Welcome to the fifth and final week of our series on the Commonsense Corporate Governance Principles. In the last few weeks we’ve covered everything from board composition to shareholder rights to board leadership. In this article we are going to cover the last three principles – succession planning, compensation management, and the asset manager’s role in corporate governance. These three topics are best approached when the board is emotionally balanced. These principles are based in require the board to make decisions that are in the best interest of the company – those decisions can only be reached when every director feels emotionally safe and connected so that all perspectives and options can be addressed.
Management Succession Planning
Let’s start with succession planning. This is something that boards should always be ready for – you never know when you will have to shake up the organization due to unexpected circumstances. Boards that are unprepared or do not have a plan in place will suffer. Surprise is the enemy of an emotionally connected board – it throws people into uncertainty and causes disconnection. I worked with a board where the CEO died during a major surgery. No one on the board knew about the surgery to begin with so imagine the shock and the trauma that board had to go through. It affected their performance, collaboration, and the company took a dive for a number of months until they were able to get their emotional balance back.
Having a plan in place is essential to prevent this. As the principle states, senior management should be assessed based on performance and with regards to the employees they work most closely with. We suggest assessing management at least once a year and provide an open door policy for employees to approach the board with any concerns they might have. Develop strong succession plan guidelines and emergency plans that can be implemented if needed. It is also important to share this information with shareholders and stakeholders so everyone can feel comfortable with the future of the company.
Compensation of Management
Assessments can also be used to develop compensation plans. This principle speaks to retaining talent by providing competitive compensation. While formulas for compensation are a good tool for determining parts of the plan, other factors including integrity, work ethic, and openness should be considered. Boards should focus on retaining management that understands connection and supports emotional safety – these traits will improve overall performance and should be compensated as such.
Compensation plans are expected to develop over time but should have alignment with the long term goals of the company. In order to keep them with the goals of the company and to be able to justify compensation to the public, it is important to regularly assess performance while keeping the mission and vision of the company in mind. It is also important to understand the money is only motivating to people up to a certain point – the reality is that people want to feel good about what they are doing. Having a mandatory engagement is one way to ensure that everyone voices their opinions and feels that their concerns have been heard.
The board should consider other measures to retain talent that doesn’t include monetary compensation. This includes simple recognition and appreciation techniques that reward senior management for the work they do. Whether it is a simple “thank you” or a special award for their performance, management should feel appreciated and welcomed within their company.
Asset Manager’s Role in Corporate Governance
This principle speaks to asset managers and how they should approach the board. I want to take a different angle and talk about how the board should approach asset managers.
Strive to make asset managers feel safe and connected to your company. Provide as much information as possible to ensure that they fully understand the issues that the company is working with. While the board will be sharing information with shareholders, they should take special time to work with asset managers so they can see the actions the board is taking and how that relates to the long term goals. Be open when asset managers have questions or concerns about the company. They provide a perspective that may not exist on the board and their insight can be valuable. I work with one company that invites their asset managers to a board meeting once a year without the CEO there, giving them time to speak their mind without interruption and hesitation. This helps the board develop better relationships with the asset manager.
As we have covered each of the Commonsense Corporate Governance Principles over the last few weeks we can really say that the key to successfully implementing each principle lies with openness, communication, and emotional connection.
Basically, boards should be able to explain exactly what decisions they are making and why – this is made much easier when the board is not constantly getting dragged down my back and forth arguing. To get everyone on the same page, board leaders should focus on developing a safe environment where board members can speak freely without criticism or blame. Learning how to address emotions will help create emotional connection that is needed for board members to collaboration and work better together. When a board works better together, it is much easier to explain their decisions and communicate with the public. If you would like more information on how to implement the commonsense principles, please contact us at [email protected].
Commonsense Governance Principles in Action: Succession, Compensation, & Asset Managers
Part 2: Dismantling a Lock-In in the Boardroom: An Emotionally Focused Approach to Board Effectiveness