Obligatory topics crowd out strategic ones
When Stacy Ingram arrived at Tyco in September 2004, the company had well and truly been through the scandal mill. Facing the glaring spotlight of the then relatively new Sarbanes-Oxley regulations, Ingram knew, as did the rest of the board, that a new strategic focus was needed if the company was to get past its recent history and not remain permanently mired in trouble.
Tyco began building in more time to discuss big-picture issues in its meetings. ‘The key is [the board] had really recognized a need to establish a strong process,’ says Ingram, now an associate at McKenna Long & Aldridge. ‘The agenda was part of that process – establishing a strong governance process from meeting to meeting and year to year.’ A formal approach that went beyond what she had seen at other companies helped the board achieve what the company needed while providing a way for management and active independent directors to meet.
Most companies haven’t faced a Tyco-type experience, but all have seen significant changes in corporate governance and regulations, the result of which has been to require directors to do a lot more. Now many in business are considering whether boards could use agendas as true strategic tools to help achieve what they must while staying on track for the big issues.
Make room for strategy
Tyco began building in more time to discuss big-picture issues in its meetings. ‘The key is [the board] had really recognized a need to establish a strong process,’ says Ingram, now an associate at McKenna Long & Aldridge. ‘The agenda was part of that process – establishing a strong governance process from meeting to meeting and year to year.’ A formal approach that went beyond what she had seen at other companies helped the board achieve what the company needed while providing a way for management and active independent directors to meet.
Most companies haven’t faced a Tyco-type experience, but all have seen significant changes in corporate governance and regulations, the result of which has been to require directors to do a lot more. Now many in business are considering whether boards could use agendas as true strategic tools to help achieve what they must while staying on track for the big issues.
Make room for strategy
According to Spencer Stuart’s 2006 board index, public boards have an average of 8.4 meetings per year; over a third had audit committees meeting at least eleven times, with the average number being 9.5. ‘Boards and committees are far busier now,’ says Catherine Bromilow, lead partner in PricewaterhouseCoopers’ corporate governance practice. ‘How do they get to the heart of where they can provide value and add insight without getting bogged down in compliance?’
The answer is that often they don’t. In fact, PwC does an annual survey of director attitudes and for the last few years has heard back that over half of them see the need for more strategic planning at the board level. Much of that increased meeting time has gone straight to compliance. ‘What’s happening is that the obligatory agendas are drowning out the strategic agendas, unless you make the meetings even longer,’ says Steve Mader, vice chair and board advisor for executive search firm Christian & Timbers.
Addressing strategy though agendas might seem a trifle optimistic, and perhaps simplistic. ‘Certainly using an agenda efficiently doesn’t make a board smart – or a board meeting useful,’ says Mary Ann Jorgenson, a corporate partner at Squire, Sanders & Dempsey. Indeed, a board that depends on the mechanics alone of constructing a meeting could further mire itself in non-strategic issues.
Another potential problem is that directors will often see the agenda process as trivial. ‘You suddenly get into this realm of meeting management,’ says Vikki Pachera, a partner with Allen Austin Search and director on the board of LodgeNet. ‘It’s not really a great group activity, because then you’re down to asking, Should we move the session to before lunch? It gets down the rat hole of minutiae, and I think that’s one of the reasons that boards don’t engage in that.’
Yet even with these issues, agendas do control how and when the board addresses topics, and there is a way to best use them. In the view of many, the first step is to get a broad overview, something that extends beyond a single meeting to a whole year, and perhaps even longer. That allows the board to ensure that every mandated duty or action required by law has its allotted meeting time and is properly addressed during the year while at the same time examining assumptions from a broad viewpoint.
‘You can really fall into that trap of marching along on a very regimented path,’ Pachera says, whose board uses an 18-month planning calendar. ‘Add a few ounces of creativity to that and a lot of dialogue about whether it makes sense. Why are we doing this every year? Do we need to solicit a particular report every year?’
Team agenda building
The answer is that often they don’t. In fact, PwC does an annual survey of director attitudes and for the last few years has heard back that over half of them see the need for more strategic planning at the board level. Much of that increased meeting time has gone straight to compliance. ‘What’s happening is that the obligatory agendas are drowning out the strategic agendas, unless you make the meetings even longer,’ says Steve Mader, vice chair and board advisor for executive search firm Christian & Timbers.
Addressing strategy though agendas might seem a trifle optimistic, and perhaps simplistic. ‘Certainly using an agenda efficiently doesn’t make a board smart – or a board meeting useful,’ says Mary Ann Jorgenson, a corporate partner at Squire, Sanders & Dempsey. Indeed, a board that depends on the mechanics alone of constructing a meeting could further mire itself in non-strategic issues.
Another potential problem is that directors will often see the agenda process as trivial. ‘You suddenly get into this realm of meeting management,’ says Vikki Pachera, a partner with Allen Austin Search and director on the board of LodgeNet. ‘It’s not really a great group activity, because then you’re down to asking, Should we move the session to before lunch? It gets down the rat hole of minutiae, and I think that’s one of the reasons that boards don’t engage in that.’
Yet even with these issues, agendas do control how and when the board addresses topics, and there is a way to best use them. In the view of many, the first step is to get a broad overview, something that extends beyond a single meeting to a whole year, and perhaps even longer. That allows the board to ensure that every mandated duty or action required by law has its allotted meeting time and is properly addressed during the year while at the same time examining assumptions from a broad viewpoint.
‘You can really fall into that trap of marching along on a very regimented path,’ Pachera says, whose board uses an 18-month planning calendar. ‘Add a few ounces of creativity to that and a lot of dialogue about whether it makes sense. Why are we doing this every year? Do we need to solicit a particular report every year?’
Team agenda building
When the board has a sense of what it must do for the entire year, directors can discuss topics in the greater context of all their responsibilities and everything the company is trying to do. The next step is ensuring that the right people are involved in creating the agendas for individual meetings. According to Ingram, the individual meeting agenda at Tyco became a meeting ground for management and independent directors, with the chairman and the lead director actively involved in defining what meetings would cover. In doing so, the agenda becomes a practical way of creating agreement, through action, on what is important.
Ingram also says that by involving a lead director at such a fundamental level, the board can help ‘prove’ good governance practices. Not long ago, she explains, Institutional Shareholder Services (ISS) pushed for a policy of wanting companies to have the board chair be a separate position from the CEO, and rated companies, in part, on having that division. Now they also give credit if a company has an alternative governance structure, with independent directors having more of a say. ‘There are companies that say we have a lead director but all the person does is chair the independent director meetings, and that doesn’t do it,’ Ingram says. ‘Having the lead director involved in setting the agenda counts.’
Such major exchanges as the NYSE and the Nasdaq require that listed corporations hold regular executive session meetings of the independent directors. By having the lead independent director involved in setting overall board agendas, the insights and concerns of this group have a direct effect on what the board does, increasing the quality of oversight.
Yet other directors should also have the opportunity to influence the agenda directly, and not just through the board’s chair and the lead director. ‘The board should have some input into the agenda – at a minimum by asking if there are any changes in the agenda,’ says Frederick Lipman, a partner at Blank Rome and author of Corporate Governance Best Practices: Strategies for Public, Private and Not-for-Profit Organizations. That means distributing a single agenda in advance of the meeting so that directors have time to consider it and make their suggestions.
Mix up meetings
Ingram also says that by involving a lead director at such a fundamental level, the board can help ‘prove’ good governance practices. Not long ago, she explains, Institutional Shareholder Services (ISS) pushed for a policy of wanting companies to have the board chair be a separate position from the CEO, and rated companies, in part, on having that division. Now they also give credit if a company has an alternative governance structure, with independent directors having more of a say. ‘There are companies that say we have a lead director but all the person does is chair the independent director meetings, and that doesn’t do it,’ Ingram says. ‘Having the lead director involved in setting the agenda counts.’
Such major exchanges as the NYSE and the Nasdaq require that listed corporations hold regular executive session meetings of the independent directors. By having the lead independent director involved in setting overall board agendas, the insights and concerns of this group have a direct effect on what the board does, increasing the quality of oversight.
Yet other directors should also have the opportunity to influence the agenda directly, and not just through the board’s chair and the lead director. ‘The board should have some input into the agenda – at a minimum by asking if there are any changes in the agenda,’ says Frederick Lipman, a partner at Blank Rome and author of Corporate Governance Best Practices: Strategies for Public, Private and Not-for-Profit Organizations. That means distributing a single agenda in advance of the meeting so that directors have time to consider it and make their suggestions.
Mix up meetings
If the agenda is to be used a more strategic tool and to prompt more useful boardroom discussion, then the board must undertake to move beyond a tight focus on legal, governance and compliance issues. Using agendas to improve the quality of board meetings – itself a strategic activity – goes beyond working on non-compliance topics. When possible there can be different types of meetings, each with its own emphasis, or a board can mix strategic, compliance and other issues in the same meeting, so long as it addresses everything necessary over time. ‘Take the 10,000-foot view as well as the two-inch view of the company,’ Lipman says.
Michael Missal, a partner with Kirkpatrick & Lockhart Nicholson Graham, does warn, though, that just providing an agenda isn’t enough. A director needs at least some supporting materials to understand what a given topic will actually mean. ‘An agenda item could be strategic plan,’ he says. ‘That could mean a lot of different things, and unless you see the materials, you may not have a sense of what that agenda item is.’
It might be that directors can actually handle some issues in advance, making the formal consideration during the board meeting mercifully brief. Boards will also find it necessary to keep track of previous agendas as well to ‘have a sense of what’s already been covered, so you don’t have to go back to your materials,’ Missal says.
To further involve the directors and keep things fresh, boards should deliberately avoid long show-and-tell episodes. ‘People get kind of irritated if they’re told to read something and then they have to listen to it again,’ says Claudia Allen, chair of Neal Gerber & Eisenberg's corporate governance practice group. Instead, a company can provide enough detailed information to allow the directors to digest it ahead of time and then attend the meeting with detailed questions and observations. Directors, particularly committee chairs, can even take assignments to lead discussions and not leave it to management to run every part of a meeting.
‘You let the board bring the agenda to some degree as opposed to setting the agenda and having management bring the content,’ Mader says. He uses an executive compensation discussion as an example. A typical approach for a board would be to direct the CEO to work with the vice president of human resources and outside experts to determine appropriate pay levels. ‘Why not turn the tables on that?’ he asks ‘Why wouldn’t you select in that case the chairman of the compensation committee? Let the compensation committee bring forward their own assessment and views, what works and doesn’t work, and what directions are viable for the company.’
Smart board practice is also breaking the mold in other areas, such as the very structure of meetings. Many companies use an agenda boilerplate into which they drop topics. But often these formats place toward the beginning many items that can border on the routine, such as accepting committee reports already circulated or approving minutes from the previous meeting. The beginning of a meeting is when directors are freshest, and that early attention can be better used. ‘With most board and audit committee meetings being longer, and expecting compensation committee meetings to get longer, the challenge is that the people around the table are only human,’ Bromilow notes.
People can maintain concentration for just so long, so PwC suggests putting the most important or most difficult items at the beginning of the meeting. It might seem like an obvious point, but it’s one that few boards actually consider: ‘We don’t see a lot of thought on varying how you address things. We have been recommending this for almost six years,’ she says.
Introduce a broader range of perspectives
Michael Missal, a partner with Kirkpatrick & Lockhart Nicholson Graham, does warn, though, that just providing an agenda isn’t enough. A director needs at least some supporting materials to understand what a given topic will actually mean. ‘An agenda item could be strategic plan,’ he says. ‘That could mean a lot of different things, and unless you see the materials, you may not have a sense of what that agenda item is.’
It might be that directors can actually handle some issues in advance, making the formal consideration during the board meeting mercifully brief. Boards will also find it necessary to keep track of previous agendas as well to ‘have a sense of what’s already been covered, so you don’t have to go back to your materials,’ Missal says.
To further involve the directors and keep things fresh, boards should deliberately avoid long show-and-tell episodes. ‘People get kind of irritated if they’re told to read something and then they have to listen to it again,’ says Claudia Allen, chair of Neal Gerber & Eisenberg's corporate governance practice group. Instead, a company can provide enough detailed information to allow the directors to digest it ahead of time and then attend the meeting with detailed questions and observations. Directors, particularly committee chairs, can even take assignments to lead discussions and not leave it to management to run every part of a meeting.
‘You let the board bring the agenda to some degree as opposed to setting the agenda and having management bring the content,’ Mader says. He uses an executive compensation discussion as an example. A typical approach for a board would be to direct the CEO to work with the vice president of human resources and outside experts to determine appropriate pay levels. ‘Why not turn the tables on that?’ he asks ‘Why wouldn’t you select in that case the chairman of the compensation committee? Let the compensation committee bring forward their own assessment and views, what works and doesn’t work, and what directions are viable for the company.’
Smart board practice is also breaking the mold in other areas, such as the very structure of meetings. Many companies use an agenda boilerplate into which they drop topics. But often these formats place toward the beginning many items that can border on the routine, such as accepting committee reports already circulated or approving minutes from the previous meeting. The beginning of a meeting is when directors are freshest, and that early attention can be better used. ‘With most board and audit committee meetings being longer, and expecting compensation committee meetings to get longer, the challenge is that the people around the table are only human,’ Bromilow notes.
People can maintain concentration for just so long, so PwC suggests putting the most important or most difficult items at the beginning of the meeting. It might seem like an obvious point, but it’s one that few boards actually consider: ‘We don’t see a lot of thought on varying how you address things. We have been recommending this for almost six years,’ she says.
Introduce a broader range of perspectives
Various experts suggest varying other ‘usual’ practices in meetings. For example, boards should consider varying meeting locations and combining them with visits to various company facilities or strategic customers and partners as ways to obtain feedback and stimulate ideas.
Strategically chosen outside speakers can also be eye-opening. ‘We had a situation where we brought in a guest speaker who ran strategy for a company,’ highlights Pachera. ‘That person had a point of view in some ways different from other people we had talked to. They also came from a different point in our marketplace. It was very refreshing.’
Boards should be equally receptive to relevant topics that don’t center around the internal operation of their companies. ‘It can be so internally focused that [it] is about us and about our business and nobody else,’ Mader says. He suggests identifying such issues as relevant current geopolitical events, the competitive environment, distribution channel trends, and buyer behavior as agenda items ‘that get the board thinking strategically.’
Committees, too, can often benefit from the same techniques. ‘[Increasing strategic effectiveness is] not just a board issue,’ Ingram says, ‘It’s a board and committee issue.’ The committees face the same problem, just with a narrower range of information. And then the directors must coordinate the board and committee agendas to get the right amount of interplay among them all. She suggests this as another good role for the lead director, particularly if the person also chairs a governance committee, ‘because, quite frankly, he or she probably has more time to make sure you have the interaction.’
Throw the agenda out the window
Strategically chosen outside speakers can also be eye-opening. ‘We had a situation where we brought in a guest speaker who ran strategy for a company,’ highlights Pachera. ‘That person had a point of view in some ways different from other people we had talked to. They also came from a different point in our marketplace. It was very refreshing.’
Boards should be equally receptive to relevant topics that don’t center around the internal operation of their companies. ‘It can be so internally focused that [it] is about us and about our business and nobody else,’ Mader says. He suggests identifying such issues as relevant current geopolitical events, the competitive environment, distribution channel trends, and buyer behavior as agenda items ‘that get the board thinking strategically.’
Committees, too, can often benefit from the same techniques. ‘[Increasing strategic effectiveness is] not just a board issue,’ Ingram says, ‘It’s a board and committee issue.’ The committees face the same problem, just with a narrower range of information. And then the directors must coordinate the board and committee agendas to get the right amount of interplay among them all. She suggests this as another good role for the lead director, particularly if the person also chairs a governance committee, ‘because, quite frankly, he or she probably has more time to make sure you have the interaction.’
Throw the agenda out the window
With all the techniques to make agendas more strategic in nature, sometimes it is okay to toss them out the window. ‘I find that some of the most helpful conversations occur during executive sessions, which very well may not have any formal agenda,’ says Jorgenson.
The more free-form approach helps break the tyranny of the functional silo. ‘It’s really important to have time to talk about a holistic perspective on the company, the competition, and all of those linkages are very important,’ Pachera agrees. ‘I think that’s an important thing to do, particularly as you kick back and talk about strategy, M&A and talent development.’
As companies take on new challenges and their boards are forced to deal with a much greater level of regulatory oversight, many directors are struggling to keep up and to be effective in their roles. For corporate secretaries and other meeting administrators looking to implement change in the boardroom - be that a return to strategic oversight, more creative and ‘big picture’ governance and ethics concerns or even the use of technology - the first step may be to alter the meeting agendas and get the board members used to new formats.
By getting more people involved in what should be covered in board and committee meetings and how, directors might find that they, and the company, are able to regain more of the strategic focus they want and need.
