A(nother) best practice for boards?

December 9, 2009

Today’s WSJ has a brief, thought-provoking article about how to improve board performance.  This could work very well for some companies, as best practices should, but as we’ve written elsewhere there is more to board performance than best practices.

The author is James M. Citrin a senior director and member of the worldwide board of executive search firm Spencer Stuart.

I believe that a new mandate should be established for the board compensation committee. Re-branding the committee as the compensation and leadership committee will help strike a better balance of “offense” and “defense” by giving this essential board working group permission to be more strategic and proactive. Upon being granted unambiguous responsibility for the company’s top talent, the “Compensation and Leadership Committee” will be able to be more effective in helping boards fulfill their most important responsibility, CEO succession. The broader definition will also make the committee more attractive to the strongest board members and committee chairpersons, strengthening committee performance.

The compensation and leadership committee would likely spend its time differently than the typical comp committee, moving beyond remunerating management to having systematic, consistent and continuous discussions about leadership development and succession. It will be more likely to focus on how well management has led the company’s performance relative to plan and competitors, how compensation plans can be designed to support company strategy, and how to protect valuable executive talent that might be coveted by the competition. At every one or two committee meetings, for instance, the group would be expected to have in-depth discussions about where the company needs to go and the resulting leadership implications. Then the committee would spend time determining how the current management team lines up with the leadership requirements, who the most promising talent is at various levels of the organization, how this talent compares to external benchmarks, what experience and skill gaps are present, and what the right development plans are to fill the gaps.

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