The 2009 Spencer Stuart Board Index was released in October and while there are no huge surprises, I believe the data signals a shifting center of gravity in corporate governance – a move toward independence, commitment, and accountability.
Consider these highlights from the Spencer Stuart study of the S & P 500 companies for 2009.
– Classified board elections have been almost completely eliminated
– Many more companies are setting a ceiling on how many boards their directors can serve on
– Companies are receiving more direct communication on issues from shareholders
– The number of boards with only one insider rose 6% in a single year
– 94% of Boards do some type of performance evaluation on either director performance or the board’s performance (quality on these evaluations varies, but 94% is a very big number)
The bottom line is that shareholders are demanding an effective Board and moves to ensure that directors are performing well, are appropriately independent, and have enough time to really deliver on their responsibilities are talking hold. These are healthy and important trends, but we’re missing the key piece.
It’s tempting to think that benchmarking to the never-ending flow of governance best practices that come across our desks will be the answer. The foundation is data-driven, the process is well defined and the results measurable. As business people, we find all three aspects of this approach very appealing. But the key to aligning with evolving expectations requires something more of us as leaders. We must redefine our cultures.
An organization’s culture is defined by the behaviors it accepts as normal – it is set and led from the top. If you’re leading meetings where directors are on their Blackberrys® throughout the discussion, where certain members regularly leave meetings early, where major issues are decided without input from all directors — take steps to strengthen the culture. Define two to three specific behaviors that you believe should be the norm. Have an open, respectful conversation with directors to communicate expectations and then enforce them. Here are several to consider.
Full Inclusion
Require that all directors comment on key decisions. I mean 100% inclusion of thinking. Close each important discussion by saying, “I want to hear a few words from everyone on this issue.” I know very few professionals who will not be prepared to contribute something smart if there’s a clearly communicated expectation that they will be asked to speak in front of their peers on an important subject. Directors will quickly realize they must be prepared to comment meaningfully. This sets the standard for professional behavior on the board.
Complete Attention
Turn off the Blackberrys during board meetings. Today’s shareholder doesn’t want directors multi-tasking while making strategic decisions on the deployment of capital. Clear thinking requires focused attention. Make it the norm.
Highest Ethical Standards
Stressing ethical behavior in corporate governance is fundamental to the leader’s role and a review of ethics in governance should be done annually. Board leadership should send a clear signal that anything below the highest ethical standards will not be tolerated. Sometimes we get into denial and we convince ourselves that no director we serve with needs to have an ethics review. But distractions and stress drive good people to rationalize, blurring the lines of right and wrong. Recent alleged events at Galleon remind us how people may be drawn off course. Repeated discussions on values and the reputational risk we all share are key to a solid culture.
Choices Impact Company Culture
Beyond defining norms, review the cultural impact of your decisions. Consider these two scenarios. Two different boards decide to gather their directors for dinner the night before their respective board meetings. Chairman A gets a private room and conducts a closed door discussion about important industry trends. He asks directors what they are experiencing in their own professional lives and how what they are seeing relates to the board’s work. Chairman B gets a large table in the main dining room of a trendy restaurant and encourages directors to relax and have a social evening together. Which sets a tone for high-level productive relationships and discussion? All choices send a signal. There’s nothing wrong with social evenings out, but make choices consciously because they will influence the company culture you are building.
We’re serving in a time when shareholders are demanding fully engaged directors and frankly, they have a right to. We should absolutely continue to benchmark best practices, but on its own, this will not be enough. We must build and maintain a strong, open governance culture in the U.S. that makes ethical behavior, full engagement, and personal responsibility the norm. Cultural alignment is the foundation. Without a strong culture, nothing else will have a chance to work.