What’s Needed for the Future of the American Board

Corporate boards are at a critical juncture: Intensifying pressures and demands will require boards to govern differently and challenge how they assess and reward performance and manage their own workings.

In 2022, NACD brought together board leaders and governance experts to discuss what will strengthen board performance in the coming years and what longstanding governance practices and norms may need to change. This work culminated with the release of The Future of the American Board, a report about leading boards into the future and about positioning them to become better stewards of long-term value creation for all stakeholders.

Re-envisioning what it takes to be a successful board (and not just a strong individual director) that can significantly influence sustainable business performance will not be an easy process. It will involve challenging discussions about the purpose of the corporation and the accountabilities of the board. It will entail uncomfortable decisions about board members who are not fit for the future, and difficult changes to reinvent board processes and reshape behaviors. It will demand a commitment to continuous and fast learning on new drivers and derailers of value and to creating room for diverse voices and perspectives. 

Why now?

And this work by boards is urgent. The intensity and accelerating pace of change is real, leading to a fundamentally different operating reality than incumbent executives and directors have experienced in their careers and shifting how businesses generate, preserve, and report value. Disruptions involving economic conditions, the geopolitical order, technology advancements, labor market dynamics, supply chains, regulation, climate change, and social and investor activism are reshaping society and business in powerful ways and, perhaps most important for this work, are transforming the role of business and how companies are governed. The reward is clear: in a world that seems less governable, the quality of board governance is increasingly vital to the sustainability of our enterprises and trust in our market economy.

The Commission’s Focus

In early 2022, NACD established the Commission on the Future of the American Board to reassess the Key Agreed Principles it issued in 2011 and refresh its guidance to help boards future proof themselves. The Commission—comprised of experienced board leaders, investors, CEOs, academics, and former regulators—met repeatedly over a six-month period to discuss several fundamental questions that are acute today and will become even more urgent in the coming years:

• How do we expect external pressures and forces affecting board governance to change in the coming years?

• Are there long-standing norms and practices that we must forcefully challenge?

• How can we solve for the critical inherent tensions in board governance? In particular, the growing need for deep, proactive board engagement while preserving independence; the focus on long-term strategy and value creation in the face of short-term pressures; and the tension between retaining institutional knowledge and injecting fresh, new, and diverse perspectives and experiences on the board.

• How must we adapt the workings of the board to be more agile and more prepared to engage management on high-stakes, complex, and often new issues and inform fast but high-quality decisions?

• How can the board be assured that it has appropriate visibility into issues that affect the workforce?

These extensive discussions offered vastly different viewpoints and surfaced emerging board practices from leading companies as the foundation of the new “Framework for Governing into the Future” based on a revision of the Key Agreed Principles. This Framework is intended to be utilized by public and private companies as well as by investors and advisors interested in strengthening board quality in the coming years. Each one of the principles is supported by key implications for boards, relevant context, and implementation guidance, including key questions for boards to consider.

Our Key Takeaways

To advance their performance, boards must now focus on the more nuanced and difficult issues: issues of purpose, accountability, objectivity, information, relationships, talent, culture, commitment, refreshment, and engagement that are highly context dependent and to a large degree rely on the collective behaviors of individual directors. Focusing on these 10 areas can help boards thrive:

Purpose: View corporate purpose as a motivating and unifying force and rethink corporate success through a long-term lens.

Accountability: Recognize that consideration of employee, customer, and other stakeholder interests is key to acting in the corporation’s best interests and delivering value over the long term to shareholders.

Objectivity and Oversight: Embrace board self-determination regarding both governance and agenda priorities.

Information: Position the board for informed, deliberative, and agile decision-making through board determination of information needs, and fit-for-purpose information and reporting systems.

Relationships: Bolster trust in board and board-management relationships through agreed norms of behavior.

Talent: Pay attention to issues impacting the workforce and understand the link between strategic imperatives and officer and employee capabilities and constraints.

Culture: Define the parameters of desired corporate and board culture and monitor them.

Commitment: Recognize that more is required of directors to stay well informed and to be available on a far more frequent and flexible basis.

Refreshment: Avoid defaulting to renomination rather than undertaking tough decisions.

Engagement: Value interactions with shareholders, employees, and other key stakeholders as opportunities to learn about their interests and concerns and to build relationships of trust.

We predict that the work of the board will become more complex in an ever-more-turbulent environment. These principles provide guidance to help boards reassess their priorities and governance approach in the interests of ensuring that the US corporation remains fit for purpose in providing goods and services in a manner that benefits stakeholders and society at large. ■

This article is from the Directorship Special Issue 2024: The Future of the American Board.

Sue Cole is the cochair of the NACD Future of the American Board Commission and chair of the NACD board of directors. Cole is currently the managing partner of SAGE Leadership & Strategy LLC, a boutique advisory firm she founded in 2011 to advise family businesses and large non-profits on strategy, leadership development, and governance. She is a director for Biscuitville, Diversified Trust Co., Martin Marietta Materials; she has more than 35 years of experience in the financial services industry, including corporate lending and wealth management.

F. William McNabb III is the cochair of the NACD Future of the American Board Commission and is the former chair and CEO of Vanguard. He stepped down as CEO at the end of 2017 and as chair at the end of 2018. He is a board member of UnitedHealth Group and chair of EY’s Independent Audit Quality Committee, and he also chairs the board of the Zoological Society of Philadelphia. In addition, McNabb is a board member of CECP: The CEO Force for Good and of the Philadelphia School Partnership. He is the executive in residence at the Raj & Kamla Gupta Governance Institute at the LeBow College of Business. He serves on the advisory boards of the Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School, the Wharton Leadership Advisory Board, and the Dartmouth Athletic Advisory Board. He is also a member of The Wharton School’s Graduate Executive Board.