Book Review: The Future of Boards by Jay Lorsch

Standard

Note: The following review was published in the November 2013 edition of Strategic Finance. Many thanks to the editors at IMA/Strategic Finance for spending time to review and edit it.

The Future of BoardsThe growing complexity of today’s businesses, rapid technological changes, globalization, and increasingly assertive investors have made the role of corporate boards more challenging than ever before. The success of companies today depends highly on the ability of their boards to navigate them successfully through these challenges. The Future of Boards is a collection of eight essays covering the most important challenges faced by today’s corporate boards. Key topics covered include role of boards in strategy formulation and implementation, CEO succession, CEO compensation, group dynamics within the boardroom, independent chairmanship of boards, and the concept of lead director.

With contributions from some of the most eminent thought leaders in the field, both from the industry and the academia, this book is edited by Harvard Business School (HBS) professor Jay Lorsch, a leading authority on corporate boards.

On the topic of board’s role in company’s strategy, Krishna Palepu, HBS Professor and a leading expert in business strategy, opines that strategy formulation and implementation is the responsibility of the company’s management, and the board may not have the necessary expertise and time to get deeply involved. However, the board should not be passively approving the strategy presented by the management. Instead, they should actively review the underlying assumptions and implications, and monitor the implementation. In the essay “Focusing on Strategy to Govern Effectively”, he outlines a basic framework for strategic engagement which can help board members actively engage in discussions related to company’s strategy.

One of the most important and challenging responsibility of the board is CEO succession. In the essay “Managing CEO succession” Joseph Bower, HBS Professor and author of “The CEO Within: Why Inside Outsiders Are the Key to Succession Planning”, mentions that the best way for any board to manage CEO succession is to make sure that they don’t have to make a succession choice. The job of identifying potential successors and mentoring them is best done by the CEO and the management. However, typically CEOs are reluctant to do this. It becomes the job of the board to encourage them to do so. Once a pool of potential successors is identified, the board should regularly interact with them, access their strengths and weaknesses. This will ensure that when the time to make a decision comes, the company has an abundance of well groomed options from within.

Executive compensation remains the most touchy corporate governance issue today. Jay Lorsh and Rajesh Khurana, HBS professor of Leadership development, in “The Pay Problem – Time for a New Paradigm for Executive Compensation”, question the assumptions behind a typical CEO compensation plan and urge board members to align executive pay packages with long term company results. They also highlight the fact that incentives have a motivational effect only if they reward outcomes over which the executives have control. They propose a compensation plan which includes both monetary and non-monetary rewards and encourages collaborative behavior within the executive team.

Multiple topics related to board leadership structure – who should chair the board: CEO or an independent director, should there be a lead director, and the group dynamics amongst the board members, its impact and whys to manage it – are covered in the remaining essays.

The Future of Boards is not only an outstanding assessment of the challenges currently being faced by boards, but also a provocative and insightful analysis of these challenges as well as a blueprint of how boards should work to overcome these challenges. Highly recommended for CEOs, CXOs, board members, and anyone interested in corporate governance and working of boards.

PS: Copyright 2013 by IMA®, Montvale, N.J., http://www.imanet.org, used with permission

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s