Chairmen and other executives are under pressure to devote greater time to investor relations and meeting regulatory requirements, a report reveals.
The report by the Corporate Research Forum (CRF) and the Performance and Reward Centre (PARC) highlights business concerns about the effect this diversion is having on the role of the board in exercising strategic leadership.
It says the focus on checks and controls to prevent fraud and malpractice has been heightened by reactions to recent scandals and abuses of executive power, such as Enron and Worldcom.
But far greater losses arise through strategic and people mismanagement, the authors warn. This means that diversion of the board from developing a strategic, involved role in the business actually heightens the risk of corporate failure.
The authors interviewed senior business people from some of Europe’s most successful companies, who said that successful boards and organisations need to be multidimensional.
The research shows that generating high performance is best done under a strategy-led board. Compliance, while necessary, is seldom sufficient to generate sustainable value.
Part of the reason why boards struggle to create high performance is that they are caught up with responding to relentless demands from investors. This can force boards into a narrow compliance role.
Co-author Dr John Roberts said: “The danger here is that the board becomes distracted from focusing on strategy, divisions are created between executive and non-executive directors, and the board become divorced from the business.”
The research suggests that sustainable high performance comes from a broader, strategy-led approach, and the report contains guidance on how to effect this transformation.