Fit for the Future: An Urgent Imperative for Board Leadership

A century ago, America witnessed a managerial revolution with the emergence of professional executives and the birth of the modern corporation. The revolution built on new types of expertise in accounting, statistics, technology, engineering, and social sciences to “professionalize” management. Specialization of labor, standardized processes, quality control, workflow planning, resource allocation, and accounting allowed companies to optimize efficiency, build scale, and drive a long period of remarkable growth and wealth creation.

We are now in the midst of another, equally significant business revolution with profound implications for companies and how they are governed. Changes involving markets, global competition, demographics, regulation, and, perhaps above all, technology are reshaping social and economic life in powerful ways. Businesses are confronting a wave of major, simultaneous, and interconnected trends that are redefining how companies create and preserve value.

The accelerating pace and intensifying complexity of change are leading to the emergence of a fundamentally different operating reality than incumbent executives and directors have experienced in their careers to date. However, this dizzying amount of change also creates immense opportunities for companies to out-innovate the competition, to generate value in new ways, and to strengthen their governance.

As the science-fiction writer William Gibson put it, “The future is already here—it’s just not very evenly distributed.” The future belongs to businesses that can truly grasp the scale and scope of change and make the fundamental adaptations in operations and organization that this age demands.

The focus on the board’s compensation committee has never been sharper. The components of compensation plans and the link between compensation and company performance are under intense scrutiny from shareholders, employees, policymakers, the media, and other stakeholders. The Report of the NACD Blue Ribbon Commission on the Compensation Committee revisits NACD’s 2003 Report of the NACD Blue Ribbon Commission on Executive Compensation to highlight the new environment in which compensation committees—and, more broadly, boards—are now operating. It recommends that the compensation committee and board work together to establish an executive compensation philosophy that supports the company in creating long-term, sustainable value.

The report includes ten specific recommendations for compensation committees to consider when evaluating their compensation philosophies. It also provides practical tools, such as sample compensation committee charters, a compensation committee assessment, and guidance on executive employment contracts.