Building the Strategic-Asset Board

The co-chairs of the Blue Ribbon Commission Report on Building the Strategic-Asset Board introduce the report's actionable guidance.

Letter from the Co-Chairs

In 1996, the Report of the NACD Blue Ribbon Commission on Director Professionalism made recommendations on issues including establishing mechanisms for appropriate director turnover/tenure limitations, evaluation of the full board and of individual directors, and ongoing director education. It stated, “the primary goal of director selection is to nominate individuals who, as a group, offer a range of specialized knowledge, skills, and expertise that can contribute to the successful operation of the company,” and advocated that boards must “[expand] the pool of potential nominees considered to include a more diverse range of qualified candidates who meet established criteria.”

Twenty years later, the world in which boards operate has been transformed in fundamental ways, including increased complexity in the business environment; rapidly changing technology; volatility in global politics as well as in international economic and trade flows; the proliferation of information; the presence of major threats such as cyberattacks; higher levels of engagement between companies, boards, and investors of all stripes, including activists; new regulatory requirements; and greater levels of scrutiny from the press and the public. The velocity of the changes directors are facing shows no signs of slowing down.

We began the dialogue with our fellow commissioners by asking whether boards are keeping up. As a group, we concluded that there is no single answer. It is clear that advancing director ages and tenures, coupled with low boardroom turnover, are external symptoms that are of increasing concern to investors and other stakeholders. But equally—if not more— significant is the question of whether a board’s composition, director skill sets, and core board processes remain fit-forpurpose in a world where the board’s mandate is evolving in fundamental ways, including but not limited to earlier involvement in strategy-setting discussions with management and greater engagement between designated board members and major investors. This new mandate places substantially different demands on directors, and boards need to ask themselves, “Are we ready?”

Many stakeholders are focused on encouraging higher levels of director turnover—often termed “board refreshment”— through the use of tenure-limiting mechanisms. We believe that such mechanisms can help to drive needed change in the boardroom, but alone they are not sufficient to ensure that boards truly remain fit-for-purpose over time. We are encouraging directors to think more holistically, and more ambitiously. Business-as-usual approaches will not be sufficient.

As a starting point, directors should review the organization’s corporate governance guidelines, including the board’s mission and key operating principles. Are all board members familiar with them? How often are they reviewed and updated? How rigorously have they been implemented? Do they help to foster a culture of continuous improvement and ongoing learning?

Boards are unique entities. While (in the case of public companies) they are elected by and accountable to shareholders, they are self-constituting, self-evaluating, self-compensating, and self-perpetuating: that is, in the normal course of business, they control their own composition and succession planning. This also means that boards are equipped to take action to elevate their performance on an entirely self-directed, voluntary basis—and they should do so. Otherwise, if board leadership appears to be passive or slow to act in the face of a challenging competitive environment and greater scrutiny from all angles, directors should prepare for the possibility of “shock treatments” imposed from the outside, in the form of activist challenges, regulatory mandates, or quotas. Put another way, without sufficient and timely evolution, boards could face revolution.

SECTION 1 of this report describes the ways in which the board’s mandate has evolved in response to external factors and strategic imperatives, and outlines the ways in which the Commission believes boards must respond: by moving beyond traditional approaches to “board refreshment” and establishing a system for continuous improvement in the boardroom.

SECTION 2 explores the key dimensions of continuous improvement, focusing on seven areas in particular: board leadership and oversight responsibilities; board composition and succession planning; recruiting and onboarding new directors; processes for board evaluation; continuing education; tenure-limiting mechanisms; and communication with shareholders and stakeholders.

SECTION 3 summarizes the Commission’s recommendations, and the Appendices provide tools and related resources to help boards implement the recommendations.

NACD has characterized the mission of the board as “[becoming] a strategic asset of the company measured by the contributions we make—collectively and individually—to the long-term success of the enterprise.” We believe this report will help directors in organizations of all sizes and in all sectors to do exactly that.

Bonnie Hill

Richard H. Koppes