After a tumultuous decade of burst bubbles, a global financial crisis and a marked decline in institutional trust, what will the new decade hold for the future of capitalism and economic growth? Specifically, how will leading companies and their boards play a more significant role in restoring investor confidence, reducing the likelihood of future financial turmoil, while also ensuring sustainable business growth and economic vitality in concert with central banks and state-run institutions? Finding the right balance between the proactive self-improvement of corporate governance structures, processes and practices, and the more blunt, deterministic impacts of regulatory reform and government fiats may hold the answers.
There are already a variety of regulatory reform proposals on the table and a broad spectrum of policy actions ready to be implemented by different nations in an effort to address the widespread feeling of discontent flowing from the recent financial crisis. There is an alternative path, however, that may prove to be a more productive and powerful force of change—one that is driven by the corporate sector itself. Progressive companies are taking the opportunity to “lead by example,” promoting the key tenets and principles that will help restore investor confidence. In effect, their day-to-day interactions with all stakeholders demonstrate how to live the right values and ethics.
The starting point for this journey is the board of directors. Collectively, the board has the responsibility for the future direction of the enterprise, its impact on stakeholders and society at large. The board directly influences the critical management actions to drive short-term financial results, incent long-term value creation and develop strategies and plans that will ensure sustainable growth.
After the recent holiday break, a dozen Fortune 500 directors were asked for their thoughts on the biggest changes they see on the horizon and the implications for the boardroom. Common themes included greater globalization pressures, additional regulatory intervention and the potential rise of national protectionism. Many thought the current flashpoint issue of executive compensation must be addressed quickly to begin restoring investor confidence and credibility on Main Street.
The directors shared the view that a possible long-term, slow growth economic environment, combined with the aforementioned external forces, would challenge boards to become more transparent with key stakeholders on the major decisions that affect the enterprise. They see stake- holders continually “raising the bar” on board performance and taking a more proactive role in influencing the board through enhanced proxy access and more targeted advisory votes.
The fundamental issue to be addressed is how best to rapidly propagate the hallmarks of highly effective boards across the broadest group of companies while promoting the right governance principles and values. When one looks back on the prior decade, from Enron at the beginning, to Bear Sterns and Lehman Brothers at the end, it is easy to conclude that the core enablers of boardroom change are already taking shape—a large pool of engaged, qualified directors; more shareholder-friendly director election processes; and a viral 24/7 communication cycle that ruthlessly disseminates information on any type of misstep or egregious behavior.
What is still needed is a common forum that brings together the best ideas, innovative practices and new approaches in a non-threatening environment that encourages collaboration and action across boardrooms.
One idea currently building momentum involves creating a closely linked global network of corporate chairmen and lead directors to serve as the primary conduit to more rapidly exchange current best practices, practical insights and actionable ideas. Its mission would help accelerate the development of highly effective boards and promote more progressive shareholder relations and corporate responsibility agendas. As one of the survey respondents concluded, “If I could wave a magic wand today, I would create a self-policing entity that would watch over the large public-company boards and help ensure no one went off the tracks, not the Securities and Exchange Commission, not Institutional Shareholder Services, but a group of practicing chairman and other board members who are fighting the good fight every day, with the goal of looking back in ten years to see a continuous improvement in corporate values, ethics, incentive systems, sustainable business growth and the impact on the global community.”