Impact Blog
NACD report recognizes need to change board governance model

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      By John StreurPresident and CEO, Calvert Research and Management

      Washington - The National Association of Corporate Directors (NACD) released the report of the 2019 NACD Blue Ribbon Commission (of which I am a proud member) initiative, Fit for the Future: An Urgent Imperative for Board Leadership.

      The NACD leadership recognizes that successful corporate governance and board leadership must adapt to the rapidly changing operating environment and competitive landscape that makes the concept "the only constant is change" a reality across industries. This is an ambitious report, calling not for adjustments, but for a different modus operandi from the prevailing board governance model.

      The NACD represents more than 20,000 board members, who are appropriately interested in understanding how best to navigate the many intensifying business changes that our current landscape presents. Many of these changes involve environmental, social and governance (ESG) issues, as boards are increasingly developing or enhancing plans to deal with rapidly evolving expectations for the role corporations play in society, especially related to environmental and social issues; entirely new competitive threats from rapidly growing companies in China, Taiwan, Korea, India and other countries; data privacy and cybersecurity threats from internal and external vectors, and the changing cultural demands of a more diverse and tech-savvy workforce.

      More is expected from board members every year as they work to secure the long-term success of their companies, and the pace and scale of change requires a board to be able to innovate, adapt and make decisions faster than in the past. In fact, a 2019 NACD survey found that 73% of board members who responded said that board leadership is more challenging now than it was three years ago, and 84% said that performance expectations had risen for all board members.

      Focus on five areas

      The NACD report outlines five major shifts that the board leader should help orchestrate:

      • Engage on a deeper and more expansive level with management on entirely new and fast-changing drivers of strategy and risk
      • Develop a more strategic, forward-looking approach to board renewal through the lens of the shifting needs of the business
      • Adopt a more dynamic operating model and structure
      • Increase internal and external transparency about the workings of the board
      • Create and implement more rigorous accountability for board and individual director performance

      The way forward

      This new approach to board service will not always be easy to implement, particularly when it involves uncomfortable decisions about board members and management teams who may not be ready or willing to focus on these new challenges.

      This is not a new topic for Calvert. We have long engaged with companies to encourage them to become more transparent and to compose boards in a way that enhances shareholder value. This report provides more recommendations that can help in the needed transition, and we will continue to help lead the way in urging companies forward.

      Bottom line: The changes called for in the report are consistent with many of Calvert's corporate engagement activities, and we see the NACD report's findings as an acknowledgement of the type of positive change so many of us are working toward.