This week, we kicked off a series of blogs that discuss how to build a stronger board. The biggest change I’ve seen in the past several years is the changing role of the board. Today, we share several reasons this is happening. I discuss several changes I’ve observed in key responsibilities of the board.
On Thursday this week, we share several ideas on attracting and recruiting the right people for your board. Then next Tuesday, we talk about onboarding new board members. Finally, we circle back here on next Thursday to finish with a discussion of what you should expect from your board. Let’s get started!
I believe the biggest change I see is the rise of boards that are playing more active roles in two key areas of the organization. The first is they are getting more and more involved in helping CEOs create a winning business strategy for the business. Today’s successful board member is going to play a more critical role in the organization’s success. I believe investors are expecting board members to be active in helping the organization succeed. Successful boards are becoming great partners for their CEOs and CFOs.
Second, and maybe more importantly, I see the board playing a must larger role in CEO succession and compensation. With so many CEOs moving toward retirement, many boards have become more active participants in succession across key roles within their organizations. Successful boards have become active in the succession process.
Here are several changes that have happened that you might not be aware of in terms of the roles boards play in an organization’s future. Nine out of ten of the S&P 500 governing boards have a lead or presiding director. This has happened to meet new listing requirements. This means there are additional opportunities to bring strong leadership to the board in many successful organizations.
Over 43% of these organizations have a different CEO and board chair. However, only 23% of these chairs are independent from top management. Expect this number to rise as we expect boards becoming more active in succession processes for retiring CEOs.
Organizations that are unable to find suitable growth opportunities in their markets may look outside their industry for potential M&A opportunities. The rise of activist directors continues to challenge successful organizational changes by holding executives to different standards when considering their growth options.
The rise of director activism may change the ground rules for the foreseeable future. The super directors may require additional management to work successfully in current business structures. They also may change the composition of boards due to potential conflicts between the organizations and their directors.
Finally, boards will be more engaged in compensation discussions for CEOs. Increasingly, the CEO’s compensation is tied to the organization’s performance, with more variable compensation playing a larger part of the compensation for CEOs. The gap between front line employees’ pay and the CEO’s continues to widen and the negative aspects of these compensation programs continue to be played out in the main stream media.
Ultimately, the board may become more responsible for helping structure compensation discussions in the future. Boards are trying to effectively manage these discussions, but external forces (government and market conditions) continue to play a key role as both long term and deferred compensation continues to increase.