Three Dilemmas for Creating a Long-term Board

Abstract

Arguably among a company’s biggest untapped strategic assets, a well-functioning corporate board of directors wields the power to meaningfully influence the purpose, culture, and direction of an organization. While many boards may display good corporate governance principles, the most effective boards at leading companies for long-term value creation are truly long-term boards. These long-term boards may look different around the world, but they share a few key characteristics: Time spent on Strategy – Long-term boards prioritize the future of the business, including spending significant time on strategy, business model, risks, and the company’s value creation proposition. Directors as Owners – Long-term boards build and perpetuate an effective board over time by acting like owners, aligning the board’s interests with shareholders, often via stock ownership. Board level Engagement with Shareholders – Long-term boards possess a strong understanding of the objectives of long-term shareholders and regularly engage with them on topics of strategic importance. However, achieving this combination of characteristics presents the board with three meaningful dilemmas: Should boards devote more time to strategy by spending less time on routine matters or do they need to spend more time on board work overall? Can board members be meaningful owners of the companies they serve without getting caught up in the short-term pressures caused by gyrations in market valuation and volatility? How do board members engage with shareholders without distracting or undermining management? Through a series of in-depth interviews with institutional investors, senior directors, and board consultants we gathered perspectives on how leading boards have tackled these challenges and found that getting these things right often creates a virtuous cycle that entrenches a long-term approach to value creation at the board level.