Making boards work

Lead shot 21 Jan

Most directors don’t understand their company’s strategy and prioritise short-term gain at the expense of creating long-term value, according to a paper released by McKinsey & Co.

Citing a survey of 772 directors conducted by the global consultancy firm, it found that a mere 34 per cent of directors agreed the boards on which they served fully comprehended their companies’ strategies.

Another survey revealed that 47 per cent of c-suite executives and directors believe boards are responsible for their company’s over-emphasis on short-term financial results and lack of focus on long-term value creation.

With this in mind, McKinsey states  it is clear that “boards aren’t working” and companies must help directors build, maintain and refine a long-term mindset. The first step, it suggests, might be to help directors firmly grasp the meaning of “fiduciary duty”.

By doing this, McKinsey suggests that directors will then spend less time talking about meeting next quarter’s earnings expectations, complying with regulations and avoiding lawsuits, and more time discussing potential new goods, services, markets, and business models, as well as what it takes to capture value-creation opportunities with big upsides over the long term.

It recommends four areas where change is essential for this to happen. They are: selecting the right people, spending quality time on strategy, engaging with long-term investors and paying directors more to sit on boards.

The full report can be found here.