BUSINESS PLANNING
Governance

To advance performance, boards/managers must now focus on the more nuanced and difficult issues: issues of purpose, accountability, objectivity, information, relationships, talent, culture, commitment, refreshment, and engagement that are highly context dependent and to a large degree rely on the collective behaviors of individual directors/Managers:

GOVERNANCE REQUIREMENTS

PURPOSE: View corporate purpose as a motivating and unifying force and rethink corporate success through a long-term lens. Corporate purpose—defined by the problems addressed and the needs filled by the corporation’s goods and services— when well articulated provides a powerful force to motivate and unify corporate activity and define priorities. Boards should expect that corporations will continue to be looked to for solutions to a range of problems, with success assessed through long-term performance and impact.

 

ACCOUNTABILITY: Recognize that consideration of employee, customer, and other stakeholder interests is key to acting in the corporation’s best interests and delivering value over the long term to shareholders. The interests of the corporation, its shareholders, employees, customers, and other key stakeholders in the corporate purpose are interdependent and should factor into corporate decision-making.

 

OBJECTIVITY AND OVERSIGHT: Embrace board self-determination regarding both governance and agenda priorities. How a board adjusts to address the dynamic business environment and expanding expectations while navigating uncertainty remains a matter of business judgment for each board to determine. Expect effective governance in a fast-moving world to require more direct and active involvement by directors and to a greater degree than in the past. The board should determine the best position for effective and agile governance and select the issues for board focus, and it possesses the autonomy to do so. Meeting agendas should align with current board priorities and be adjusted as needed. Boards can no longer wholly defer to management to determine priorities or simply rely on the formula provided by last year’s board calendar and work program. While each board must determine its own priorities, it is highly likely that those priorities involve issues of strategy, risk, and talent.

 

INFORMATION: Position the board for informed, deliberative, and agile decisionmaking through board determination of information needs, and fit-for-purpose information and reporting systems. Ensuring that boards are well-positioned to satisfy their responsibilities requires periodic reassessment of the processes in place to ensure the board is well informed on a timely basis of matters requiring its attention. Directors need information about the company’s business operations, performance, risk management, talent and capabilities, and compliance and ethics. Metrics reported to the board should relate to progress in achieving strategic and operational objectives, and ethical, diversity, environmental, and other citizenship goals, and not be limited to financial information and results. Information and reporting systems must ensure that directors receive the information they need and in a format that is useful. These systems need to evolve to keep pace with the board’s agenda and priorities, to ensure the board is well-positioned to act deliberatively on these matters in the face of turbulence and heightened expectations. Information about the company from sources outside of management (such as the company’s workforce, customers, suppliers, and competitors) and inputs from data analytics and AI may provide directors with other perspectives on how company culture, strategy, risk, and talent management are working in practice. Directors should not strive to have the same information set as management; this can be counterproductive and inhibit the ability of directors to apply their own outside perspectives when challenging management.

 

RELATIONSHIPS: Bolster trust in board and board-management relationships through agreed norms of behavior. Behavioral norms designed to build trust help support constructive board and board/management relationships. Agreed behavioral norms help ensure that directors do not unduly intrude on management or otherwise cross the line into management. Agility must not be confused with overstepping into management’s arena; the line between the board’s role and management’s role may become blurred with the speed of events, and it is critical to keep those spheres separate to ensure that the board can function as an oversight body and hold management accountable. Building trust in relationships is supported by inperson interactions, guidelines around access to management and around director communications between meetings, and regular training on topics like board responsibilities and confidentiality.

 

TALENT: Pay attention to issues impacting the workforce and understand the link between strategic imperatives and officer and employee capabilities and constraints. Driving long-term corporate performance requires a talented workforce that is committed to providing superior products and services. As the labor market evolves and employees look for more from their workplace than just compensation, workforce satisfaction and engagement are key topics for board focus. A rational and equitable approach to compensation requires appropriate incentives related to the key drivers of long-term success that do not encourage unduly risky behavior. The relationship between the CEO’s pay, the pay of the CEO’s direct reports, and average employee pay should also be rational and equitable.

 

CULTURE: Define the parameters of desired corporate and board culture, and monitor them. Directors need to continually assess the strength of corporate and board culture and the efforts of management to establish a beneficial culture—including in relations with employees. Boards need to determine what information they need to successfully monitor and assess corporate culture, including information from outside the company and information that has not been filtered by management. Supporting an effective board culture are behavioral norms that enrich the quality of board deliberations by ensuring that diverse viewpoints are welcomed and considered. Boards can unleash the full potential of a diverse board by enabling all directors to contribute their own unique skills, backgrounds, and perspectives to the decision-making process. With boards now allocating more time to deliberation and discussion of priority items, boards have more time to consider all director viewpoints.

 

COMMITMENT: Recognize that more is required of directors to stay well informed and to be available on a far more frequent and flexible basis. Adapting to changing circumstances and responding to emerging issues requires robust understanding of the company’s business, industry, and competitors, and the changing environment in which it operates. Engaging in continual learning, keeping knowledge up to date throughout the year, and making time to meet and review materials outside of the normal board schedule all require directors to be disciplined and committed. Governance agility needs to be supported by processes and practices for expedited decision-making when the need arises, including as to complex issues that at least some directors may not have experience with as managers or directors. The additional flexibility and availability directors need to attend special meetings at short notice and stay informed may require directors to rethink other commitments.

 

REFRESHMENT: Avoid defaulting to renomination rather than undertaking tough decisions. Ensuring that board composition is well-aligned with changing business needs requires rethinking reliance on age or term limits and more actively evaluating individual directors in connection with decisions whether to renominate.

 

ENGAGEMENT: Value interactions with shareholders, employees, and other key stakeholders as opportunities to learn about their interests and concerns and to build relationships of trust. Directors should be prepared to participate in direct engagement meetings at the request of the board or management, with coordination on goals and messaging. Boards and management benefit from other perspectives, while also sharing information about the company’s view of its purpose, the strategy to achieve that purpose, and related risks. Disclosure decisions around key issues should be coordinated to ensure consistent messaging (and to avoid risks of siloed information) and be aligned with the company’s values, its positions on social and political issues, and positions it supports through political contributions, lobbying, and trade groups. Boards need to determine with management whether, and in what circumstances, the company should engage in taking public positions or otherwise engage in public discourse on matters of importance to key consumers, employee segments, and/or investors.

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