The role of the board of directors has come under scrutiny in recent years, particularly since the onset of the global financial crisis. While some experts are calling for tougher regulations on boards and a larger role for shareholders in key strategic decision-making, others advocate for more professional board directors.
However, as the dean of IESE, Jordi Canals, asserts in his article "Six Items for the Top of Every Board’s Agenda," available in the most recent issue of IESE Insight magazine, what is truly essential for boards is "to have a crystal-clear idea of how the firm can create sustainable value over the long-term."
This means getting back to basics and remembering that corporate success cannot be separated from the people who comprise a company and the relationships they build internally and with external stakeholders.
Canals lists six key priorities that should be central to any board of directors wishing to develop a positive and lasting business model, while avoiding the erosion of trust that plagues many modern companies.
- Strategy. In the long-term, the board should focus on strengthening the business portfolio, resource allocation and investment, and supporting innovation and developing new capabilities.
- People & leadership development. Ensuring the quality of current and future leadership should be a priority for the board. Three main factors are especially important in this area: managers and employees’ sense of purpose; the quality and breadth of talent in the organization; and the effectiveness of the recruiting process and the level of employee turnover.
- The CEO. The board should develop a functional, working relationship with the chief executive and senior management team. This relationship should go beyond the normal processes of exchanging information and upholding accountability.
- Financial performance. In the short term, boards need to monitor the company’s return on equity, liquidity levels, return on investment and investor relations. For the long-term, boards should focus on value creation, risk management and solvency.
- Customers & innovation. To provide clients with better service, indicators to measure customer loyalty and customer service can be used.
- Institutional development. The board needs to view the company as an institution embedded within society, with a number of nonfinancial functions and obligations to fulfill related to reputational and social responsibility issues.
Canals stresses that "corporate governance and management are social functions that can only be developed in the long-term."
Underscoring the idea that firms are key institutions in modern society, he concludes that the governance of the board of directors is "critical for the companies they lead and the well-being of societies at large."
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