A Strategic Asset Board: Steve Walker Explains How the Board Can Engage With and Foster Forward-Thinking Strategy and Innovation
Published in the ACC Docket by Carly O'Halloran Alameda and Olga Mack
In today’s increasingly complex and competitive business environment, companies must be able to act, evolve, and innovate more quickly than ever. To do so, companies must make use of all available resources to ensure they are staying ahead of or at least on pace with changes in technology, the competitive landscape, consumer preferences, globalization, and regulations. Although the work to shape strategy and push innovation is primarily led by management, the board of directors is increasingly being recognized as a resource in this respect. The board is often being called upon not only to “oversee” the company’s forward-thinking efforts, but also to more actively contribute to and help shape the company’s progress.
Steve Walker, general counsel and managing director for the National Association of Corporate Directors (NACD) Board Services Group, explains, “Directors bring a wide range of experiences and perspectives that should be leveraged in assessing a company’s strategic health. Boards can and should be better equipped to address with management the challenges that continually accelerating change in the business environment poses for the development and adjustment of corporate strategy.”
Walker’s background gives him a unique and well-rounded perspective on this board function. He and his team at NACD consult with and train boards daily to help increase boards’ effectiveness by evaluating board composition and refreshment, measuring board performance, and addressing strategic corporate governance matters.
Prior to joining NACD, Walker served as general counsel and senior executive to public and private entities ranging from private equity backed startups to Fortune 100 corporations in a variety of industries. Walker also served with the Securities and Exchange Commission, Division of Corporate Finance, and the Florida Division of Banking, Finance, Securities, and Investor Protection. He also currently serves on the board of two private companies.
Walker explains that in-house counsel can help ensure the board effectively balances its oversight role and more traditional duties with an ability to engage with and better contribute to a company’s strategic and innovative efforts in at least the following ways.
Refresh and diversify board membership.
The starting point of a board’s ability to contribute to a company’s forward-thinking strategy is the experiences and skill set of the board members themselves. Creating the right team in the boardroom requires efforts on two key fronts: refreshment and diversity. First, the company should take a fresh look at its board, Walker says.
“In-house counsel should help their executives and the board think critically about the company’s mission and its board membership. They can help create a board skills matrix to identify all of the skills, background, and experiences they want the board collectively to hold, that will help further the company’s mission. They should then consider their current board members to determine who aligns with the mission and who holds which relevant skills. The company then needs to make some careful and possibly difficult decisions about succession planning for its limited board seats,” he clarifies.
Second, the company should work hard to ensure its membership reflects diversity in perspective, which includes differences in substantive knowledge, geography, gender, ethnicity, and age. Walker explains:
The board should certainly include seasoned executives, which companies tend to focus on as the threshold qualification, but the board should also at least in part reflect the customers or industry the company targets, real experience in the geographic regions where the company hopes to grow, and a well rounded set of perspectives to help ask the hard questions and identify areas of weakness or for growth.
Ultimately, a board should be in a position to complement and also push management. “A company with group think in the boardroom will simply not survive,” Walker emphasizes. The right board members, armed with the right knowledge, will be able to offer constructive tension in the boardroom, which is critical to a company’s success.
Set expectations for the board to have a more active role setting strategy.
Historically, boards have operated largely with a “review and concur” approach. While that approach may have been sufficient in the past, Walker explains that “the marketplace is too dynamic and fast-paced to allow directors to have such limited contact with development of and changes to the company’s strategy. While management bears primary responsibility for formulating strategy, the role of the board of directors cannot be a passive one. Directors must be in a position to recognize and communicate if they believe a strategy needs adjustment.”
For most companies, an increased role in setting strategy by the board will require a shift of expectations and procedures. Walker warns, “A company must first be clear that increased board involvement with strategy is not due to disappointment in management, but rather due to a desire to better utilize the board’s collective wisdom to stay ahead in the fast-paced environment of technological changes, competitive disruption, and activist shareholders.”
If this new expectation and process is properly handled, the company will benefit. The CEO maintains ultimate responsibility for strategy, but if early stage ideas and strategic options are brought to the board sooner rather than later, the more robust dialogue will help ideas, and the company, move forward more effectively. “Management should want ideas to come together and clash,” Walker adds. “That is how strategy can stay relevant and innovation happens. With the right expectations and by allowing all viewpoints to be heard, the ideas can clash and grow, without the people clashing.”
Engage the board sooner and more often regarding strategy.
The company’s rhythm of setting strategy must allow for more meaningful board involvement. Board meetings often are consumed with compliance related topics and presentations from management. However, if directors are going to engage in meaningful discussion about forward-looking issues such as long-term strategy, alternative moves or emerging competitive threats, there needs to be time and space on the board’s agenda for those topics.
“A company’s ability to respond quickly — and effectively — to changing conditions and competitive pressures hinges on the board being fully engaged in the company’s core processes and activities related to strategy,” Walker states. “Directors should be given time to engage with management on these topics during board meetings, and there should also be an executive session at the beginning and end of each board meeting to allow directors to speak freely regarding strategy.”
Provide the board with more useful information.
More meaningful board engagement on strategic issues also requires the board to understand the various factors driving the company’s ability to compete and to grow. Walker says it is important that management provide directors with the right — although not necessarily more — information: “Directors need to have a current understanding of, for example, the company’s operating environment, new market entrants, customer preferences and behavior, and the shareholder base, including the entrance of any activist investors. And this information needs to be updated as it evolves, even if that means between board meetings.” Walker suggests this may mean the CEO has to send update memos to directors as needed on important matters in order to keep the board informed.
Boards should also be empowered to educate themselves on areas they feel are critical to their ability to contribute to the company’s strategic direction. “The most effective boards are not afraid to request briefings from third-party experts on issues of importance to the company. For example, a board may invite an expert on cybersecurity or global economic trends or country-specific issues to present to the board. Some boards invite analysts or portfolio managers to provide a better understanding of how those outside the company view the company and its strategic direction,” Walker explains.
Walker also suggests companies can benefit by allowing their boards to think like activists: “As many companies know, activist investors can have an army of MBAs studying the company to identify the weaknesses or areas for growth. A company is less likely to be caught off guard by an activist if the board is fresh, diverse, and thinking critically about the company.”
A company needs to capitalize on every competitive advantage it has to thrive in this modern economy. The board has the potential to be a powerful asset for guiding a company toward growth and continued relevance. Following Walker’s advice, in-house counsel can help ensure the company is making the most of its board.