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High-Performance Boards Are the Future

Chief executives run the company, but the board of directors must also lead the organization on the most crucial issues. Monitoring is still important. Governance matters. But the time has come for boards to rebalance their responsibilities. Directors need to know when to take charge, when to partner and when to stay out of the way.

Regulators, investors, activists and employees are all pressing boards to deliver on their responsibilities—and their company’s results. That requires a handful of decisions that only the board can make: the decisions to select, retain or dismiss the chief executive; to establish a climate of ethics and integrity; to set the goals and incentives for the executive team; and to pinpoint the company’s central idea, risk appetite and capital structure.

Why does board leadership matter? Because the fate of enterprises, employees and shareholders so often hangs in the balance. A board’s leadership can create value, and its absence can destroy value. As has been evident with big box retailer Target, society and stakeholders are holding boards more accountable, and the days of ceremonial boards are gone. This is new, and so too as a result is the need for boards to hit their refresh buttons.

Drawing on emergent practices at a number of firms, we have found several factors to make a difference for boards to evolve their leadership of the company:

  1. Membership must be balanced, with directors bringing expertise and experience in a range of areas that are vital to the company’s strategy and success, from ethics and integrity to mergers and acquisitions—and certainly how to run a complex enterprise.
  2. The board’s procedures must bring out the active leadership and optimal guidance of every director, each of its committees, and the board as a whole. Here, a lead director who can indeed lead is vital.
  3. The board must be ready to recruit new directors who bring expertise and experience on emergent challenges, ranging from disruptive technologies and cyber threats to global supply and talent management.

With equity holdings of major firms now in the hands of a relatively small set of mega-holders, big investors have helped push the boardroom in these directions. Chief executives still run the corporation, but directors at many are now increasingly stepping forward to lead the corporation in partnership with management.

It is now imperative that boards recruit new directors who will keep the company abreast of their fast-changing realities. The new rules of the game require that the board is well-balanced in the wisdom, experience, skills and networks of its current directors—and at the same time that the board understands that new directors will be needed to tackle newly emerging issues.

Identifying and recruiting the expertise and experience required for future leadership of the company, not just the present, has become essential. Few boards are far along in these areas yet, but some are beginning to so move, and they are demonstrating that directors can and will lead their companies in ways that anticipate the future. Failure to do so runs the risk of rendering their boards and companies obsolete.

About Ram Charan with Dennis Carey and Michael Useem