A day ago a group of big names like Warren Buffett and Jamie Dimon (JP Morgan Chase) and Mary Barra (GM) came together to release what they're calling a set of commonsense principles around corporate governance. You can find these here.
According to NPR Marketplace, the development of these principles were stimulated by the worry that "investors in public companies were losing out because of too much short-term thinking."
“We’re concerned in instances where companies and/or boards may be more focused on short-term results than on long-term sustainable results," he said.
He said effective corporate governance can re-focus a company on the long term. Among the recommendations? Paying less attention to quarterly earnings
“We’re concerned in instances where companies and/or boards may be more focused on short-term results than on long-term sustainable results," he said.
He said effective corporate governance can re-focus a company on the long term. Among the recommendations? Paying less attention to quarterly earnings.
Now you might want to say, hey Mike, your blog is all about nonprofit boards, why do you care about what the big corporations have to say or do? My immediate answer: corporate governance, be it for-profit or nonprofit has some core rules that are common to both sectors. Take for instance, fiduciary duties of care, loyalty and obedience. While perhaps executed with appropriate nuances, both sectors must abide by this law. Take Sarbanes Oxley which includes the Whistleblower policy now common to all corporations.
But you would be correct in saying not all principles applies equally to nonprofit. But in my review of the document, there are some important principles nonprofit board members should consider.
Under the category "composition" (note, substitute "shareholders" for community or stakeholders):
Directors’ loyalty should be to the shareholders and the company. A board must not be beholden to the CEO or management. A significant majority of the board should be independent under the New York Stock Exchange rules or similar standards.
All directors must have high integrity and the appropriate competence to represent the interests of all shareholders in achieving the long-term success of their company. Ideally, in order to facilitate engaged and informed oversight of the company and the performance of its management, a subset of directors will have professional experiences directly related to the company’s business. At the same time, however, it is important to recognize that some of the best ideas, insights and contributions can come from directors whose professional experiences are not directly related to the company’s business.
Directors should be strong and steadfast, independent of mind and willing to challenge constructively but not be divisive or self-serving. Collaboration and collegiality also are critical for a healthy, functioning board.
Directors should be business savvy, be shareholder oriented and have a genuine passion for their company.
Directors should have complementary and diverse skill sets, backgrounds and experiences. Diversity along multiple dimensions is critical to a high-functioning board. Director candidates should be drawn from a rigorously diverse pool.
While no one size fits all – boards need to be large enough to allow for a variety of perspectives, as well as to manage required board processes – they generally should be as small as practicable so as to promote an open dialogue among directors.
Directors need to commit substantial time and energy to the role. Therefore, a board should assess the ability of its members to maintain appropriate focus and not be distracted by competing responsibilities. In so doing, the board should carefully consider a director’s service on multiple boards and other commitments.
Under the category "board effectiveness",
Boards should have a robust process to evaluate themselves on a regular basis, led by the non-executive chair, lead independent director or appropriate committee chair. The board should have the fortitude to replace ineffective directors.
Under the category "communication with third parties",
Robust communication of a board’s thinking to the company’s shareholders is important. There are multiple ways of going about it. For example, companies may wish to designate certain directors – as and when appropriate and in coordination with management – to communicate directly with shareholders on governance and key shareholder issues, such as CEO compensation. Directors who communicate directly with shareholders ideally will be experienced in such matters.
Directors should speak with the media about the company only if authorized by the board and in accordance with company policy.
Again, please substitute stakeholder or community wherever you see the term "shareholder". And, there are quite a few additional principles, many which can be applied to nonprofit governance.