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Corporate governance
 

Corporate governance

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Corporate governance - 7 questions: ...

Corporate governance - 7 questions:
Part # 1: What tasks do board members invest their time on?
Part # 2: How different are board members?
Part # 3: How is communication done?
Part # 4: How is social media used?
Part # 5: Should the roles of CEO and Chairman be split – or not?
Part # 6: How much time do board members invest in their work?
Part # 7: To what extent and how are external people involved?

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    Corporate governance Corporate governance Presentation Transcript

    • Corporate governance 7 questions
    • Part # 1 What tasks do board members invest their time on?
    • 1a Traditional board agenda
    • http://www.mckinsey.com/Insights/Strategy/Building_a_forward-looking_board
    • http://www.mckinsey.com/insights/strategy/tapping_the_strategic_potential_of_boards Board members understand the respective company’s financial position better than its strategy
    • 1b Additional forward looking board activities
    • http://www.mckinsey.com/Insights/Strategy/Building_a_forward-looking_board
    • http://www.pwc.com/us/en/corporate-governance/annual-corporate-directors-survey/assets/pdf/pwc-annual-corporate-directors-survey-full-report.pdf Many board members want to invest much more time on strategy
    • http://www.mckinsey.com/insights/leading_in_the_21st_century/governance_since_the_economic_crisis_mckinsey_global_survey_results Percent of time that board currently spends on issue
    • Ensuring that a company has a great strategy is among a board’s most important functions. http://www.mckinsey.com/insights/strategy/tapping_the_strategic_potential_of_boards
    • Engaging in strategy and resource allocation is really where boards can help the most to create value. http://www.mckinsey.com/insights/strategy/rethinking_where_to_compete_an_interview_with_the_ceo_of_pentair
    • To better prepare for succession, boards should have multiple discussions each year to identify the company’s next generation of leaders. http://www.billgeorge.org/page/board-governance-depends-on-where-you-sit
    • Part # 2 How different are board members?
    • Board diversificaton is an increasingly important topic inside boardrooms. http://www.heidrick.com/~/media/Publications%20and%20Reports/Boards-and-the-permanent-revolution-in-governance.pdf
    • Research from multiple sources has shown that competive advantage, innovation, and increased shareholder value, among other benefits, are linked to a diverse board of directors. http://www.heidrick.com/~/media/Publications%20and%20Reports/Boards-and-the-permanent-revolution-in-governance.pdf
    • Aspects of diversity  Skill diversity.  Thinking style diversity.  Experience diversity.  Age diversity.  Nationality diversity.  Gender diversity. http://www.heidrick.com/~/media/Publications%20and%20Reports/HS_EuropeanCorpGovRpt2011.pdf
    • Non-national directors on boards - Europe http://www.heidrick.com/~/media/Publications%20and%20Reports/HS_EuropeanCorpGovRpt2011.pdf
    • Boards that look more like their target market have a better understanding of their target market. http://blogs.hbr.org/2012/04/geting-the-most-out-of-your-bo/
    • Companies targeting significant growth in emerging markets benefit from having board members from those countries. http://blogs.hbr.org/2011/11/board-diversity-and-global-age/
    • 17% of S&P 500 directors are women, up from 12% in 2002. http://hbr.org/2014/03/the-boardrooms-quiet-revolution/ar/3
    • http://www.heidrick.com/~/media/Publications%20and%20Reports/HS_EuropeanCorpGovRpt2011.pdf Proportion of women on the board
    • Part # 3 How is communication done?
    • Boards are often too large to operate effectively as decision-making groups. Research on group dynamics suggests that groups of 6 or 7 are the most effective at decision making. http://hbr.org/2010/12/the-big-idea-the-case-for-professional-boards/ar/1
    • Under a new model, professional directors working in audit committees as well as in compensation committees would also spend a significant amount of time gathering information throughout the year engaging with company staff and others between board meetings. http://hbr.org/2010/12/the-big-idea-the-case-for-professional-boards/ar/5
    • One of the benefits the board and I had was an active, capable lead director with whom I could work closely. He did a superb job in guiding the issues of the independent directors and in keeping me fully informed of any concerns and issues the board might have. When it came time to select my successor, he developed a sound process that we both agreed upon and led the board through it. The rise of the role of lead director, elected by the independent directors, is contributing to a better separation of governance from management. To make the position work effectively, it is essential that this role have a separate job description that is publicly available and respected by the chair and CEO. The most effective lead directors view themselves as “first among equals” and can coordinate the opinions of all directors and facilitate open discussion among them. http://www.billgeorge.org/page/board-governance-depends-on-where-you-sit http://www.mckinsey.com/insights/leading_in_the_21st_century/board_governance_depends_on_where_you_sit
    • Board members need to understand and trust each other. Only when they can have candid conversations will they ultimately reach a consensus that has positive and far-reaching implications for the company. Trust becomes even more important when meetings are conducted by telephone, which is often the case in crises. http://www.billgeorge.org/page/board-governance-depends-on-where-you-sit http://www.mckinsey.com/insights/leading_in_the_21st_century/board_governance_depends_on_where_you_sit
    • All parties, but especially CEOs, should acknowledge different points of view and work to minimize the conflicts that inevitably arise from them. This requires high-level listening skills, the ability to see situations from the other person’s perspective, and the wisdom to understand the basis for the different points of view. http://www.billgeorge.org/page/board-governance-depends-on-where-you-sit http://www.mckinsey.com/insights/leading_in_the_21st_century/board_governance_depends_on_where_you_sit
    • Shareholder engagement activities will likely continue to increase among organizations and boards. http://www.corpgov.deloitte.com/binary/com.epicentric.contentmanagement.servlet.ContentDeliveryServlet/USEng/Documents/Deloitte%20Periodicals/H ot%20Topics/Hot%20Topics%20-%20Shareholder%20engagement%20-%20A%20new%20era%20in%20corp%20gov%20-%20Sept%202013%20-%20Final.pdf
    • Some inspiration on meeting methods http://www.slideshare.net/frankcalberg/facilitationmoderation-of-meetings http://issuu.com/frankcalberg/docs/scamper http://www.scribd.com/doc/37923849/Six-thinking-hats
    • Part # 4 How is social media used?
    • http://m.theglobeandmail.com/report-on-business/industry-news/marketing/social-media-still-a-mystery-for-canadian-company-directors/article15369773/?service=mobile Survey of 171 Canadian directors shows that 21% say social media is significant for their boards today, but 74% say it will be significant within 3-5 years. 10% of the directors say they are active users of social media.
    • Missing skill among many board members: Knowledge about technology http://blogs.hbr.org/cs/2013/07/joining_a_board_who_you_know_m.html
    • Digital megatrends such as big data analytics, cloud computing, mobile commerce, smartphone penetration and social media are now embedded in the core of business. More importantly, these trends are critical to competitive advantage. As with any fundamental change of this kind, boards must play a central role in ensuring that companies are accurately evaluating risks and opportunities. http://www.kornferryinstitute.com/briefings-magazine/spring-2013/corporate-governance-20-boardroom-collides-digital-age
    • Part # 5 Should the roles of CEO and Chairman be split – or not?
    • Boards should be independent of management. http://knowledge.wharton.upenn.edu/article/is-one-global-model-of-corporate-governance-likely-or-even-desirable/
    • http://www.mckinseyquarterly.com/Governance/Leadership/Chairman_and_CEOone_job_or_two_1413 Percent of listed companies with split Chairman-CEO roles
    • North American CEOs strongly prefer the dual mandate of being board chair and CEO, as it puts them squarely in charge and avoids the likelihood of conflicts or power struggles within the boardroom. The downside of this model is that in the past it often encouraged complacency by boards and discouraged them from getting deeply involved in issues until it was too late. http://www.billgeorge.org/page/board-governance-depends-on-where-you-sit
    • http://www.pwc.com/us/en/corporate-governance/annual-corporate-directors- survey/assets/pdf/pwc-annual-corporate-directors-survey-full-report.pdf Question: If you currently have a combined chair/CEO, has your board discussed splitting the role during your next CEO succession?
    • As much as I initially supported the separation of roles when I became CEO, over time the arrangement became more difficult. For example, some board members seemed confused about whom they should look to for strategic direction. http://www.billgeorge.org/page/board-governance-depends-on-where-you-sit http://www.mckinsey.com/insights/leading_in_the_21st_century/board_governance_depends_on_where_you_sit
    • I have seen no evidence or research to demonstrate that split roles create superior performance or even provide greater stability at the top. Anecdotally, the opposite is often the case. http://www.billgeorge.org/page/board-governance-depends-on-where-you-sit http://www.mckinsey.com/insights/leading_in_the_21st_century/board_governance_depends_on_where_you_sit
    • Part # 6 How much time do board members invest in their work?
    • We need not another layer of legal procedures but a new culture of governance, one in which professional directors view their role as their primary occupation. http://hbr.org/2010/12/the-big-idea-the-case-for-professional-boards/ar/6
    • http://www.mckinsey.com/Insights/Strategy/Improving_board_governance_McKinsey_Global_Survey_results Time that board members invest per year working on company matters Region Days invested Board members of North American companies. 22 days. Board members of European companies. 29 days. Board members of Asian companies 34 days.
    • At boards with very high impact, directors spend 40 days per year on their work. http://www.mckinsey.com/Insights/Strategy/Improving_board_governance_McKinsey_Global_Survey_results
    • Private equity directors spend, on average, 54 days on their roles. Directors at public companies spend on average 19 days on their roles. Even in the bigger FTSE 100 companies, the average commitment is only 25 days a year. In both models of ownership, directors spend 15-20 days a year on formal meetings. Private equity non-executives devote an additional 35-40 days to hands-on, informal interactions, for example field visits, ad hoc meetings with executives, phone calls, internet communication, while nonexecutive directors at public companies only spend 3-5 days a year on hands-on, informal interactions. http://www.mckinseyquarterly.com/Corporate_Finance/Capital_Management/The_voice_of_experience_Public_versus_private_equity_2245
    • Boardmeetingsperyear http://www.heidrick.com/~/media/Publications%20and%20Reports/HS_EuropeanCorpGovRpt2011.pdf
    • Only 43% of the nonexecutive directors of public companies believe they significantly influence strategy. For this to change, board members must devote much more time to their roles. 4-5 days a month obviously give a board member much greater understanding and impact than the 3 days a quarter (of which two may be spent in transit) devoted by the typical board member of a public company. http://hbr.org/2011/03/capitalism-for-the-long-term/ar/4
    • http://www.mckinsey.com/insights/leading_in_the_21st_century/governance_since_the_economic_crisis_mckinsey_global_survey_results Most effective factors for improving overall board performance
    • How can companies achieve the right degree of commitment? What does actually help is a board environment that encourages participation and allows board members to derive meaning, inspiration, and satisfaction from their work. http://www.mckinsey.com/Insights/Strategy/Building_a_forward-looking_board
    • Part # 7 To what extent and how are external people involved?
    • A growing tendency to engage outside experts has improved the quality of board decision making in recent years. Good boards now bring in governance experts to review their practices and provide clear feedback. http://hbr.org/2014/03/the-boardrooms-quiet-revolution/ar/3
    • http://www.pwc.com/us/en/corporate-governance/annual-corporate-directors-survey/assets/pdf/pwc-annual-corporate-directors-survey-full-report.pdf Level of influence that various groups have over board’s decisions on executive compensation
    • Invite outsiders to critique the company’s strategy in the boards’ strategy sessions. http://hbr.org/2013/11/you-cant-be-a-wimp-make-the-tough-calls/ar/1
    • Board members educate themselves more http://www.pwc.com/us/en/corporate-governance/annual-corporate-directors-survey/assets/pdf/pwc-annual-corporate-directors-survey-full-report.pdf