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McKinsey survey shows board practices need improvement

The new Global Survey from McKinsey reports that board practices have not improved as much as directors desired over the last few years. While directors, for example, wanted to spend more time discussing strategy and talent, they have not. This may explain, at least in part, the comment by McKinsey that:

“Just one-quarter characterize their boards’ overall performance as excellent or very good”.

The authors also say:

“Some directors say they feel ill equipped to live up to these expectations because of inadequate expertise about the business and the lack of time they can commit to their board duties, which they say is less than ideal for them to cover all board-related topics in proper depth”.

McKinsey asked whether directors wanted to spend more or less time on a few areas:

  • 70% wanted to increase time on strategy, only 4% wanted to spend less
  • 67% wanted more on talent management, 6% less
  • 64% had a desire for more on risk management, again with 6% voting for less
  • Just under half wanted more time on performance, with 17% asking for less
  • Core governance and compliance was more balanced, with 32% saying “more, please” with 23% opposed

They make into an issue the fact that 44% of the time, management is expected to develop the strategy for the board to review and approve (contrasted with 41% of companies where strategy is developed with management). But I am not persuaded they have that right. If the board has hired the right executives, surely best practice is for the board to review, challenge and then approve (with modification as appropriate) the strategy developed by management?

What is a concern is that:

“Only 21 percent of directors surveyed claim a complete understanding of their companies’ current strategy”.

Equally amazing are these statistics:

  • 32% said they have limited or no understanding the risks faced by the company
  • 26% were ignorant of how their company created value

The solutions proposed in the report are interesting as well:

  • #1 was for the board to spend more time (assuming their pay was increased). But, directors are already complaining about the time and demands placed on them
  • #2 was to include greater diversity of skills and experiences. I for one would like to see more internal audit and risk leaders, perhaps at the expense of former CPA firm partners
  • #3 is “better board dynamics”, which focuses on the tough issue of rubber-stamping boards, the lack of skepticism and constructive challenging of management

Make sure to review the comments at the end. Clearly, board performance is seen as a global issue.

So, what resonates with you?

What changes are most important for boards to make?

Read this interview transcript for a different view: http://www.theglobeandmail.com/report-on-business/transcript-the-company-board-as-a-strategic-resource/article2105197/

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  1. Chandrasekar 'Chandra' Venkataraman
    August 21, 2011 at 5:17 AM

    Given the high level of uncertainty facing businesses, the Board of Directors should really step up focusing on strategy and risk mitigation. Whether guiding executive management or working with them, they must play a catalytic role in shaping the future of the Company.

    If time is the constraint, Companies must think of rewarding Directors appropriately. If knowledge and willingness to learn are the constraints, the Directors must gracefully step down making way for more enlightened persons to step in.

    Chandra

  2. August 23, 2011 at 4:06 AM

    Agree. I would add more expertise and complementary of expertise at the Board level.

    In fact, the recent proposal at the EU was asking that question and this is the emphasis that I communicated to them. Very timely.

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