The imperatives of a high-performing board
Based on surveys and interactions with
business leaders, KPMG’s Business Leadership Centre highlights four imperatives
for boards to perform under pressure
Corporate boards are constantly under
pressure to improve their performance by expanding both the areas they oversee
and the intensity with which they oversee these areas. Prescriptive
regulations, empowered shareholders who challenge corporate decisions and a competitive
environment that has blurred the distinction between an ally and a competitor
have added to the pressure.
Drawing insights from their surveys and
interactions with directors and business leaders, consulting firm KPMG’s Board
Leadership Centre, which champions outstanding governance to help drive
long-term corporate value and enhance investor confidence, has highlighted four
imperatives for boards to perform under this pressure.
Appoint the right people to achieve a balanced board
Diverse backgrounds, skill sets, cultures and
gender help boards infuse new ideas, perspectives and different problem-solving
approaches that can help ensure more rigorous and holistic decision-making.
With regard to diversity in corporate boardrooms in India, it appears that
there is definitely a need for improvement. According to a 2016 KPMG Board
Leadership Center India survey, nearly 70% of the respondents indicated that
finding directors with both general business experience and specific expertise
is one of the key barriers in building and maintaining a high performing board.
In order to help ensure adequate skill set diversity, it is important to map
the board’s existing skills and analyse the required skill sets needed to
achieve strategic priorities. Also, it is vital that boards move out of their
personal network to identify and shortlist candidates in order to access a
wider pool of diverse talent. It might be helpful to leverage executive search
firms to find the right talent and over a period of time use recognized
databases. Boards could use a couple of enablers to achieve optimal
composition. In this regard, respondents to the aforementioned survey
overwhelmingly cited robust evaluations (87%) and formal succession plans (77%)
as the most effective mechanisms.
Facilitate a culture of open debate and challenge
The board chairman should set the right tone
at the top. If the chairman is dominant, it is harder for directors to
contribute. On the other hand, a good chairman acts as a facilitator and
fosters a cultural environment in which an open and honest debate can take
place, even if at times it is contentious. He/she can encourage directors to
challenge ideas put forth in the board meeting regardless of whether those
ideas were conceived by him/her, or the promoters, or the management. Such open
discussions help in leveraging the collective intellect of the board. Results
of a 2016 KPMG Board Leadership Center India survey underscores the importance
of such a conducive culture. In the survey, nearly 35% of the respondents
highlighted ‘board culture that does not encourage questioning and open
discussion’ as one of the greatest barriers to building a high-performing
board. A conducive boardroom culture also requires distribution of power
between promoter, executive and independent director groups. Towards this
end—through Section 203 of the Companies Act, 2013—the regulator has expressed
its intent to separate the board chair and CEO roles. In case this is not
feasible, companies could appoint a ‘lead independent director’ to provide a
voice for the independent director group.
Focus on substantive matters
According to the UK Financial Reporting
Council: “The board’s role is to provide entrepreneurial leadership of the
company within a framework of prudent and effective controls which enables risk
to be assessed and managed.” However, given the pressing regulatory/compliance
matters and limited oversight time of directors (especially non-executive
directors), board agenda and meetings may focus more on routine matters. A
high-performing board, while addressing these routine matters, should find time
to: (a) review and pressure test core assumptions underlying management’s
strategic choices, (b) not only discuss noteworthy trends that could cause
disruptions, but help the management identify weak signals that could snowball
into a major risk, (c) examine the correlation between performance goals and
compensation and assess whether it is encouraging the right behaviour, (d)
establish and periodically review succession plans for the CEO and senior
management personnel, and (e) engage with institutional investors, private
investors and analysts.
The survey highlighted that nearly half of
the respondents are not entirely satisfied with strategy and risk being
effectively linked to boardroom discussions. One of the directors interviewed
had this to say on the board’s focus on strategy: “Their role in strategy
becomes important in the light of findings of the CEO Outlook Survey 2016, by
KPMG International.
According to the survey, nearly 41% CEOs
globally expect to be running significant transformed companies in three years’
time.” In addition, approximately 82% of those surveyed are concerned whether
their company’s product or services will be relevant to customers three years from
now. An effective board should be quick to recognize changes in the external
environment and not only help the company adapt to the ‘new normal’ but also
guide them through the risk while not missing the opportunities. This focus on
strategy and other substantive matters will require directors to get more out
of their meetings.
Some of the meeting productivity enhancers
include: (i) a rolling agenda that changes with the changing priorities, (ii)
using consent agendas for bulk approval of certain routine matters, (iii)
apportioned time for discussion on strategic matters at each and every board
meeting (for the same reason some companies have started holding audit
committee and board meetings on separate days), and (iv) an information portal
to share information among board members and the management in between board
meetings.
Streamline communication with stakeholders
There is no one-size-fits-all strategy for
effective stakeholder management. However, it is more meaningful for firms to
connect with the stakeholders early in their life cycle on a regular basis, as
building trust takes time. It also helps if there is an ongoing dialogue with
key stakeholders on a regular basis and not only during a crisis situation. The
board should prioritize stakeholders by groups or issues, helping them in
better management of their expectations. It is also important to leverage
public disclosures as not just a compliance measure but as a channel to engage
with stakeholders. At times, this approach might involve going beyond
stipulated regulations with regards to disclosures. General meetings with
shareholder could be made fairer and engaging by: (a) conducting voting at
these meetings by poll, instead of show of hands, (b) engaging an independent
scrutinizer to count and audit the vote, and (c) providing a live webcast of
the meeting to enable shareholders across the globe to attend it virtually.
Source
| The Mint – Wall Street Journal | 3 November 2016
Regards
Pralhad
Jadhav
Senior
Manager @ Library
Khaitan
& Co
No comments:
Post a Comment