn’t even know the depth or implications of critical issues. This translates to greater diligence and real deep dives.
What we know is this.
What worked in the past is not a prescription for governing companies going forward. The requirements of transparency, fiduciary responsibility, and independence remain the stalwart principles under which boards govern. Today, that is barely the minimum of board responsibilities.
We see this period of uncertainty as a golden opportunity for boards to become highly engaged.
We’ll watch and report.
Your thoughts are most welcome.