How much time does your board spend focusing on the past versus exploring the future? It is always a useful effort to assess this allocation of time. Although the review of quarterly financial reports, operating budgets, audit reports and compliance assessments may seem like critical endeavors, and they often are, these items are still a look to the past or, at best, present circumstances. It is estimated that boards spend up to 80% of their time on these reviews, without a real effort to schedule more time for a strategic and deliberate look to the future. Directors should spend a greater share of their time than this shaping a road map for the future.
And it seems increasingly important to take a much more deliberate approach to helping the board carve out more time for forward-looking activities. This has been called a “forward-looking imperative,” which arises from the fact that dramatic technological, economic and political trends are more rapidly realigning the global business environment, creating at once greater opportunities as well as counterbalancing threats. These factors make it more important than ever for a board, being somewhat removed from the day-to-day pressures that face the CEO, to deliver on the need to address these longer-term trends and the company’s reaction to them.
Additionally, the nature of business today is increasing the pressure to achieve short-term successes. Quarterly earnings continually necessitate immediate decisions, which may, in fact, have a negative impact on the longer-term company health. As executive teams grapple with the immediate challenge of volatile and unpredictable markets, it’s more vital than ever for directors to remain abreast of what’s on (or coming over) the horizon. Second, and compounding the short-term executive mindset, the average length of CEO tenures remains relatively low — just five to six years at present.
This article discusses ways to achieve the right balance between a board’s need to “mind the store” while at the same time grappling with the future. The following steps can help to enrich your board’s future focus.
Define the board’s role
It is axiomatic that “the primary job of a public company’s board of directors is to look out for the shareholders’ interests.” It is also frequently noted that a key responsibility of a board is “to provide leadership in the development and execution of a strategic plan.” These generic definitions don’t offer much real help, however, when not infrequent “turf battles” arise between the CEO and the board. An effective board must be built upon a healthy relationship between the CEO and the board. These relationships don’t simply appear and can’t be built over cocktails. These need to be constructed from the ground up with an “exacting blueprint.”
Frequently, successful boards will develop a written document, and call it a memorandum of understanding, which more clearly defines the specific roles and responsibilities of the board. This can be coupled with an annual or semi-annual review of the blueprint. Perhaps the most effective tool for defining the board’s role and assuring a “future focus” is with a well-developed agenda.
Create a vigorous and detailed board agenda format
Boards should consider preparing an agenda that specifically describes activities that are focused on the future, with explicit time allocations for each activity over the next 12 months. If, like most boards, more than 70% of board time is spent on past behavior or current challenges – performance reviews, old business, audit issues, compliance and annual accounts – shift the focus with your agenda.
A “dynamic board agenda” can flip the entire board focus by establishing a measurable amount of time over the year that the board is to spend on the future, with activities such as:
- Review of future markets and the competitive horizon
- Strategic planning
- Key talent review and development planning
- Proposals for investment
- Loss control and risk management
Improve board member forward-looking effectiveness
To be truly effective in an enhanced future-focused role, it is also necessary to build better board members.
It is, unfortunately, not uncommon for board positions to be filled in a pressure-packed environment without much thought given to a vision for what the board should look like several years down the road. Often, the new member is qualified in the industry or specialty in which the company is currently engaged, but perhaps not the person with a forward-looking level of knowledge, experience or skills, an “out of the box” thinker. By looking at both the overall composition of the board and the areas that will be vital to the company in the next years, a larger and more diverse set of candidates may be added to the pool. Take the time to structure a deliberate process for building the right board for your company’s future.
It is important to build in a process to continually educate the board about both cutting-edge external issues and internal operational advances. Consider setting aside time for subject matter experts to speak to the board about issues that will certainly impact the future course of the company. A good example today is the growing problem of cybersecurity. While some companies are actually adding cybersecurity experts as board members, this may not be feasible for every organization. The next best approach in this case would be to present board members with better information about the problem with scheduled input from both internal IT specialists and external experts.
Frequently, companies require board members to take “field trips.” In order for a board to play an increased future-focused role, it is important for members to gain a deep “hands on” understanding of the company’s operations. Why not facilitate this learning by requiring board members to travel on occasion with salespeople to customer locations? Companies can also purposefully schedule board meetings in different, perhaps overseas, locations, where members can gain a different perspective on the business.
To provide a necessary level of future-focused value, the company and its board must make a deliberate commitment to build in the necessary levels of expertise and scheduled activities that “flip the script” and move the board away from the traditional focus on compliance and past performance. This will also require additional commitment from individual board members to continual education about the company’s operation, markets, competitors and challenging future threats. Then, the board can more effectively partner with the management team to develop a robust strategy for the future.