Long-term leadership: how boards can help build stronger companies

A new report by the CFA Institute, released today at the Society of Corporate Secretaries and Governance Professionals (SCSGP) annual event, reveals that the creation of a visionary board is beneficial for a company’s long-term growth and can stop the fear of failure in its tracks.

The study, entitled Visionary Board Leadership, gathered responses from corporate secretaries, investors, issuer representatives and current and former directors. The report points out that crisis management is seen as an area of strength and will help the board understand and mitigate future risks. By thinking and talking about failure, a visionary board is able to develop robust strategies that work between and beyond the issues at hand. 

According to the report, a visionary board takes prudent risks and can best show leadership and combat short-termism by: 

(i) Supporting management in delivering sufficient information to investors;

(ii) Actively listening to the concerns of stakeholders;

(iii) Overseeing and understanding corporate strategy;

(iv) Identifying areas of risk and analyzes the bigger picture;

(v) Understanding compensation policies and ensuring that performance and execution of strategy play an important role  when determining pay;

(vi) Guiding a strong board and company culture.  

‘The visionary board will make sure the long-term isn't given short shrift,’ says Matt Orsagh, director of capital markets policy at the CFA Institute and author of the report. ‘Short termism isn't so much a growing or a flagging trend as it is a part of our markets that is ultimately destructive to growth.’

A good corporate secretary and the visionary board

Strategy is seen as an important aspect of the governance process. In order for a company to have strategic direction, the board and management must have an ongoing collaborative relationship.

The corporate secretary can act as the liaison between the board and management. The study mentions that a board should have the expertise, skills and trust of management so it can add more value to strategy development. Since the corporate secretary often sits in the middle of the board/management relationship, they can act as the facilitator for both sides.

‘The corporate secretary, in the position of trusted board counsel, makes sure that a board has the resources for discharging its fiduciary duties to shareholders, which includes looking after the long-term sustainability of the company,’ adds Orsagh. ‘At the same time, they play a large role in the communications between management, the board and shareowners, and are at the front lines of many of these issues that lead to failure.’

A poll by Deloitte and SCSGP found that 52 percent of boards address strategy at every meeting. Roughly 92 percent allow management to develop strategy and the board, in turn, advises, challenges and approves.

The CFA report echoes these findings and highlights that most boards spend more time concentrating on a company’s financial performance instead of addressing the ‘quality of operations.’ With adequate help from the corporate secretary, a visionary board can provide input and support management in a strong strategic manner that is beneficial in the long run.

‘A corporate secretary can work to ensure that proper strategic planning takes place in the boardroom. A good corporate secretary has the trust of management and the board and can work to ensure that proper strategic planning is always on the board's agenda,’ Orsagh concludes.