board organization – Executive Advisory Institute

June 18 2020

Board Organizational Frameworks

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Developing a strong organizational framework for the board of directors is critical to ensuring that company matters are addressed by the correct committees and receive the attention necessary for solving these matters. Issues of importance should be prioritized appropriately and given ample time for review.

Corporate Culture and Board Organization

There are many mechanisms for organizing the board, all of which lead back to the topic of corporate culture. Corporate culture begins with the board; if the board is unable to establish an understanding grasp of what motivates corporate behavior, the rest of the company will follow suit. Failing to give thoughtful attention to employee and executive interactions, behaviors, and language will undoubtedly result in a disorganized board and a company that lacks a clear focus of what defines its team members. Thus, it is important for boards to maintain an environment that fosters engagement and meaningful conversation as a backdrop against accomplishing agenda tasks. This is the first step to spreading a culture of candor and trust within the company and cannot be accomplished through one 40-minute team bonding meeting. It must be consistently worked upon and established over time through healthy discussions of sensitive topics, transparency about company goals, and acknowledgment of personal weaknesses to make room for learning growth.

Corporate culture should also be included in a company’s formal risk assessments as it can very easily influence workforce productivity, company reputation, and law breaches. According to the 2017 Board Leadership of Corporate Culture in Europe Report, approximately 85% of the value of leading businesses come from intangible assets, such as a company’s brand, reputation, and internal relations. These intangibles are all inextricably linked to the board’s ability to set the right organizational culture and are important factors to business success. Thus, investing more time and resources into mindful culture development will bring a company greater returns.

Tailoring the Board to Meet Company Needs

When talking about board organization, it is important to keep in mind that not every board is the same. Board work should be tailored to the specific needs and culture of the company. What makes sense in the context of one board may not work for another. While looking at best practices and board trend reports may be helpful in establishing a general framework for your own practices, it should not be viewed as the golden rulebook of board organization. Such trends come and go; a company should only adopt a policy after considering the specific benefits it will bring in their unique corporate circumstances.

One example of the significance of examining company specifics is the debate over combining or separating the chairman and CEO roles. One generally accepted argument is that the role of the CEO/management is to run the business operations while the role of the board is to oversee this management, thus the leadership of the two roles must be separated to keep each other in check. Conversely, others argue that the role of the CEO and Chairman go hand in hand and can be combined to one position of oversight. This age old debate has no one-size-fits-all answer because it depends on the circumstances of the company. In the U.K., the CEO does not serve the dual role of the chairman, whereas in the U.S., over 50% of CEO’s surveyed also serve as chairman.

A simple yet helpful device for setting the distinction between management and board decision-making is to set up periodical reviews of the specific responsibilities reserved for the board. While this is just one example of how different systems can adopt differing policies, in general, all major questions regarding board and leadership structure require careful consideration of the unique set of company needs and corporate culture that influence these decisions.

February 13 2020

Overview of Board Committees

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In the ever-changing digital age, board committee structures must constantly evolve to keep up with changes in capital markets and trade policy. Board members face new challenges everyday regarding the complexities of corporate values, strategy and risk management.

A recent Harvard Law School study tracked board structures since 2013 to examine how S&P 500 companies are using board committee structure to address oversight needs. They found that although boards have been growing to encompass additional committees, the underlying framework has remained largely the same and rely on three key committees– audit, compensation, and nominating and governance– that are required by the stock exchanges. Bank holding companies (BHCs) are required to have one additional risk committee to review their global risk-management framework. Beyond this basic structure, most institutions have one additional standing committee to oversee finances or executive order.

During 2013-18, the portion of companies with at least one additional committee grew marginally from 74% to 76%, and the average number of additional committees remained largely consistent.
Harvard Law School Forum on Corporate Governance

Top Additional Committees

Findings on the top additional committees in 2012-18 are as follows.

Executive Committee: Exercises authority of the board when the board is not in session, except in cases where action of the entire board is required by charter, bylaws or applicable law. (36% of S&P 500

Finance Committee: Oversees capital allocation, financial policies, strategies, capital structure, and annual operating and capital budget. The finance committee may also oversee investments, dividend policy, credit and other market risks, share repurchases, and mergers and acquisitions. (36% of S&P 500)

Compliance Committee: Oversees programs and performance related to legal and regulatory risks, as well as implementation and maintenance of the company’s code of conduct and related matters. The compliance committee may have special focus on compliance in a specific area, e.g., environmental, health, safety and technology. (16% of S&P 500)

Risk Committee: Recommends the articulation and establishment of the company’s overall risk tolerance and oversees enterprise-wide risk management to identify, assess and address major risks facing the company, which may include credit, operational, regulatory, interest, liquidity, investment, funding, market, strategic, reputational, emerging or other risks. The risk committee reviews and discusses management’s assessment of the company’s enterprise-wide risk profile. (11% of S&P 500)

Technology Committee: Oversees and assesses the company’s technology profile and related strategies and makes recommendations regarding the execution of technology enablement formulated by management. Technology committee members address opportunities and risks regarding technological strategies, including aspects of cybersecurity. (7% of S&P 500)

Public Policy and Regulatory Affairs Committee: Reviews significant legislative and regulatory initiatives by state, federal, or foreign government authorities, as well as other public issues likely to affect the company and its shareholders. They oversee the development of company policies in response to these developments and may have a related compliance function. (7% of S&P 500)

Corporate Responsibility and Sustainability Committee: Reviews policies and practices related to specific public issues of concern to shareholders, the company, its employees, and the general public. They maintain oversight of corporate responsibility, environmental sustainability, diversity and inclusiveness, and reputational risk. (6% of S&P 500)

Finding the right committees for your specific company depends on the company’s unique needs and must address the company’s major concerns in a forward-thinking manner that will motivate new strategic thinking. However, some common trends that span across all industries is a focus on technology and sustainability as we move into the new decade. Keeping these trends in mind when considering the most effective committee structures will be a smart move for companies who want to succeed in today’s hyper competitive, highly disruptive markets.

March 4 2020

Tone at the Top: Why Board Member Values Matter

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No matter how many policies and guidelines a corporation issues regarding standards of behavior, the lessons that matter are not expressed through writing. Tone at the top tier management level is all about trust, and trust is earned through actions. People on all rungs of the corporate ladder notice on a daily basis the attitude of their leaders and talk about it at the water cooler. If leaders do not act in a trustworthy and ethical manner that upholds consistent company values, its effects will be amplified throughout the organization. This can generate a detrimental cascade of morale loss and productivity plummets whose effects extend beyond the company to its shareholders, ultimately hurting one of every firm’s most important intangible assets— public goodwill.

It won’t be long before these effects are reflected financially as earnings per share begin to drop and the company’s reputation falls apart. Not to mention, the loyal employees of the company will also lose respect for its management, causing efficiency to decline and structural organization to weaken. Employees value the sense of pride and integrity that comes with working for a company, beyond simply turning a profit. When choosing where to work, employees look for companies exhibiting strong, cohesive values that resonate with the public.

Hence, establishing and exercising core values in the boardroom early on is imperative to ensuring a company’s credibility and unity.

Strategies Proven to Improve “Tone at the Top”

Establish clear values and expected standards of behavior. The CEO and upper management should design and publish operating principles that reflect the company’s principles as well as provide stringent operational and ethical expectations for its workforce.
Strive for consistency between standards and actions. When dealing with corruption cases, companies must issue a swift response and honor its guidelines. It is important for board members to focus on enforcing company principles rather than depart from them during high pressure situations to mitigate the damage of such cases. Failing to comply with company standards or trying to slide the problem under the rug will result in a larger scandal down the road and risk a major breach of corporate trust.
Stay vigilant for internal dissatisfaction. Monitoring corporate buzz and internal affairs will afford a richer understanding of company culture from the perspective of different stakeholders. This gives management a better idea of what’s working and what isn’t in striving to achieve greater employee satisfaction levels and productivity.
Reward principled performance. Successful companies develop a framework for recognizing and rewarding ethical performance, especially in ambiguous or difficult circumstances. Spotlighting and rewarding good behavior throughout the company, regardless of status, will incentivize others to follow that same model.
Manage upward paths carefully. Management should be careful not to promote anyone with blemishes on their ethics or compliance track record. Negligent promotions feed the belief that poor compliance records are overlooked and acceptable, leading to future nonconformism should ethical issues re-arise.
Genuine networking to spread company ideology. Businesses are all about connections, so it is well-recommended for the CEO and board to establish connections with key stakeholders both within and outside of the organization. Leaders must openly communicate their values on an ongoing and transparent basis, using different platforms and dissemination systems.
Communicate with top management. While the behavior of all members of an organization carries a weight, remember that the CEO’s behavior is the most publicized when it comes to telling the company story and holding responsibility for a company’s growth or mishaps. Behind the scenes, boards hold a direct responsibility in overseeing and understanding how management’s actions are perceived by the public. Establishing collaborative communication between the two parties will keep company performance in check and boost the company’s public standing.

Key Takeaways

Setting the right company tone is pivotal to ensuring company success and reputability. Communicating the right values to both internal and external players will facilitate healthy corporate relations with investors, employees, suppliers, regulators, and other constituents. Many corporate failures can be linked to CEOs and governance boards who have neglected to develop a cohesive company culture grounded in integrity, leaving room for scandals to arise. Sometimes, all it takes is a single rumor of impropriety and inefficient conflict management to turn a company’s reputation on its head. Ultimately, the moral fiber of an enterprise rests upon the collective effort of its board members and management to monitor these rumors, deliver judicious consequences, and enforce strict company regulations.