A NEW TSR FOR BOARDS: An argument for focusing on talent, strategy and risk.

• Author: Hall, April
• Position: Reimagining the Board

A new book by three governance experts argues that boards should focus on a new kind of TSR. Instead of "total shareholder return," the authors propose "talent, strategy and risk" as a measure of performance that can help the corporation meet institutional investor pressure for a longer-term outlook balanced with short-term results.

The book, Talent, Strategy, Risk: How Investors and Boards are Redefining TSR, was released in July 2021 by Harvard Business Review Press. Its authors are Ram Charan, Dennis Carey and Bill McNabb.

Charan is an advisor to CEOs and boards who has written more than 30 books, including Boards That Deliver and Boards That Lead. Carey, vice chair of Korn Ferry, has published six books, including Go Long. McNabb is the former chairman and CEO of institutional investor Vanguard and has substantial experience in balancing the short and long term.

The authors drew on their own experiences and interviewed executives and board directors including Warren Buffett, Mary Barra and Nelson Peltz.

"Part of the reason we wrote this book was to take a much more holistic look at business," McNabb says. "As a former operator, talent, strategy and risk were the way we thought about running the company. Get the right talent, develop strategy and understand how much risk you're taking on."

To explore this topic in more depth, Directors & Boards' managing editor, April Hall, interviewed the authors. Charan and Carey were interviewed together; McNabb was interviewed separately. Responses have been edited for length and clarity.

Directors & Boards: In the book, you discuss elevating potential leaders even before they have the skillsets or experience you need. Should corporations open the aperture wider than they do now to find and develop talent?

Charan: We recommend identifying people who have the leadership "seeds" and the business acumen to become the CEO. Find someone with extraordinary communication skills and an ability to build bridges, who is also outstanding in dealing with uncertainty and focusing on the right issues.

Then develop them by putting them through a crucible of assignments that allow them to vastly expand their capabilities in a short time.

At GE, high-potential employees also attended the company's management training program, where CEO Jack Welch was known to spend a solid five hours at a time coaching up-and-coming leaders on the assignments they had been given. The basis for learning was the work itself, not just books or case assignments.

Jack did that as a regular practice. It was worth his time to find an ounce of gold in a ton of ore.

McNabb: I would say the best companies do look pretty far and wide for talent. It has become a much more intensive approach in terms of reaching down multiple layers in an organization. Even at the highest levels in big, complicated...