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4 Ways to Up Your Board of Directors’ Value Proposition

Today’s business conditions call for boards of directors to add more value to the company equation by focusing on a wider range of issues.

board meeting 2“As the business and risk environment becomes more complex, the board’s ability to prioritize and devote enough time to substantive issues becomes more vital,” Dennis T. Whalen, leader, Board Leadership Center, KPMG, said in a press release announcing the release of a study on this topic conducted by the research firm. These issues encompass:

1. Strategy. Three-quarters of directors and business leaders queried for the KPMG study believe boards should devote more time to strategy and strategic risk. Strategy is “the overarching thing the board should do and where it adds value,” according to the consulting firm. Seven out of 10 executives surveyed by consulting firm McKinsey expressed the same perspective.

To “be strategic,” directors need to understand the dynamics of the industry in which a given company plays and a thorough comprehension of the company itself, noted a McKinsey report about that firm’s survey. This may be more difficult than it appears, because board members are often provided with short-term information that’s insufficient for taking the necessary strategic approach. Providing more detailed data pertaining to key issues is a must for management, even if it entails asking for assistance from other professionals who serve the corporation, such as accountants, attorneys, and investment bankers, one survey respondent said.

“A lack of board oversight for information technology (IT) activities is dangerous; it puts the firm at risk in the same way that failing to audit its books would.”

2. Technology and cybersecurity. Technology should be a more significant area of focus for directors, according to 37% of KPMG’s research participants. “A lack of board oversight for information technology (IT) activities is dangerous; it puts the firm at risk in the same way that failing to audit its books would” because it places too much responsibility for managing critical corporate information assets on CIOs’ shoulders, added a Harvard Business Review column on operations management.

Meanwhile, cybersecurity and the fallout from companies’ failure to adequately secure organizations’ systems and data have become so important that “the board should act as the fourth line of defense,” according to ISACA and the Institute of Internal Auditors. Their report, according to InformationWeek, deemed it critical for boards to get involved here, ensuring that IT security strategies and solutions are being used and followed, that chief information security officers are doing their job, and that internal audit procedures are being followed.

3. Succession planning. In the past, boards have tended to address director succession only on an as-needed basis, when facing an impending vacancy, according to a Spencer Stuart blog. However, boards that take this approach, rather than engaging in proactive succession planning (cited as a key board focus by 36% of KPMG survey participants), put themselves at a disadvantage. “By the time they start looking for a replacement director, it may be too late to secure the best person,” the blog reported. Just as is true with CEO succession, “by planning further ahead, it is possible for boards to widen the net, increase their options, and secure the very best talent at the time when it is most needed.”

4. The talent pipeline. Board oversight of the talent pipeline, which 26% of respondents to the KPMG survey believe to be critical today, is important because it increases the potential that companies will hire candidates whose vision and capabilities are well-matched, according to a thought-leadership document by Ernst & Young. The document includes a list of strategies to be undertaken by companies to “improve the quality of boards’ “oversight over talent.”

First up: assigning in-depth human capital oversight to a human resources committee, followed by breaking down the silos between human resources and risk or finance functions by developing a common language and robust capabilities to give board members access to relevant information.

Providing human resources officers more exposure to boards so they can enhance members’ understanding of human capital priorities and get a direct feel for issues is another strategy to be taken here. Finally, according to Ernst & Young, “additional human capital risks”—beyond executive compensation and CEO succession planning—should be added to board agendas.

“Improving board effectiveness so that directors can devote more time to forward-looking or value-creating issues—while also remaining focused on compliance, operations, and so-called rear-view mirror items—may require a change in the nature of board and director engagement with management teams and among directors,” Whalen said in the release. However, it’s a critical step.


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