The New Directives For Directors

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CEOs and boards have begun to speak more frequently and those discussions are more fulsome, with board members often serving as sounding boards or consiglieres on a company’s strategic direction.

directorsDuring two decades serving on more than 25 public boards, I’ve seen significant change to the way CEOs and boards engage and interact. When I first joined Lucent’s board about 20 years ago, board service was already evolving from a primarily oversight role to one of greater engagement and shareholder representation.

Still, even then, the board’s role was far more a “rubber stamping” of whatever CEO and the management team presented. Meetings were more formal—in fact, the experience sometimes felt like “death by PowerPoint.”

All of that changed in 2001 in the wake of two catastrophic governance failures: Enron and WorldCom. Afterward, board composition and practices came under scrutiny and holding an executive session of independent directors became a best practice. This, in turn, created a venue for boards to work more cohesively as a team in assessing the opportunities and challenges, competitive dynamics and changes that a company faces.

Participating in these more detailed discussions led to directors having a more intimate understanding of the company’s strategy—due to the emerging practice of the annual multi-day strategy session—and greater engagement with its CEO and management. That relationship has continued to evolve. CEOs and boards have begun to speak more frequently and those discussions are more fulsome, with board members often serving as sounding boards or consiglieres on a company’s strategic direction or to address an emerging issue or change impacting the business.

“As CEOs have grown to value their boards as a competitive asset rather than simply as a necessary mechanism for operational oversight, board service has become far more demanding.”

For example, in the last five years, the need to adopt technology not only in back office ERP systems but throughout companies has caused CEOs to look to their boards for strategic insight on digital transformation.

More boardroom discussions center around the use of innovations like mobile enablement, social media, data analytics and artificial intelligence to streamline operations, enhance the customer experience and transform business models.

The most recent and current catalyst for change in the role of board members has been the rise in shareholder activism. Over the past few years, CEOs and management have begun an exercise of an outside-in review of their company to assess how an activist investor might view their business. Decision-making has sped up as CEOs try to tune up their business performance to unlock short- and long-term value before an activist knocks on their door.

As CEOs have grown to value their boards as a competitive asset rather than simply as a necessary mechanism for operational oversight, board service has become far more demanding. As lead director at Home Depot Supply, I am in touch with my CEO one to two times a week. At Volvo, where I serve on the product and strategy committee, the CEO and I are in touch every three weeks and meet for one-on-one time once a quarter in addition to our board meetings.

While board service now consumes considerably more time, I believe companies, shareholders and CEOs all benefit from it. My experience is that CEOs today are receptive to this higher level of board engagement, as long as board members remember a defining element of their role—that they are responsible for the oversight, not operation of the company. Boards are there to oversee, not overstep. The result has been a positive change in the overall way CEOs engage with their boards, as well as a more rewarding experience for directors.


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