Borders, Boundaries and Boards.

• Author: Rock, Robert H.
• Position: LETTER FROM THE CHAIRMAN

Corporate chieftains--notably those who gather each year in Davos, Switzerland --may think they live in a world where countries with interdependent economies and companies with interconnected markets operate as if there were no borders. The notion that these connections would ensure both global prosperity and universal peace was shattered by Russia's invasion of Ukraine. In contrast to popular political theory, countries that between them have hundreds of McDonald s restaurants do, in fact, go to war. National borders delineate boundaries, and leaders who fail to recognize them do so at their own peril.

Like national borders, boundaries for good corporate governance separate management prerogative from board oversight. Executives have certain responsibilities, such as hiring and firing, that are reserved to their discretion. However, with heightened scrutiny coming from activists inside and outside the company, some of these prerogatives are no longer seen as unilateral or exclusive to management. Boards are getting into areas once considered within management's sole discretion, such as talent management. This encompasses hiring practices, DEI and more. Some executive teams are embracing this board participation; others are less welcoming. The former view the board as helping effect best practices; the latter see it as infringing on good management.

Some boards act as if there are no defined boundaries. They ebb and flow into areas typically reserved for management decision-making. Whereas "noses in, fingers out" has been the modus operandi of most boards, now some are leaning in further--sometimes much further--with not only fingers, but feet roaming about. For these boards, the line between top management and board oversight has become blurred, creating concern, confusion and often consternation. Ostensibly "to find out what's going on," some board members have taken to talking to managers several levels below the executive suite.

Given the increasing range and degree of risks, such as cyberattacks; the growing challenges of business operations, such as global supply chains; and the rising requirement for disclosures, such as ESG, the board is taking on more monitoring and reporting duties. These enhanced responsibilities require greater understanding of business operations, policies and practices. Business strategy, CEO succession, talent development, corporate culture and more remain high priorities on a board's agenda, and ample time...