Empowering Corporate Boards
Alex Todd
About the author
Alex Todd is a published, entrepreneurial thought leader and business methods innovator in
diagnosing and designing corporate governance systems and conditions for stakeholder trust.
His research has revealed new insights into corporate governance “styles” and business
performance, which he has used to develop an investment screen that outperforms major funds and
indexes.
These insights also inform his board advisory work, including his proposed peer support network
and resource center for corporate directors who serve on governance committees of their boards GovernanceCommittee.com.
He is a pioneer in rebuilding trust for business and architect of the Trust Enablement® Framework,
a universal scheme for diagnosing and designing corporate governance systems and conditions for
stakeholder trust. He used this Framework to derive the Governance Lifecycle Model for identifying
corporate governance styles attributed to business performance and market valuations, and the
Aspirational Corporate Governance Framework for sustainable business value creation.
Alex Todd
Principal
GovernanceCommittee.com
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Empowering Corporate Boards
NOVEMBER 2012
CONTENTS
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CEOs Seek Quality Boards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Corporate governance matters for firm performance. . . . . . . . . . . . . . . . . . . 5
Boards have insufficient resources to perform duties . . . . . . . . . . . . . . . . . . . 6
Corporate Secretaries are more
knowledgeable about corporate governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Governance Committees do not receive sufficient support. . . . . . . . . . . . . . . 6
Board performance improvement
should be systematic and strategic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Governance Office can be a strategic Board resource70
Corporate Secretaries Matter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Corporate Secretaries need Board support to enhance their value. . . . . . 7
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Empowering Corporate Boards
NOVEMBER 2012
Executive Summary
Corporate Boards are unclear about how the
things they do affect firm performance and how
the corporate governance style they adopt can
have a direct impact on their management’s
ability to achieve strategic objectives. Even those
that do are unlikely to have a strategic road map
about how to evolve their corporate governance
practices to support strategic business priorities.
delivery tools allow the Governance Office to
deliver relevant business-oriented corporate
governance insights from credible sources
corporate directors trust. Such capabilities
would, in turn, help elevate the professional
stature of the head of the Governance Office to
a professional corporate governance advisory
organization, headed by the Chief Governance
Officer.
Chief Executive Officers (CEOs) are keenly
aware when their Board is adding value and
when it is primarily performing a supervisory
function; ensuring management complies with
regulations and other standards. Yet, armed
only with their own expertise in corporate
governance best practices and the strength of
their relationships with individual directors to
influence the Board, they are largely powerless
to affect meaningful and systematic change in
the boardroom.
This paper provides CEOs with a road map to
empower their Boards with the information and
resources they need to add more strategic value
to management.
Corporate Secretaries play a critical role in
ensuring their Board complies with regulatory
and other procedural standards. However,
supporting the Board on business strategy,
the topic Boards and CEOs care most about,
is secondary for Corporate Secretaries, and
therefore a role for which they tend to be under
qualified.
The Governance Office needs to evolve beyond
a corporate secretarial function, toward
becoming a professional corporate governance
advisory and support organization focused on
empowering its Board with the information,
insights, and functions that help to both
preserve and create business value.
A broader Governance Office mandate would
need to be supported by adequate resources to
develop and staff corporate governance talent,
as well as with the tools it needs to provide the
Board with actionable information and insights.
Specialized information technologies are critical
for an effective Corporate Governance Office.
Electronic information gathering, analysis, and
4
Empowering Corporate Boards
Introduction
Shareholders demand better returns and
elect corporate Boards to ensure their capital
is deployed optimally. Corporate Boards hire,
direct, and replace CEOs in order to attain
strategic goals. CEOs, in turn, rely on their
Boards to approve the resources they need to
deliver required strategic performance. And
Corporate Secretaries ensure the Board and
management are in compliance with regulations
and corporate governance best practices. But
to what extent do Corporate Boards get the
resources they need to direct management on
matters of strategic priority?
The evidence suggests that although there has
recently been considerable improvement in the
quality of Board oversight over management,
there may not have been as much improvement
in the quality of the direction and support
management receives on strategy formulation
and execution.
This paper examines the evidence on the value
of corporate governance for firm performance,
and the readiness of corporate Boards to
develop and implement structures and practices
that support business priorities.
Our research findings provide insights into how
CEOs can help empower their Board with the
resources they need to improve management
performance.
NOVEMBER 2012
CEOs Seek Quality Boards
Investors universally agree that the quality of a
CEO can make or break the company and the
performance of their investment in its shares.
But when asked about the role of the Board,
many do not associate Board quality with
firm performance. Most shareholders see the
Board as being their watchdog over the CEO
and management, more to protect from value
erosion than to facilitate value creation. And
yet, it is the Board that hires and fires the CEO,
the person credited with, or discredited by, the
financial results being reported during his/her
tenure. The irony of this perceived disconnect
between Board and CEO performance remains
obscured by the mythical, superstar image of the
CEO as an omnipotent corporate quarterback.
When CEOs are asked about their level of
satisfaction with their Board of Directors, their
answers reveal Board insensitivity to how
their conduct affects firm performance. CEOs
therefore expend considerable time and energy
also “managing” their Board; updating directors
on the status of the business and managing
their expectations. They largely see the Board as
a necessary evil for regulatory compliance that,
if not managed well, could hinder their ability
to pursue value-creating business initiatives.
And they often approach Board meetings with
trepidation of being denied critical resources.
However, freedom from Board scrutiny is
not what CEOs want either. When asked in a
1
survey by Heidrick & Struggles, with the Center
for Effective Organizations at the University
of Southern California’s Marshall School of
Business, CEOs saw only 10 to 20 percent of
directors as effective, and their top management
teams often regarded working with the Board
as a demotivating experience. Instead, CEOs
prefer independent directors who help them
make better, faster, and wiser decisions. “They
want a strategic sounding Board and advice
on extraordinary circumstances such as hostile
takeovers, shareholder activism, and significant
5
Empowering Corporate Boards
business challenges.” Yet a majority of CEOs
gave their Board a low grade for these qualities.
Corporate governance matters
for firm performance
Although academic research results remain
mixed, evidence in support of the logical
premise that corporate governance matters for
firm performance is mounting. In fact, a new
2
corporate governance investment fund was
recently launched in the United States, and
others are being proposed based on investment
screens that have demonstrated a positive
correlation between corporate governance styles
and various measures of firm performance,
including stock price . CEOs would likely be
the first to recognize the plausibility of these
findings, as they clearly wish for better quality
Boards to help them deliver desired results.
According to the Heidrick & Struggles study,
CEOs want:
• boards to have an “advisory temperament”;
• directors to be independent of mind and
inclined to being mentors, advisers, and
sounding Boards in ways that help the CEO;
• directors to collaborate on setting the
agenda, so critical issues are addressed
during the Board meeting and recurring
items are addressed in committee meetings,
outside the Boardroom;
• to improve the usefulness of recommendations that come out of executive sessions;
• to expand Board evaluations to explicitly
assess how well Boards interact with the CEO
and leadership team;
• to refine the role of the lead director or
non-executive chair to help the CEO succeed,
instead of merely acting as the sheriff or
alternate CEO; and
• to redefine Board effectiveness in terms of
strategic performance rather than committee
work, fiduciary responsibilities, and overseeing compliance with legal, regulatory, and
other oversight areas.
NOVEMBER 2012
Boards have insufficient
resources to perform duties
Boards appear to lack the resources they
need to improve performance in terms of their
contributions to management and business
4
performance. In a survey examining the level
of support available to Board directors, 70%
of directors revealed their Boards do not have
a director development budget, and 40%
that a few directors are, at best, occasionally
prepared for meetings. Only a third of
respondents felt directors make frequent use
of external information resources to inform
their decision making, primarily to find out
what else they should consider before taking
a position, the most effective process for
accomplishing an objective, and what resources
to consult in any given matter. And most Board
Members are insufficiently resourced with
appropriate procedures, methodologies, tools,
or technologies to be able to exercise good
business judgment when answering these
questions. They want more formal and informal
director education from credible providers, and
better access to support services from internal
corporate staff.
Corporate Secretaries are
more knowledgeable about
corporate governance
5
In a recent online poll , respondents
overwhelmingly (78%) felt that Corporate
Secretaries are more knowledgeable about
corporate governance best practices than
members of Governance Committees (often
called the Nominating and Governance
Committee). This is alarming considering that
6
in another poll , a majority of respondents
(51%) felt it was the Governance Committee’s
responsibility to improve Board performance
(only 38% indicated Chair of the Board).
Governance Committees do not
receive sufficient support
Respondents also felt that Governance
Committees receive insufficient institutional
support to elevate the quality of their work.
6
Empowering Corporate Boards
Our research indicates that Boards lack the
resources they need to perform their fiduciary
7
duties. When asked in an online survey , 80%
of corporate governance experts indicated that,
in order to be effective in leading boardroom
improvements, Governance Committees need
more support than they are currently getting.
Respondents felt the primary reasons for this
deficiency are:
• Governance Committees have not been given
a clear mandate from the Board or Board
Chair;
• Governance Committees do not have sufficient skills or interest in diagnosing and
designing corporate governance systems;
and
• There is a scarcity of specialized education
and support resources available to Governance Committees.
Respondents indicated that the most valuable
support services for Governance Committees
would be:
• Education
• Peer-to-peer networking/support
• Professional support
• Access to tools and other resources
Board performance improvement
should be systematic and strategic
Typically, the Board transformation agenda
depends on the leadership characteristics
of the Chair of the Board. Progressive
corporate governance transformations that
reach beyond minimal regulatory standards
require enlightened vision and a motivated
individual at the Board helm. Significant Board
performance improvements rely almost entirely
on the courage and strength of conviction of an
individual. Meaningful, value-creating changes
in Board structures and practices are therefore
a haphazard occurrence, rather than being
strategic and systematic. More than two thirds
of Corporate Secretaries and other governance
8
professionals surveyed validated that Boards
NOVEMBER 2012
do not have a plan to evolve their governance
systems and recommended that Board efforts be
directed toward maximizing strategic business
performance, but they were largely divided as
to whether they believe Boards have made the
cause-effect connection between corporate
governance and strategic performance.
The Governance Office can be a strategic Board resource
The Governance Office, headed by the Corporate
Secretary, is the Board’s primary source of
professional advice on corporate governance
practices. Yet, it struggles to gain the respect
of Board Members as a professional corporate
governance advisory organization, beyond
simply being seen and used as a process
and compliance office. However, Corporate
Secretaries share their CEOs’ concerns about the
9
quality of their Board. When surveyed , they said:
•C
orporate Boards need to be educated about
governance matters
•G
overnance needs to be aligned with corporate objectives
•C
orporate Boards need to become more
strategic about evolving corporate governance
A broader group of corporate governance
10
experts concluded that knowledge of
corporate governance best practices and
means of improving Board performance is a
joint responsibility between the Governance
Committee and Governance Office, as each has
unique knowledge, skills, and perspectives to
contribute.
Corporate Secretaries Matter
Corporate secretaries believe they have
an important role to play in helping Board
Members, and Governance Committees in
particular, improve their understanding of
corporate governance best practices. In fact,
11
in a recent workshop , they recommended the
following Board performance improvement road
map:
1. Educate and encourage the Board on the
7
Empowering Corporate Boards
importance of corporate governance and
provide education on governance matters.
a. Bring in speakers to inform the Board of
various education opportunities;
b. Identify major conferences Board Members can attend;
c. Augment the support staff available to
develop and implement appropriate education for the Board and Governance Office
staff;
d. Hold biannual, mandatory education with
the Board regarding governance practices;
e. Conduct a corporate governance best
practices review annually; and
f. Schedule regular updates from legal
counsel to explain possible implication of
improper governance activities.
2. Ensure the CEO and Chair of the Board
agree on the governance structure that is
most appropriate for the corporation or
organization.
3. E
ncourage the Board and management
team to work together annually to review the
governance system, identify gaps, and clarify
and confirm their distinct roles.
4.Get directors to sign an acknowledgement
regarding the Board’s mandates, in order to
make them more accountable.
Corporate Secretaries need Board
support to enhance their value
During the workshop, Corporate Secretaries
also emphasized their need for leadership and
support from the CEO, Board Chair, and
Governance Committee Chair for:
1. An annual Board performance review that
systematizes a continuous improvement
program;
2. A regular, independent third-party review of
governance practices;
3. Making accredited governance education
mandatory for all directors and senior
management;
NOVEMBER 2012
4. Developing Terms of Governance Office, as
articulated and approved by the Board;
1Heidrick
5. Disclosing the Governance Office mandate
in an annual circular; and
2AlphaMetrix,
6. Making the Chief Governance Officer
responsible for liaising with relevant governance-related organizations.
Workshop participants also recommended
that Boards and management allocate
resources for:
1. Talent development, in order to elevate the
Corporate Secretary to the level of a Chief
Governance Officer (CGO); and
2. Information delivery and analysis tools and
related services that inform and educate the
Board on corporate governance innovations
that support strategic performance, and
thereby enhance the value of the Corporate
Secretary and Chief Governance Officer to
the organization.
For Corporate Secretaries that aspire to being
professional governance advisors and Boards
that aspire to being business leaders, rather than
overseers, the Governance Office must become
the primary vehicle by which corporate directors
become empowered to be more effective in
directing management toward enhancing
sustainable business performance.
The Governance Office of the future will be
the primary source for timely, relevant, and
credible insights for the boardroom. And the
Chief Governance Officer will be the Board’s
governance information and insights officer,
supported by qualified corporate governance
professionals with a legal and business
background, equipped with director-oriented
information delivery and analysis tools and
services.
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Empowering Corporate Boards
References
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AchievingtheperfectCEO-boarddynamic.aspx
January 17, 2012, “Ram Investment Advisors’
Absolute Return Governance Fund™ Seed Managed Account
Launches on the AlphaMetrix Global Marketplace,” http://
www.marketwire.com/press-release/ram-investment-advisorsabsolute-return-governance-fund-seed-managed-accountlaunches-1607650.htm
3TE
Research, “Strategic Corporate Governance Indexes,” http://
trustenablement.com/local/Strategic_Corporate_Governance_
Indexes-Fact_Sheet.pdf
4TE
Research, November 23, 2009, “Survey: Do board directors receive sufficient support?,” http://governancecommittee.com/insights-2/ and https://www.box.com/
s/5rjoepymzt88msrr7vwc
5LinkedIn,
April 2012, “Do you believe corporate secretaries are
more knowledgeable about corporate governance best practices
than directors who serve on boards’ governance committees?,”
http://lnkd.in/GiVpHf
6GovernanceCommittee.com,
October 2011, “Who should fix the
boardroom?,”, http://governancecommittee.com/who-shouldfix-the-boardroom/
7GovernanceCommittee.com,
June 2012, “How to empower governance committees to fix the boardroom,” https://www.box.
com/s/cyj2dtdp5cmwq93gztxh
8GovernanceCommittee.com,
August 2012,”CSCS Survey:
Reinventing the Governance Office,” https://www.box.com/s/
m1ykeo201h5dskrkhdk1
9GovernanceCommittee.com,
August 2012, “CSCS Workshop
– Reinventing the Governance Office,” https://www.box.
com/s/99n2suric8w5yh5kvyzi
10LinkedIn,
July 2012, Several Linkedin Groups: “Do you believe
corporate secretaries are more knowledgeable about corporate
governance best practices than directors who serve on boards’
governance committees?,” http://lnkd.in/GiVpHf
11CSCS
14th Annual Corporate Governance Conference, August
20, 2012, “Reinventing the Governance Office:
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https://www.box.com/s/03iw3ffc1jndykzou10a
NOVEMBER 2012
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