Innovation. Corporate Governance. Two business concepts that are not often used together in the same sentence. Maybe it is time for Innovation and Corporate Governance to have a ‘Reese’s Moment’ and for boards to ask: ‘Who put the Innovation in my Corporate Governance?”
While products, services and society have been rapidly and dramatically changing, the only changes that have occurred in the boardroom have been driven by legal and regulatory changes.
Boards Resist Change
My impression, which is most likely over-generalized, is that Corporate Boards resist change. Here’s just one example that I’ve observed:
- Board Books & Technology – Most organizations rely on providing their board members with materials in advance of the meeting to make sure that board members are informed of the agenda and have time to review and become current on financial and operational reports. 20 years ago, as a Financial Manager with the responsibility of making sure that board members had the information they needed, our team ran copies on 3-hole punched paper, created section dividers, assembled 3-ring binders and shipped them out to board members via over-night delivery. Fast forward 20 years, despite a number of fantastic ‘on-line’ board room tools, email, intranet and internet options that allow electronic, efficient and less expensive solutions to deliver board materials, the majority of boards that I know of still prepare and over-night hard copy board books. When I’ve seen organizations try to migrate to electronic board tools, board members create an unbelievable fuss. Reactions I’ve personally heard: “It’s too hard”, “I can’t remember another password”, “my internet connection isn’t fast enough”, “the files are too large”, “I don’t know how to unzip the file”, “I don’t have a printer at my vacation home”…it goes on. Seriously.
While this is an amusing anecdote on how boards resist change, there are many more serious examples of how change inside the boardroom has not kept pace with change in business and society. The lack of change diminishes the board’s ability to provide strategic and valuable insight.
In the November 2011 issue of the Harvard Business Review, their Idea Watch: Vision Statement section highlighted an overview of how corporate boards have changed (or not) from 1987 to 2011 based on Spencer Stuart’s, an executive search firm, annual survey of proxy statements of the S&P 500. Here are a few highlights of who is sitting in corporate board room:
- In 2011, 37% of boards are comprised of board members with an average age over 64. In 1987, only 3% of boards had an average age over 64.
- In 2011, only 15.3% of board members on the top 200 companies are African-American, Hispanic or Asian.
- In 2011, 16.2% of board members are women.
Conclusion? Our board rooms remain largely homogenous and are dramatically aging. These are not the ingredients for change. One of the key responsibilities of boards is strategic oversight – if the board room does not represent current and diverse thinking, it is improbable that our corporations will be able to successfully compete in today’s ever-changing operating environment.
I’m not an advocate of change for the sake of change; change is beneficial when it strengthens strategy, adds value and improves results. There are a number of aspects of corporate governance that I believe are ripe for change and can add value to the organizations that they serve:
- Board Composition – Who’s on your board? Does your board represent a diversity of backgrounds, experiences and skill sets? How does your board identify prospective new members? Do you consider the strategic goals of the organization and the capabilities that will be required to succeed? Can your board understand your customer base? Is your board truly ‘independent’ of the organization and the CEO? Has your board separated the Board Chair role from the CEO role? What is the structure and role of your Committees?
- Strategy & Strategic Risk – How is your board engaged in conversations about strategy and strategic risk. How are new risks identified? As the business grows (new products, new markets, new delivery methods, new regulations, technology changes, etc.), is the board’s discussion or risk keeping pace with the changes in your business model?
- Annual Goals, Agendas and Performance – Is your board proactive about setting goals? How does your board measure its success? How does your board deal with conflict in the board room? Is there conflict or are all votes ‘unanimous’? What does a healthy debate look like in the board room?
- Succession Planning – Is your board focusing on CEO succession planning? Board succession planning? How is the board insuring that the organization is sustainable beyond the current CEO and board?
- Organizational Reports vs. Boardroom Discussion – Is your board spending the majority of its time listening to operational reports from the organization? Are the majority of your board agendas devoted to presentation of materials that were provided in the board book? Are you devoting your board meetings to meaningful strategic discussions?
It is time to start talking about innovation in the board room! This space will be devoted to a series of topics on innovation in the boardroom…including ideas on how to drive value-added changes in corporate governance and address the above questions. I’d love to hear from you and learn how you’ve driven innovation in the board room…share your innovation!
Kaye O’Leary is a founding partner of Tevera Consulting. Tevera Consulting is dedicated to helping companies strengthen the link between strategy and governance and drive the execution of strategy and value-added governance. With Tevera Consulting, Kaye has served as the interim CFO of Shock Doctor Inc. and Caribou Coffee (NASDAQ: CBOU), and has advised a number of public and private companies on a variety of board governance and strategic growth projects.