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Global Board Survey

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  • 1. GLOBAL BOARD SURVEY 2012 Facts – Trends - OpinionsFROM BACKWARD-ORIENTED CONTROL TO FUTURE-ORIENTED STRATEGYSignificantly more time is spent on board work and the increased time is allocated to strategy in particular. Theboards are optimistic in regards to their expectations of the future and expect to perform better than thecompetition. The most important drivers of value creation are improved understanding of company strategy,the right mix of competencies and strong people dynamics in the boardroom. 1
  • 2. INTRODUCTIONManaging a business is much more demanding today than just ten years ago. The economic, technological andsocietal development is moving rapidly, necessitating both an attitude and a step change in the boardroom.Corporate governance is a demanding discipline. It is necessary to stay ahead and up on your toes as a sparringpartner for the daily management. The board must be abreast of developments, and often the internationalvision and experience from other markets and industries are also musts.Therefore, the issue of professionalization of the board is more topical than ever. The ambition behind theGlobal Board Survey 2012 was to uncover facts, trends and opinions on the boards. BOARDS ARE FOCUSED ON STRATEGY The boards are increasingly aware that their principal task is strategy and dedicate more time to perform their board duties and particularly to the strategy work shows an international study conducted by Stanton Chase International and Brammer & Co. The study has identified trends and opinions in board work anno 2012.DURING THE FINANCIAL CRISIS, THE BOARDS HAVE MOVED CLOSER TO DAILY MANAGEMENTThe survey results show that as a consequence of the financial crisis, there has been a power shift and 45% ofrespondents stated that the board has moved closer to the daily management. In the past 12 months, thetypes of tasks that the board is dealing with changed and more emphasis is put and more time spent on theforward-looking activities. Thus, respectively 58%, 48% and 40% stated that in the past 12 months, they havespent more time on strategy, finance and sales & marketing. 2
  • 3. During the past 12 months, have you experienced a change in the type of tasksthat you as a board member are involved in?The boards are aware of their responsibilities and 90% forward that strategy is the single most important boardtask, followed by finance, budgeting & forecasting and sales & marketing. In contrast, however, only 40% ofrespondents answered yes to Megatrends included as a parameter in defining the company strategy. It couldtherefore indicate that a large part of the strategy work focuses on either in-house or competitive factors,including access to funding - see further below. 3
  • 4. Please mark the three most important board tasks in your opinionThe boards seem to be aware that the power shift is temporary and caused by the need for extraordinaryefforts and 53% reported that when a brighter future reveals itself, they will withdraw again.THE BOARDS ARE OPTIMISTIC REGARDING THE FUTUREAccording to the respondents, a bright future isahead. 65% believe that businesses will performbetter in the next 24 months than in the preceding24 months and only 20% say they will do worse. 4
  • 5. What are your expectations for the company’s financial outlook for the coming24 months compared to the past 24 monthsAt the same time 61% assess that their companies will outperform their competitors. Hence, the boards appearto be convinced that with increased time spent and more focus on the future-oriented strategic work, they arein a good position to tackle future challenges that competition and financial turmoil entail.What are your expectations for the companys financial outlook for the coming24 months compared to that of your closest competitor(s)? 5
  • 6. THE BOARDS’ FUTURE-ORIENTED FOCUSThe boards expect a number of internal and external influencing factors in their future work. On the internallines, the focus remains on strategic work, financial management, and sales.Over the next 12 months what are the 3 most important internal challengesyour company faces?Evidently, the external influences in part compose a reflection of internal challenges. Thus, 77% highlight thatthe competitive situation (including the relationship with customers and therefore sales efforts) will have thegreatest impact, while 71% still expect to be affected by the financial crisis. 49% expect political and / orregulatory aspects to affect business operations. 6
  • 7. Over the next 12 months what are the 3 most important external challengesyour company faces?COMPREHENSIVE NEED FOR UPGRADING COMPETENCIES ON BOARDSThe strong focus on diversity in the media has also left its imprint in the boardroom, where 34% indicate thatthe growing focus on diversity has had an effect on board composition. However, 59% claim that it had noeffect - which is puzzling, since as many as 63% indicate that diversity should be a priority when the board iscomposed, and at the same time, the European Commission is expected to table a new directive in this areaduring spring 2012. 7
  • 8. Has increasing focus on diversity in boards had an effect on how your board iscomposed? The agenda on diversity focuses on the mix of competencies, 74%, and to a lesser extent on gender and nationality, respectively 37% and 26%. There is a strong perceived need to upgrade the skills of incumbent boards and 57% state that handling future challenges require upgrading of the current board of directors e.g. in in the form of education.The most commonly stated qualitative parameters of the sought-after skills in the boardroom are 1) Strategicunderstanding and attitude, 2) Holistic leadership skills, 3) Industry Experience, 4) Sales / Marketing, 5)Economics / Finance, 6) International experience, and 7) Miscellaneous ... 8
  • 9. Will the future challenges require upgrading of competencies with the existingboard members, e.g. in terms of education?THE BOARDS EXPECT REPLACEMENTS IN ORDER TO PROPERLY ADDRESS FUTURE CHALLENGES72% of respondents expect that future challenges will have an effect on the composition of the board.Will the future challenges have an effect on the composition of the board? 9
  • 10. Just 37% of the boards carry out regular evaluations of the board despite the fact that only 32% believe that the board performance is very good.How would you rate the quality of the boards overall performance?84% of board evaluations are carried out as internal self-assessments, which entails the risk that theassessments do not necessarily address the challenges that the board needs to act against. 29% of respondentsbelieve that their efforts are good and 32% that their efforts are very good. At the same time, there is anacknowledged need for upgrading skills and replacing board members. 10
  • 11. How would you rate the overall understanding on the board of the companys strategy?It is obvious, that the boards are focusing on the backward-looking control tasks. Thus, it is the corporatefinancial and the market position that the board members themselves indicate compose the elements thatthey have the best understanding of, whereas 39% of respondents believe that they have limited insight intothe companys talent management program.CONSENSUS ON THE MEANS TO IMPROVE BOARD PERFORMANCERespondents believe that the most value creating driver for improving board performance is improvedunderstanding of the companys position and strategy (64%), which points to a need for more detailed materialfrom the daily management and increased time consumption for the board members.In addition come a better competence mix (59%) and improved team dynamics in the boardroom (47%). 11
  • 12. In your opinion what 3 factors would best improve the overall performance onyour board?BOARD WORK IN A FUTURE PERSPECTIVEAcross all sectors, ownership types, sizes and nationality, Global Board Survey 2012 states that the three singlemost important factors for optimization of board performance, are the strategic focus, the good climate ofcooperation and the existence of the right mix of skills. There is a growing academic recognition of what bestcontributes to value creation from the boardroom.The board’s claim to fameA board was originally entrusted responsibility for the operation of an enterprise. And thus performing theduties of leadership. Specifying the direction and verifying the performance of daily activities. 39% ofrespondents answered "do no know" to the question on whether the past year has seen new legislationaffecting their board work. It indicates some misgivings about how the boards will manage to fulfill their legalresponsibilities in the future.The Board, the chairman in particular, must consistently prioritize the forward-looking strategic work to protectthe shareholders interests. An excellent example of the effect of daring - and implementing - strategicquantum leaps thinking, is Danish brewery Carlsbergs acquisition of Scottish & Newcastle a few years ago.Carlsberg entered into an alliance with a strong competitor (Heineken) on a joint acquisition offer onCarlsberg’s most important strategic partner (in the Russian joint venture, Baltika). That was quite a mouthful,in principle too big for Carlsberg, but it succeeded because of the boards ability to think far into the future, its 12
  • 13. patience during the long process that preceded the deal, and its skills in the execution of the decision. And atthe same time, a maneuver that successfully moved Carlsberg into the global league. An example to follow! Global Board Survey 2012 shows that boards spend more time on the board work focusing on the future-oriented activities including strategy in particular, and this bodes well for their ability to dare and to think strategic quantum leap thoughts.The platform is on fireBut in relation to ensuring the right competence mix, including both professional, national and genderdiversity, sense of urgency is clearly lacking.Apparently, there is an acknowledged need toupgrade skills in the boardroom, but the question iswhether the recent years’ crisis managementexercise has taught boards to exercise duediligence regarding the limits to their own abilitiesand thus to make a timely succession planning. Theaccording to the survey already plannedreplacements are hardly sufficient for the requiredfocus on the supply of new skills. And concurrently,the global competitive platform is burning beneathus. 13
  • 14. Going forwardThe conclusions from the Global Board Survey 2012 and the recommendations are unambiguous: In the value-creating ownership, the board is aware of its instrumental role. The board is composed to ensure thatexperiences and skills reflect the challenges that the company faces. The board is dynamic, working with anumber of specific committees and work at least as much between the meetings as at the meetings. Finally,board members are replaced with due diligence when tasks are completed and new tasks requiring new skillsneed to be solved. Focus shifts from retrospective controls to forward-looking strategy and leadership...METHODOLOGYThe survey has been completed by Stanton ChaseInternational and Brammer & Co in Q1 2012 among300 respondents in more than 30 countries, as anonline survey. Respondents are board membersand chairmen from companies including listedcompanies, private equity owned companies,trusts, family owned and public institutions.Respondents represent a broad industry range and covers technology, financial services, industrial,government, education, logistics and transportation, consumer goods, lifescience, etc. The age spread is 18 to75 years, of which the majority (77%) is between 41 and 60 years. The breakdown is 90% men and 10%women.We would like to take this opportunity to thank all respondents for participating in the study.USE OF SURVEY RESULTSFor quotes, please refer to: Global Board Survey 2012 – Stanton Chase International and Brammer & Co.For questions, please contact:Jakob Stengel, Stanton Chase International, j.stengel@stantonchase.com / jsh@boardnetwork.dk / +45 21 2828 82 orDitte Kirstein Brammer, Brammer & Co, ditte@brammerco.com / dkb@boardnetwork.dk / +45 40 12 33 12.Copenhagen, June 2012 14

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