How Boards of Directors Are Reshaping to Meet New Challenges

In a corporate environment, boards recognize a need to evolve to engage investors better and become more involved in leading governance.

Tom Manning is a corporate advisor, board director, and educator. Currently, he serves on the Boards of Dun & Bradstreet (Lead Director), CommScope, and Clear Media Limited. He was based in Hong Kong for 17 years, where he served as the CEO of Cerberus Asia, Capgemini Asia, and EY Global Consulting Asia, and as a partner with Bain & Company. Formerly, he was an independent director of several of China’s largest listed companies, including the Bank of Communications, Gome Electrical Appliances, AsiaInfo-Linkage Holdings, and iSoftStone; earlier in his career, he was with McKinsey & Company. He speaks Mandarin and teaches corporate governance, private equity, U.S.-China relations, and innovation at the University of Chicago Law School.

Christopher P. Skroupa: How is the role of the board of directors changing?
Tom Manning: Boards are expanding their roles beyond conventional governance to include strategy development, talent management, and shareholder relations. Leading boards recognize that they bear responsibility for allocating resources, and to do so competently, board directors must be increasingly aware of the strategic options available to the company. Most boards are already reviewing strategy each year, but approximately one-third of Fortune 500 boards are earmarking extra time for strategy retreats, off-sites, and fieldwork. Directors are encouraging one another to ask deeper questions about market conditions, customers, and competitors. Some boards are tasking selected directors to host off-site meetings designed to facilitate interaction between directors and the management team. Successful meetings of this kind can establish a new commitment to a wider range of options and prepare the board and management to make bolder decisions about resourcing new ideas and pursuing new directions.
Talent – which has long been the exclusive province of management – is now on every board list of preferred topics. Boards view succession planning and talent pipelines as important areas in which they can contribute because of their directors’ substantial executive experience. Boards also like to use such discussions to ferret out weaknesses in skill or organizational capability and identify priorities for recruiting and reinforcement.
Outside the company, institutional shareholders are demanding more attention than ever – not only pressing boards to remain alert and vigilant but also to anticipate important issues and opportunities before they materialize.  Some of the leading institutional investors encourage board directors – especially board chairs and committee chairs – to occasionally visit to discuss corporate governance at the company. Once apprehensive about this sort of outreach, boards are notably beginning to embrace the idea that investor relations are about financial results, which is typically led by the CEO and CFO, and governance, which can be best led by board members.
Skroupa: What characterizes high-performing boards and their management teams?
Manning: No different than teams of other kinds, boards are increasingly self-aware of their performance and desirous of improvement. The best boards seem to make a material contribution to their companies, and activist investors are calling attention to the laggard boards where high performance is noticeably absent. Consequently, boards are assessing their own operation, their composition, and their impact annually as part of a new discipline, which is often aided by outsiders who help ensure a balanced assessment and professional process.
Boards that are performing at a high level rely on good organization, strong communication among the members, and individuals who are capable of working effectively both as team members and as individual contributors. For example, most directors serve on one or more committees of a given board and thus team up for serious, intense discussions about audits, compensation, and other topics. Nevertheless, during meetings of the entire board, the best directors know how to individually raise concerns, offer opinions, and encourage action across a wider range of areas, even if outside their field of expertise. Most importantly, high performing boards ask for and expect extensive give-and-take – they do not stifle debate in the name of harmony or efficiency. Being transparent, clear, and forthright about concerns before such concerns fester into crises has been shown to be a superior approach for boards of directors, just like with professional sports teams, military units, and other groups.  The essential element is mutual respect among directors and between directors and managers, which is best built up over time by developing business understanding and gaining experience in handling issues as a combined team.
Skroupa: With Lead Directors being asked to do more than ever before, are we seeing the rise of the “super-director?”
Manning: About half of Fortune 500 boards have appointed a Lead Director to augment the leadership of the person in the combined role of Chairman and CEO.  The Lead Director role has increasingly become a go-to role for most issues that require special handling, more communication, and more follow-through than what might be feasible during board meetings. Additionally, the Lead Director is also playing the role of thought-partner to the chair, ensuring that independent directors’ views and suggestions are fully incorporated in the meeting agendas before meetings and follow-up actions after meetings. Consequently, Lead Directors are doing more than ever, often taking a very active role in board management and director involvement. Special issues such as M&A and regulatory investigations resulting from violations of the Foreign Corrupt Practices Act are often primary agenda items for Lead Directors.
Whether the Lead Director is a super-director seems rhetorical, but the truth is that directors, in general, are being asked to do more than ever, and by design, the Lead Director is being asked to do more than other directors. He or she must stand ready to take the lead on issues, push to synthesize views and opinions, and settle the inevitable conflicts that arise throughout each year. The number of public boards might best express the real answer to the question that a full-time director can handle simultaneously – which most people agree is four boards, or a maximum of five in selected circumstances – in contrast to the number of Lead Director roles, which is likely to be two or three, but rarely more.
Skroupa: Activists are joining boards at a rapid rate, but are they adding value?
Manning: Most veteran board directors are skeptical, but some activists are adding value – particularly in cases where the boards were previously entrenched and in need of rejuvenation. Many situations are less clear, however. Activists often enter with naïve ideas about change and never drive the impact initially promised or desired. In such cases, it is not clear whether their arrival or their participation really made the difference. Most activists’ stated purpose is to address shareholder needs, allocate resources to efforts that matter in their view, and drive better returns for investors. One tactic worth trying – simulate activists joining your own board – and ask what they would do differently, how would they change the board dynamic, and what would change at both the board and company levels.
Skroupa: In the era of the tweet, how should public companies prepare to deal with sudden criticism via social media?
Manning: Tweets strike fear in the hearts of boards everywhere. Boards and CEOs have seen the power of the tweet, and they are increasingly developing tactics to deal with the fallout in anticipation of future situations. Many companies are trying to identify countermeasures to the political tweet in case their companies become the unfortunate bulls-eye for a Monday morning barrage. Others are working on creating plans to address more probable sudden social media situations such as complaints from dissatisfied customers, unflattering videos that go viral, negative stories that catch the news cycle, and unrelenting cyber intrusions. Although defending against the tweet seems somewhat futile, anticipating scenarios and rehearsing solutions provides comfort and even some confidence. Doing nothing is an invitation for disaster – and much more work for your Lead Director, super-director or not, and your board.