Making boards work with 4 changes essential to making boards effective because Boards aren’t working
- Selecting the right people. In short, companies keep appointing directors who aren’t independent thinkers and whose experience is too general
- Spending quality time on strategy. Most governance experts would agree that public-company directors need to put in more days on the job and devote more time to understanding and shaping strategy.
- Engaging with long-term investors. While boards may be guilty of pushing executives to maximize short-term results, we have no doubt where that pressure really originates: financial markets. That’s why it’s essential to persuade institutional investors, whose ownership position makes them the cornerstone of our capitalist system, to be a counterforce.
- Paying directors more. Good capitalists believe in incentives. There is a growing consensus that directors should sit on fewer boards and get paid more. We fully agree, but the even more important issue is to structure that pay toward longer-term rewards. To get directors really thinking and behaving like owners, companies should ask them to put a greater portion of their net worth on the table.