Three Dilemmas for Creating a Long-term Board

A.F. Babcock, R.G. Eccles, S.K. Williamson and R. Leblanc (editor), "Three Dilemmas for Creating a Long-term Board," a chapter from The Handbook of Board Governance, 2nd ed. John Wiley & Sons, Inc., Hoboken, New Jersey, Forthcoming

19 Pages Posted: 14 Mar 2019 Last revised: 20 Apr 2019

Date Written: December 21, 2018

Abstract

Arguably among a company’s biggest untapped strategic assets, a well-functioning corporate board of directors wields the power to meaningfully influence the purpose, culture, and direction of an organization. While many boards may display good corporate governance principles, the most effective boards at leading companies for long-term value creation are truly long-term boards.

These long-term boards may look different around the world, but they share a few key characteristics:

Time spent on Strategy – Long-term boards prioritize the future of the business, including spending significant time on strategy, business model, risks, and the company’s value creation proposition.

Directors as Owners – Long-term boards build and perpetuate an effective board over time by acting like owners, aligning the board’s interests with shareholders, often via stock ownership.

Board level Engagement with Shareholders – Long-term boards possess a strong understanding of the objectives of long-term shareholders and regularly engage with them on topics of strategic importance.

However, achieving this combination of characteristics presents the board with three meaningful dilemmas:

Should boards devote more time to strategy by spending less time on routine matters or do they need to spend more time on board work overall?

Can board members be meaningful owners of the companies they serve without getting caught up in the short-term pressures caused by gyrations in market valuation and volatility?

How do board members engage with shareholders without distracting or undermining management?

Through a series of in-depth interviews with institutional investors, senior directors, and board consultants we gathered perspectives on how leading boards have tackled these challenges and found that getting these things right often creates a virtuous cycle that entrenches a long-term approach to value creation at the board level.

Keywords: Board of Directors, Governance, Director, Long-term, Engagement, Corporate Strategy

JEL Classification: G3, L2, L20

Suggested Citation

Babcock, Ariel and Eccles, Robert G. and Williamson, Sarah Keohane, Three Dilemmas for Creating a Long-term Board (December 21, 2018). A.F. Babcock, R.G. Eccles, S.K. Williamson and R. Leblanc (editor), "Three Dilemmas for Creating a Long-term Board," a chapter from The Handbook of Board Governance, 2nd ed. John Wiley & Sons, Inc., Hoboken, New Jersey, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3339296 or http://dx.doi.org/10.2139/ssrn.3339296

Ariel Babcock (Contact Author)

FCLTGlobal ( email )

31 St. James Ave
Suite 880
Boston, MA 02116
United States

Robert G. Eccles

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Sarah Keohane Williamson

FCLTGlobal ( email )

31 St. James Ave
Suite 880
Boston, MA 02116
United States

HOME PAGE: http://www.fcltglobal.org

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