Business-as-usual thinking, unquestioning adherence to existing business models and playing defense in response to critics do not create the game-changing dynamics needed to reduce risk of business failure in troubling times and loss of competitiveness during periods of economic recovery and growth. Nor are they likely to bring relief from the increasing role of government in the private sector.  Board leadership in the pursuit of excellence through reassessment and renewal can bring about significant improvements on all fronts.

During the worst financial crisis in decades, corporate boards and management teams have been shoring up liquidity and profitability while responding incrementally to major challenges to our governance, risk and compensation models. Signs of recovery are now emerging amid continuing economic uncertainty, government involvement and threats of activist litigation. These conditions call for boards to seize the initiative and undertake a holistic process of reassessment and renewal to improve corporate governance and set the tone that will extend a culture of renewal to the realm of management and corporate performance.

The National Association of Corporate Directors is a leading advocate for board renewal through the issuance of “Key Agreed Principles to Strengthen Corporate Governance for U.S. Publicly Traded Companies.” These consensus guidelines provide a foundation on which boards of all types of entities can build a program to improve oversight effectiveness. From this baseline, boards can engage management in reassessments of strategy and business models for relevance, timeliness and alignment. Such actions would serve to improve a board’s ability to steward its organization’s creation of long-term value.

The following kinds of questions can help corporate boards spur the renewal process.

• Does the company articulate and follow values that are supported by its customer base, employee base, and other stakeholders?
• Is corporate strategy consistent with the organization’s values, long-term goals and financial objectives?
• Is the company’s business model effective in our changing global economy? Is it aligned with strategy and supported by resources and processes needed to achieve desired goals?
• Do company culture, systems and processes support the timely and objective flow of key information regarding events, trends, risks and opportunities? Is there sufficient transparency at all levels of management, between management and the board, and between the company and its stakeholders?
• Does the company have the financial strength and organizational resilience needed to survive and even thrive in downturns such as the one recently experienced? Is robust stress testing used to assess impact and ensure liquidity during major declines in economic conditions?
• Is a simple yet effective enterprise risk management process in place with appropriate oversight of the board of directors?  Does the risk management function have sufficient organizational stature and access to ensure transparency and objectivity in decision making?
• Is the compensation committee adjusting its focus to place more emphasis on long-term success and health of the organization with an appropriate balance of risk and performance?
• Do human resources practices effectively balance cost, compensation and other factors to motivate employee loyalty to the company, its products and strategy?
• Is the audit committee ensuring that key elements of governance and control are not being sacrificed in the search for needed improvements in related cost effectiveness?  Is it supplementing its oversight responsibilities with appropriate encouragement and support of the CFO and others upon which it relies for execution of governance procedures?
• Is the finance and investment committee reexamining its fiduciary oversight role to actively monitor investment policies and asset allocations following a time when passivity and overreliance on outside fund managers contributed to a broad spectrum of wealth erosion?
• Does the governance committee seek independent, qualified board members of diverse backgrounds to provide effective oversight and guidance to management?  Does the implementation of diversity also consider factors such as diversity in culture, geography, industry, form of organization and mindset to foster a healthy mix of collegiality, creative tension and expertise in decision-making?

I have seen the subject matter of many of these questions individually addressed by boards and managements with significant positive results. For example:

• Management’s use of vigorous stress testing and analytical forecasting highlighted the need to reduce liquidity risk through debt covenant relief and major refinancing. This process enhanced management credibility with financial institutions and resulted in a successful refinancing amid tumultuous market conditions prior to the recent financial market meltdown.
• Audit committee support and encouragement of global financial management beyond the confines of the boardroom were instrumental in cementing a natural governance alliance within the company through visible demonstrations of “tone at the top.” Lasting improvements in corporate governance were achieved. I personally benefitted from such audit committee support during my management career and now it is my turn to do the same as an audit committee chair.

By driving a holistic reassessment of our governance and business models on a combined basis, corporate boards can foster a culture of renewal that produces synergistic improvements in overall corporate performance, contributes to the restoration of growth in our economy and reduces the populist hostility that facilitates excessive government involvement in the private sector.

William A. Tsacalis is president of Tsacalis Associates, LLC, an advisor to managements and boards on corporate governance, strategic finance and board and management effectiveness. He can be reached at btsacalis@yahoo.com.