grc00116[1]

EmpowEring CorporatE Boards alEx todd

2 EmpowEring CorporatE Boards noVEmBEr 2012

About the Authoralex todd is a published, entrepreneurial thought leader and business methods innovator in diagnosing and designing corporate governance systems and conditions for stakeholder trust.

His research has revealed new insights into corporate governance “styles” and business performance, which he has used to develop an investment screen that outperforms major funds and indexes.

these insights also inform his board advisory work, including his proposed peer support network and resource center for corporate directors who serve on governance committees of their boards - governanceCommittee.com.

He is a pioneer in rebuilding trust for business and architect of the trust Enablement® Framework, a universal scheme for diagnosing and designing corporate governance systems and conditions for stakeholder trust. He used this Framework to derive the governance lifecycle model for identifying corporate governance styles attributed to business performance and market valuations, and the aspirational Corporate governance Framework for sustainable business value creation.

Alex toddprincipal governanceCommittee.com


ContEntsExECutivE summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

introduCtion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

CEos sEEk Quality Boards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

CorporatE govErnanCE mattErs For Firm pErFormanCE . . . . . . . . . . . . . . . . . . 5

Boards HavE insuFFiCiEnt rEsourCEs to pErForm dutiEs . . . . . . . . . . . . . . . . . . 6

CorporatE sECrEtariEs arE morE knowlEdgEaBlE aBout CorporatE govErnanCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

govErnanCE CommittEEs do not rECEivE suFFiCiEnt support . . . . . . . . . . . . . . 6

Board pErFormanCE improvEmEnt sHould BE systEmatiC and stratEgiC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

tHE govErnanCE oFFiCE Can BE a stratEgiC Board rEsourCE70

CorporatE sECrEtariEs mattEr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

CorporatE sECrEtariEs nEEd Board support to EnHanCE tHEir valuE . . . . . .7


executive SummAryCorporate Boards are unclear about how the things they do affect firm performance and how the corporate governance style they adopt can have a direct impact on their management’s ability to achieve strategic objectives. Even those that do are unlikely to have a strategic road map about how to evolve their corporate governance practices to support strategic business priorities.

Chief Executive officers (CEos) are keenly aware when their Board is adding value and when it is primarily performing a supervisory function; ensuring management complies with regulations and other standards. yet, armed only with their own expertise in corporate governance best practices and the strength of their relationships with individual directors to influence the Board, they are largely powerless to affect meaningful and systematic change in the boardroom.

Corporate secretaries play a critical role in ensuring their Board complies with regulatory and other procedural standards. However, supporting the Board on business strategy, the topic Boards and CEos care most about, is secondary for Corporate secretaries, and therefore a role for which they tend to be under qualified.

the governance office needs to evolve beyond a corporate secretarial function, toward becoming a professional corporate governance advisory and support organization focused on empowering its Board with the information, insights, and functions that help to both preserve and create business value.

a broader governance office mandate would need to be supported by adequate resources to develop and staff corporate governance talent, as well as with the tools it needs to provide the Board with actionable information and insights.

specialized information technologies are critical for an effective Corporate governance office. Electronic information gathering, analysis, and

delivery tools allow the governance office to deliver relevant business-oriented corporate governance insights from credible sources corporate directors trust. such capabilities would, in turn, help elevate the professional stature of the head of the governance office to a professional corporate governance advisory organization, headed by the Chief governance officer.

this paper provides CEos with a road map to empower their Boards with the information and resources they need to add more strategic value to management.

introductionshareholders demand better returns and elect corporate Boards to ensure their capital is deployed optimally. Corporate Boards hire, direct, and replace CEos in order to attain strategic goals. CEos, in turn, rely on their Boards to approve the resources they need to deliver required strategic performance. and Corporate secretaries ensure the Board and management are in compliance with regulations and corporate governance best practices. But to what extent do Corporate Boards get the resources they need to direct management on matters of strategic priority?

the evidence suggests that although there has recently been considerable improvement in the quality of Board oversight over management, there may not have been as much improvement in the quality of the direction and support management receives on strategy formulation and execution.

this paper examines the evidence on the value of corporate governance for firm performance, and the readiness of corporate Boards to develop and implement structures and practices that support business priorities.

our research findings provide insights into how CEos can help empower their Board with the resources they need to improve management performance.


ceoS Seek QuAlity boArdSinvestors universally agree that the quality of a CEo can make or break the company and the performance of their investment in its shares. But when asked about the role of the Board, many do not associate Board quality with firm performance. most shareholders see the Board as being their watchdog over the CEo and management, more to protect from value erosion than to facilitate value creation. and yet, it is the Board that hires and fires the CEo, the person credited with, or discredited by, the financial results being reported during his/her tenure. the irony of this perceived disconnect between Board and CEo performance remains obscured by the mythical, superstar image of the CEo as an omnipotent corporate quarterback.

when CEos are asked about their level of satisfaction with their Board of directors, their answers reveal Board insensitivity to how their conduct affects firm performance. CEos therefore expend considerable time and energy also “managing” their Board; updating directors on the status of the business and managing their expectations. they largely see the Board as a necessary evil for regulatory compliance that, if not managed well, could hinder their ability to pursue value-creating business initiatives. and they often approach Board meetings with trepidation of being denied critical resources.

However, freedom from Board scrutiny is not what CEos want either. when asked in a survey1 by Heidrick & struggles, with the Center for Effective organizations at the university of southern California’s marshall school of Business, CEos saw only 10 to 20 percent of directors as effective, and their top management teams often regarded working with the Board as a demotivating experience. instead, CEos prefer independent directors who help them make better, faster, and wiser decisions. “they want a strategic sounding Board and advice on extraordinary circumstances such as hostile takeovers, shareholder activism, and significant

business challenges.” yet a majority of CEos gave their Board a low grade for these qualities.

corporAte governAnce mAtterS for firm performAncealthough academic research results remain mixed, evidence in support of the logical premise that corporate governance matters for firm performance is mounting. in fact, a new corporate governance investment fund2 was recently launched in the united states, and others are being proposed based on investment screens that have demonstrated a positive correlation between corporate governance styles and various measures of firm performance, including stock price . CEos would likely be the first to recognize the plausibility of these findings, as they clearly wish for better quality Boards to help them deliver desired results. according to the Heidrick & struggles study, CEos want:

• boards to have an “advisory temperament”;

• directors to be independent of mind and inclined to being mentors, advisers, and sounding Boards in ways that help the CEo;

• directors to collaborate on setting the agenda, so critical issues are addressed during the Board meeting and recurring items are addressed in committee meetings, outside the Boardroom;

• to improve the usefulness of recommenda-tions that come out of executive sessions;

• to expand Board evaluations to explicitly assess how well Boards interact with the CEo and leadership team;

• to refine the role of the lead director or non-executive chair to help the CEo succeed, instead of merely acting as the sheriff or alternate CEo; and

• to redefine Board effectiveness in terms of strategic performance rather than committee work, fiduciary responsibilities, and oversee-ing compliance with legal, regulatory, and other oversight areas.


boArdS hAve inSufficient reSourceS to perform dutieSBoards appear to lack the resources they need to improve performance in terms of their contributions to management and business performance. in a survey4 examining the level of support available to Board directors, 70% of directors revealed their Boards do not have a director development budget, and 40% that a few directors are, at best, occasionally prepared for meetings. only a third of respondents felt directors make frequent use of external information resources to inform their decision making, primarily to find out what else they should consider before taking a position, the most effective process for accomplishing an objective, and what resources to consult in any given matter. and most Board members are insufficiently resourced with appropriate procedures, methodologies, tools, or technologies to be able to exercise good business judgment when answering these questions. they want more formal and informal director education from credible providers, and better access to support services from internal corporate staff.

corporAte SecretArieS Are more knowledgeAble About corporAte governAncein a recent online poll5, respondents overwhelmingly (78%) felt that Corporate secretaries are more knowledgeable about corporate governance best practices than members of governance Committees (often called the nominating and governance Committee). this is alarming considering that in another poll6, a majority of respondents (51%) felt it was the governance Committee’s responsibility to improve Board performance (only 38% indicated Chair of the Board).

governAnce committeeS do not receive Sufficient Supportrespondents also felt that governance Committees receive insufficient institutional support to elevate the quality of their work.

our research indicates that Boards lack the resources they need to perform their fiduciary duties. when asked in an online survey7, 80% of corporate governance experts indicated that, in order to be effective in leading boardroom improvements, governance Committees need more support than they are currently getting. respondents felt the primary reasons for this deficiency are:

• Governance Committees have not been given a clear mandate from the Board or Board Chair;

• Governance Committees do not have suffi-cient skills or interest in diagnosing and designing corporate governance systems; and

• There is a scarcity of specialized education and support resources available to gover-nance Committees.

respondents indicated that the most valuable support services for governance Committees would be:

• Education

• Peer-to-peer networking/support

• Professional support

• Access to tools and other resources

boArd performAnce improvement Should be SyStemAtic And StrAtegictypically, the Board transformation agenda depends on the leadership characteristics of the Chair of the Board. progressive corporate governance transformations that reach beyond minimal regulatory standards require enlightened vision and a motivated individual at the Board helm. significant Board performance improvements rely almost entirely on the courage and strength of conviction of an individual. meaningful, value-creating changes in Board structures and practices are therefore a haphazard occurrence, rather than being strategic and systematic. more than two thirds of Corporate secretaries and other governance professionals surveyed8 validated that Boards


do not have a plan to evolve their governance systems and recommended that Board efforts be directed toward maximizing strategic business performance, but they were largely divided as to whether they believe Boards have made the cause-effect connection between corporate governance and strategic performance.

the governAnce office cAn be A StrA-tegic boArd reSourcethe governance office, headed by the Corporate secretary, is the Board’s primary source of professional advice on corporate governance practices. yet, it struggles to gain the respect of Board members as a professional corporate governance advisory organization, beyond simply being seen and used as a process and compliance office. However, Corporate secretaries share their CEos’ concerns about the quality of their Board. when surveyed9, they said:

• Corporate Boards need to be educated about governance matters

• Governance needs to be aligned with corpo-rate objectives

• Corporate Boards need to become more strategic about evolving corporate gover-nance

a broader group of corporate governance experts10 concluded that knowledge of corporate governance best practices and means of improving Board performance is a joint responsibility between the governance Committee and governance office, as each has unique knowledge, skills, and perspectives to contribute.

corporAte SecretArieS mAtterCorporate secretaries believe they have an important role to play in helping Board members, and governance Committees in particular, improve their understanding of corporate governance best practices. in fact, in a recent workshop11, they recommended the following Board performance improvement road map:

1. Educate and encourage the Board on the

importance of corporate governance and provide education on governance matters.

a. Bring in speakers to inform the Board of various education opportunities;

b. identify major conferences Board mem-bers can attend;

c. augment the support staff available to develop and implement appropriate educa-tion for the Board and governance office staff;

d. Hold biannual, mandatory education with the Board regarding governance practices;

e. Conduct a corporate governance best practices review annually; and

f. schedule regular updates from legal counsel to explain possible implication of improper governance activities.

2. Ensure the CEo and Chair of the Board agree on the governance structure that is most appropriate for the corporation or organization.

3. Encourage the Board and management team to work together annually to review the governance system, identify gaps, and clarify and confirm their distinct roles.

4. get directors to sign an acknowledgement regarding the Board’s mandates, in order to make them more accountable.

corporAte SecretArieS need boArd Support to enhAnce their vAlue

during the workshop, Corporate secretaries also emphasized their need for leadership and support from the CEo, Board Chair, and governance Committee Chair for:

1. an annual Board performance review that systematizes a continuous improvement program;

2. a regular, independent third-party review of governance practices;

3. making accredited governance education mandatory for all directors and senior management;


4. developing terms of governance office, as articulated and approved by the Board;

5. disclosing the governance office mandate in an annual circular; and

6. making the Chief governance officer responsible for liaising with relevant gover-nance-related organizations.

workshop participants also recommended that Boards and management allocate resources for:

1. talent development, in order to elevate the Corporate secretary to the level of a Chief governance officer (Cgo); and

2. information delivery and analysis tools and related services that inform and educate the Board on corporate governance innovations that support strategic performance, and thereby enhance the value of the Corporate secretary and Chief governance officer to the organization.

For Corporate secretaries that aspire to being professional governance advisors and Boards that aspire to being business leaders, rather than overseers, the governance office must become the primary vehicle by which corporate directors become empowered to be more effective in directing management toward enhancing sustainable business performance.

the governance office of the future will be the primary source for timely, relevant, and credible insights for the boardroom. and the Chief governance officer will be the Board’s governance information and insights officer, supported by qualified corporate governance professionals with a legal and business background, equipped with director-oriented information delivery and analysis tools and services.

references1 Heidrick & struggles, 1/10/2010, “achieving the perfect CEo-

board dynamic,” http://www.heidrick.com/articles/pages/achievingtheperfectCEo-boarddynamic.aspx

2 alphametrix, January 17, 2012, “ram investment advisors’ absolute return governance Fund™ seed managed account launches on the alphametrix global marketplace,” http://www.marketwire.com/press-release/ram-investment-advisors-absolute-return-governance-fund-seed-managed-account-launches-1607650.htm

3 tE research, “strategic Corporate governance indexes,” http://trustenablement.com/local/strategic_Corporate_governance_indexes-Fact_sheet.pdf

4 tE research, november 23, 2009, “survey: do board di-rectors receive sufficient support?,” http://governance-committee.com/insights-2/ and https://www.box.com/s/5rjoepymzt88msrr7vwc

5 linkedin, april 2012, “do you believe corporate secretaries are more knowledgeable about corporate governance best practices than directors who serve on boards’ governance committees?,” http://lnkd.in/givpHf

6 governanceCommittee.com, october 2011, “who should fix the boardroom?,”, http://governancecommittee.com/who-should-fix-the-boardroom/

7 governanceCommittee.com, June 2012, “How to empower gov-ernance committees to fix the boardroom,” https://www.box.com/s/cyj2dtdp5cmwq93gztxh

8 governanceCommittee.com, august 2012,”CsCs survey: reinventing the governance office,” https://www.box.com/s/m1ykeo201h5dskrkhdk1

9 governanceCommittee.com, august 2012, “CsCs workshop – reinventing the governance office,” https://www.box.com/s/99n2suric8w5yh5kvyzi

10 linkedin, July 2012, several linkedin groups: “do you believe corporate secretaries are more knowledgeable about corporate governance best practices than directors who serve on boards’ governance committees?,” http://lnkd.in/givpHf

11 CsCs 14th annual Corporate governance Conference, august 20, 2012, “reinventing the governance office:

the Corporate secretary as the Board information officer,” https://www.box.com/s/03iw3ffc1jndykzou10a

© 2012 thomson reuters grC00116/11-12

thomson reuters governance, risk & Compliance (grC) business unit provides comprehensive solutions that connect our customers’ business to the ever-changing regulatory environment. grC serves audit, compliance, finance, legal, and risk professionals in financial services, law firms, insurance, and other industries impacted by regulatory change.

the accelus suite of products provides powerful tools and information that enable proactive insights, dynamic connections, and informed choices that drive overall business performance. accelus is the combination of the market-leading solutions provided by the heritage businesses of Complinet, integrascreen™, northland solutions, oden®, paisley®, west’s Capitol watch®, westlaw® Business, westlaw Compliance advisor® and world-Check®.

thomSon reuterS AcceluS™

for more information, visit accelus.thomsonreuters.com