Are you keen on keeping up to date on the latest research in corporate governance? Don’t have time for pages of needlessly pretentious verbiage? Then this is the series for you. In Research Recap, Directorpoint gives boards of directors the need-to-knows on corporate governance hot off the presses of the leading industry journals. Just tell people you read the full thing; we’re not snitchin’. Continue reading
It’s easy to talk about strengthening your board of directors, but how do you know when you’ve reached a high-functioning level of corporate governance?
In this day and age, building and maintaining a successful board means checking off many different boxes. As the role of the corporate director continues to expand and technology keeps leaping forward, board members should take the time to reflect on their impact as individuals and as a group.
Here are some signs that your board is thriving:
Directors have a firm understanding of their responsibilities
On Tuesday morning, January 16, Laurence Fink—founder and CEO of the investment firm BlackRock—sent an important letter to the CEOs of the world’s largest companies. In that letter, he explained, “Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
BlackRock is the largest investor in the world—thereby giving Fink’s voice a great deal of power and influence. But what exactly do his statements mean?
Put simply, Fink’s letter advocates for Environmental, Social and Governance criteria, which is commonly referred to as ESG. Investopedia defines esg standards as “a set of standards for a company’s operations that socially conscious investors use to screen investments.”
The environmental element examines how a company is handling their impact on the natural environment.
The social portion of the criteria scrutinizes how the company handles its relationships—with employees, partners, customers, its local communities, and more.
The governance component analyzes exactly what you’d expect: executive leadership as well as pay, auditing processes, shareholders rights, etc.
Leadership is the capacity to translate vision into reality.
He may not have known it at the time, but when Warren Bennis (American scholar and pioneer of Leadership Studies) penned those words, he was aptly explaining what strategic guidance means for the boardroom today.
Directors must be prepared not only to envision the future of the company, but also to find the best way to guide it into the fulfillment of that vision.
To understand what strategic guidance means exactly, we must take a look at the two words individually.
Crafting company strategy is an essential function of a board of directors. Simply stated, board members must bring their assortment of individual knowledge and experience to the table in order to seek out the best path forward for the business.
Strategic thinking takes many elements into consideration: goal setting, prioritization, realistic financial planning, and more. The expectation is that board members should be looking at the horizon rather than at the ground beneath their feet.
According to the PwC Directors Survey we covered last week, 40% of board members believe that at least one member of their board needs to be replaced. With boardrooms standards rising higher than ever, it’s no surprise that some board members just aren’t measuring up.
Removing a board member, however, is an extremely sensitive process that few are willing to undertake. Here are our tips for proceeding with the utmost respect and consideration. (Keep in mind that the procedures for companies vs. nonprofits will vary slightly according to individual rules of governance.)
Review your bylaws and follow them
Before taking any action, determine whether the member in question truly isn’t meeting the standard for his or her outlined duties. Make sure that you collect fact-based evidence only. Look at the bylaws for your organization, and utilize the processes it will likely lay out for this sort of scenario.
According to Sam Ashe-Edmunds of Demand Media, “Your bylaws might require the board to justify any removal based on fraud, conflict of interest, personal conduct, lack of fitness to serve or failure to perform.” You’ll need to establish exactly which aspects of the role the board member has not fulfilled or why their presence is no longer productive for the board.