Korn Ferry Talks About Making Boards Better

I enjoy reading Korn/Ferry articles. They have a different perspective, as executive recruiters who work with boards as well as management, from the typical governance expert or consultant. You can find their latest governance briefing here.

There are a number of comments that I enjoyed or found interesting, including:

  • "Boards are still composed of people who owe their position to the incumbent."  Robert Pozen, chairman emeritus of MFS Investment Management and a senior lecturer at Harvard Business School, says the structure and size of corporate boards has kept them from being effective. What some refer to as the "collegiality of the boardroom," Pozen calls "social loafing," where procedure and large group dynamics take precedence.
  • Pension funds, insurance companies, and investment management firms are major market players around the world and have taken a largely passive role in corporate governance. A recent issue of the McKinsey Quarterly urged institutions to "step up as owners" to usher in a new ownership culture for the benefit of the economy and of their clients.
  • "Boards require a culture change. Directors need to re-examine and even revise board committees and committee work and how this contributes to the observance of their ‘duty of care’ responsibility. It requires new skills and qualifications as well as more time and effort to better understand the companies they serve, to provide effective oversight in representing the interests of shareholders, and in holding management accountable."
  • Boards appear to be largely insulated both from shareholders and perhaps even the CEO. Consider that in a survey of 768 directors at 660 of the 2,000 largest publicly traded companies, 95 percent said they were doing an effective job. In the same survey, the CEOs said that only one director in five was effective.
  • "Board directors aren’t bad guys, but they have never written a check to participate in the company, and so there is little alignment with shareholders."
  • "Boards need to transform themselves into strong, highly functioning work groups whose members trust and challenge one another. Directors also need to recognize the role shareholders play: They are the owners of the company and board-shareholder engagement is an important element in keeping them invested. Most importantly, boards need to demonstrate leadership, which has been lacking, with a transparent results-orientation in the conduct of their work."
  • Directors are responsible for culture and compliance, for "infusing related values into their decision-making," according to a recent Rand report, but they are "hampered by a lack of training and awareness." Further, their ability to overcome this means "gathering the information they need to really understand their firms, as well as related risks, strategies and operational concerns."
  • Most boards make decisions based on emotion or on supporting the status quo, rather than on fact-based information, since what most boards receive is dependent on the CEO or management’s position.
  • It usually takes a crisis for boards to act. Directors like being directors. It is an elite club, the cap of a great professional career.
  • When a director asks a question during a meeting, and other directors privately confide that he or she had the same question, it is clear that this is not an effective work group.

It seems all we read is critical about boards (see this report from PwC). Is that fair?

Posted on Oct 21, 2011 by Norman Marks

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