A chapter in the upcoming new edition of The Handbook on Board Governance focuses on the strategic benefits of long-term oriented boards, co-authored by FCLTGlobal’s Ariel Babcock and Sarah K. Williamson, and Dr. Robert Eccles (Said Business School). A well-functioning corporate board of directors wields the power to meaningfully influence the purpose, culture, and direction of an organization. This is often among a company’s greatest untapped strategic assets. While many boards of directors may display sound corporate governance principles, the most effective boards at leading companies for long-term value creation are truly long-term boards.
The new chapter, Three Dilemmas for Creating a Long-term Board, examines the common characteristics among corporate boards that demonstrate long-term decision-making, including:
- Time spent on strategy – Long-term boards prioritize the future of the business, including spending significant amounts of time on strategic issues, their overall business model, risks, and the company’s value creation proposition.
- Directors acting like owners – Long-term boards build and perpetuate an effective board over time by acting from the mindset of an investor, aligning the board’s interests with shareholders, often via stock ownership.
- Board-level engagement with shareholders – Long-term boards regularly engage with the shareholders who place a priority on long-term issues and strategy. This gives the board a stronger understanding of shareholders’ objectives and which topics they consider important.
Exhibiting these behaviors, however, presents several meaningful dilemmas for boards as a whole – Should boards devote more time to strategy and less to routine matters? Do they need to spend more time on board work overall? It also can raise questions for individual directors themselves – Can board members be meaningful owners of the companies they serve? How can they engage with shareholders without distracting or undermining management?
Through a series of in-depth interviews with institutional investors, senior directors, and board consultants the authors gathered perspectives on how leading boards have tackled these challenges. Generally, they found that handling these three dilemmas strategically will further entrench a long-term approach to value creation at the board level.
Our research on corporate boards will continue in an upcoming report, to be released in March 2019. The new research will take a deeper dive into these common traits among boards that direct their companies with an eye toward the long term, uncovering their secrets to creating value for their investors and stakeholders over many years. To learn more about the project and stay up to date about all of FCLTGlobal’s latest work, follow us at @FCLTGlobal.