Survey – how do board directors impact long-term corporate value?

This report contains the high-level findings from my survey regarding ” How do board directors impact-long term corporate value?”  A PDF with more detailed data is available for download here. (How do board directors impact long-term value?) People I know from three groups (7 CEOs/Presidents, 8 directors, and 10 major investors) responded to my two questions.

The survey findings are intended to help discussion among your board, C-Suite, and major investors.  You should do a similar survey, focused just on your company.  My survey findings are not conclusions regarding the overall views of all directors, CEOs, or major investors.  The sample size was too small.

What follows are:

  • Summary observations
  • Summary data
  • A link to the spreadsheet with detailed data

Summary observations

Question #1  What are the three board of directors decisions (or actions, behaviours) which have the greatest impact on long-corporate value?

Most major investors believe CEO selection is one of the top 3 value impacting decisions made by directors.  A minority of directors and CEOs responded this way.  Investors believe that the talent of the CEO has a massive impact on value growth.  80% of investors responded that CEO selection was one of the top 3 decisions.  Only 38% of directors, and 43% of CEOs responded that way.

Major investors and CEOs, unlike directors, believe that directors should challenge and approve the strategy, resource allocation, and major initiatives. Investors and CEOs want directors to help with the creation of robust plans and resource allocation.  Several investors told me that the allocation of capital and talent by the board has a major impact on long-term value.  One director was quite blunt – the board does not get involved with talent allocation. 50% of investors and 57% of CEOs responded.  Only 13% of directors responded directors should challenge and approve the strategy, resource allocation, and major initiatives.

Many CEOs want to have a both a deep and challenging discussion with directors.  50% of directors responded only to approve the strategy. No CEOs or investors responded that only approve the strategy was sufficient involvement.

Question #2 In order to make those three decisions, what skills, experience, values, morals, and ethics must each director have?

Every CEO and most investors (70%) responded that directors should have skills relevant to the company.  Only 50% of directors responded this way.  I wonder how directors are able to make decisions which impact long-term corporate value if they don’t have skills relevant to the company.

Most directors, unlike CEOs and investors, perceive that values, morals, ethics, and courage to make tough decisions are required to make the top 3 decisions.  63% of directors responded with some or all attributes of values, morals, ethics, and courage to make tough decisions.  Only 29% of CEOs and 30% of investors responded.

Each group provided similar responses regarding diversity i.e. about 30%.  No-one mentioned gender diversity.  One interpretation is that the requirement for board gender diversity in 2018 is a given.  Thus, it no longer appears as a critical director requirement enable the three major value creating decisions.

Independent of management had a 0% response from investors, only 14% from CEOs while 25% from directors.  My interpretation is the perception that independence does not drive value growth.

I was surprised by the low response regarding the need for a broad personal network. All three groups had similar responses – approximately 12%.  No-one has a perfect and complete set of skills.

25% of directors responded with the ability to work together on the board.  No CEOs or investors responded.  I suspect that this an issue only for directors.

Overall observations

  • Directors, CEOs, and investors often have very different points of view as to:
    1. how a board can enable long-term value creation.
    2. what a director has to bring to the table in order to make those long-term decisions.
  • There was a extremely broad range of responses.
  • Some people saw a direct link between directors’ actions and the types of directors required for those actions (e.g. decision making on succession planning require experience in senior executive succession planning). Others did not see a link.
  • The words “strategy”, “strategy planning”, etc. mean very different things to different people. Cleary each company requires a written definition of the terminology they use, given that directors will come from different backgrounds where the words had different meanings.
  • Directors without skills relevant to the company will have difficulty in value creating challenges and approvals of strategy, resource allocation, and major initiatives.
  • At first it might look good that 63% of directors responded with some aspect of values, morals, ethics, and courage. This will actually have limited impact on the company because only 13% of directors will challenge the strategy, resource allocation, and major initiatives.  Only 13% of directors responded with establishing the right culture.  Although the directors may have high moral, values, and ethics, it’s not clear those beliefs will be reflected in management.

Summary Data

Question #1  What are the three board of directors decisions (or actions, behaviours) which have the greatest impact on long-term corporate value?

CEO Selection” – 56% The individual group rankings were:  Investors 80%, CEOs 43%, directors 38%

Strategy approval” – 56% The individual group rankings were: Directors 63%, CEOs 57%, Investors 50%

“Strategy approval” has two sets of responses:

Response #1 was only “Approve the strategy”.  The individual group rankings were: Directors 50%, CEOs 0%, Investors 0%

Response #2 was some or all of “Challenge and approve the strategy, resource allocation, and major initiatives”. The individual group rankings were: CEOs 57%, Directors 13%. Investors 50%

Set the long-term direction or management goals”– 36% The individual group rankings were: Investors 70%, Directors 25%, CEOs 0%

Ensure the right talent in management and staff – 20% The individual group rankings were: Directors 38%, CEOs 14%, Investors 10%

Set compensation for CEO and C-Suite” – 12% The individual group rankings were: Investors 20%, CEO 14%, Directors 0%

Challenge and validate what management says -12%  The individual group rankings were: Investors 30%, CEOs 0%, Directors 0%

Establishing or ensuring the right culture – 8% The individual group rankings were: CEOs 14%, Directors 13%, Investors 0%

Ensure management meeting objectives” – 4% The individual group rankings were: Investors 10%, CEOs 0%, Directors 0%

There were three other sets of replies, each with a total of 4%:

Ensure C-Suite and succession plans in place; establish the culture; and ensure management meeting objectives.

Here were 13 unique replies which I did not put into any of the above groups.  Those replies are listed in the detailed findings PDF.

Question #2 In order to make those decisions, what skills, experience, values, morals, and ethics must each director have?

Skills relevant to the company” – 72% The individual group rankings were: CEOs 100%, Investors 70%, Directors 50%

“Skills relevant to the company” was comprised of distinct sets of responses, as shown below in terms of total respondents: 44% – “up-to-date industry and ecosystem knowledge”

4% each for the following 7: operational skills in the company’s industry; public company directors have public company experience; understand how the director can enhance the company’s long-term value; skills relevant to the company’s long-term value creation; understanding the impact of technology; and relevant to the company.

Values, morals, ethics, and courage to make tough decisions (some or all of these) – 40%

The individual group rankings were: Directors 63%, Investors 30%, CEOs 29%

Diversity – 28% The individual group rankings were: Investors 30%, CEOs 29%, Directors 13%

Respondents identified 3 different types of diversity: skills; opinions; industry and society backgrounds.

C-Suite experience – 12% The individual group rankings were:

Directors 25%, Investors 10%, CEOs 0%

Respondents identified 3 different types of C-Suite experience: Been a CEO before; Retired CEO or C-Suite executive; significant C-Suite experience

Independent of management – 12% The individual group rankings were:  Directors 25%, CEOs 14%, Investors 0%

Experience in succession planning for senior roles – 12% The individual group rankings were: Investors 20%, Directors 13%, CEOs 0%

Broad personal network, relevant to the company” – 12%  The individual group rankings were: CEOs 14%; Directors 13%; Investors 10%.

4% of the replies were very specific “Every director must have a personal network relevant to the company”.

Ability to work together on the board – 8% The individual group rankings were: Directors 25%, CEOs 0%, Investors 0%

Ability to engage in constructive conflict – 8% The individual group rankings were: CEOs 14%, Investors 10%, Directors 0%

Here were 19 unique replies which I did not put into any of the above groups.  Those replies are listed in the detailed findings PDF.

How was input gathered?

The two questions were asked. Question #1 focused on what was most important.  Question #2 focused on what was necessary to achieve the responses in Question #2.  This approach was designed to capture top of mind thinking, without the guidance of a check-the-box survey.  I had to interpret the responses and many times seek clarification.

I did not use a check-the-box survey because

  • I wanted to understand the breadth of what people were thinking. A check-the-box survey constrains the breadth.  In term of question #1 I was surprised by some of the responses. I would never have guessed at some of them.
  • Question #2 was based on the response to question #1. This would have required a massive list of options.
  • I wanted top-of-mind responses. g. what are the first things that come to mind when you think about director decisions which impact long-term value.

Your next steps

This report draws no conclusions or observations regarding the overall views of directors, CEOs, or investors.  You must conduct your own anonymous survey with your directors, C-Suite, and major investors. You must ask open ended questions to obtain top-of-mind responses, rather than a guided check-the-box survey. In the course of this you must define the terminology for your company e.g. what exactly is meant by the word “strategy”. You can then have a discussion specific to your company regarding the findings, observations, and conclusions.

You can download here the PDF containing the detailed excel spreadsheet showing the results.

How do board directors impact long-term value?

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