Upfront: Boards To Play Big-Picture Role

Directors are no longer content to focus their time on accounting and compliance issues.

Boards of directors aren't content to devote their time principally to accounting and compliance issues. They are now determined to play an active role in setting strategy, assessing risks, developing leaders and monitoring the long-term health of their companies, according to a survey by McKinsey & Co.

Seventy percent of directors surveyed want to know more about functions such as customers, competitors and suppliers. More than half want to know more about the state of the organization, including the skills and capabilities needed to realize the corporate business strategy. Two in five respondents are eager for insights into external networks, such as the nature and level of regulatory and government risk, as well as public, media and community attitudes toward the business.

And CFOs take note -- one-fifth of directors surveyed feel they spend too much time on auditing and compliance and the compensation of top management. But the survey shows that directors continue to focus primarily on financial matters that reflect short-term corporate performance.

McKinsey consultants suggest that in order to balance short- and long-term performance, boards might start by agreeing on a core set of metrics tailored to the specifics of a company's industry, maturity, culture and current situation. If that sounds daunting, it shouldn't. McKinsey says that for many companies, monitoring a robust set of metrics will probably involve little additional work; metrics the board might want are likely to be a subset of the data already available to management. If they are not, it may take time to identify them, but companies should plug such a serious gap anyway to ensure the long-term health of the business.

How far do boards have to go to get a grip on their company's business strategy? More than a quarter of the directors surveyed have only a limited understanding of their companies. Just 11 percent claim to have a complete understanding. More than half say that they have a limited or no clear sense of their companies' prospects five to 10 years ahead. Only 4 percent say that they fully understand their companies' long-term position. And over 50 percent say that they have little or no understanding of the five to 10 key initiatives that their companies need to reach their long-term goals.