Tuesday, June 24, 2008

Boardroom leadership of the company

Leading from the Boardroom.
By: Lorsch, Jay W., Clark, Robert C.,
Harvard Business Review,
AprIL, 2008, Vol. 86, Issue 4

The basic argument for boards' intense focus on compliance is to prevent the loss of shareholder value that corporate misdeeds create. But the argument for strong leadership from boards is even more compelling. Without it, there may be even greater destruction of shareholder value as companies go into decline.

Boards can and must do better at balancing their function as compliance officers with their function as shapers of the future.

From their places around the table, directors must steer themselves and the company's management team toward farsighted strategic and financial thinking and succession planning. Certainly it is management's responsibility to develop and implement strategy, but the board must use a long-range lens when requesting and vetting senior leaders' proposals – encouraging the top team to raise its game even when things are going well and challenging it to respond creatively when threats or problems emerge.

Last year a board we're familiar with created a strategy committee of the five directors who had the most knowledge about the company's industry. The idea was that the committee would work closely with management to study the likely evolution of the industry and the company's position in it.

The board and management at Philips Electronics hold an annual two- to three-day retreat – uninterrupted time devoted to discussing the company's direction for the next several years.

The board should also hold the CEO and the company's human resources director accountable for at least an annual in-depth review of the company's top management bench: What does the CEO think of these executives? How is this cadre of managers being developed, and are there potential successors for each of them? As they must do with their strategy and finance discussions, boards must carefully protect the time set aside to discuss talent – probably not at every meeting but often enough so that directors have some knowledge about the high potentials on the company roster.

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