Corporate performance metrics to top board agendas: with heightened responsibilities and scrutiny, corporate boards are rethinking operations and finding that performance metrics are essential tools.

• Author: Daly, Ken
• Position: GOVERNANCE

If pressed to select just one, issue that will top board agendas in 2011, it would be corporate performance metrics--the topic tackled by the most recent Blue Ribbon Commission at the National Association of Corporate Directors (NACD).

To address this subject, 23 experts were gathered late last year from the boardroom, C-suite, investment world and major business professions--to study the issue and report their findings. The effort was co-chaired by John Dillon, the now-retired chief executive officer and chairman of International Paper Co., and Bill White, retired CEO and chairman of Bell & Howell Co., who now serves as NACD Director, Northwestern University.

The remarks that follow summarize their recommendations--which are already being implemented by a number of companies as the new year begins.

Why corporate performance metrics? Because they link corporate strategy and corporate performance--traditionally the top two issues for directors by far. For nearly 20 years, NACD has been surveying directors to determine their key concerns and prevalent practices. When given a choice among 20 topics, directors invariably put strategy and corporate performance and valuation at the top of their lists.

Last year, 68 percent of the respondents ranked strategy as one of their top three issues, while 42 percent selected corporate performance and valuation.

The Director Role

Strategy is about the future, performance is about the past and metrics align the two.

Directors are expected to oversee corporate and executive performance, but this is not always easy--especially in large, complex companies. To fulfill their oversight responsibilities, directors require clear and focused metrics to measure and communicate the financial and nonfinancial criteria critical to the success of the enterprise. A clear understanding of corporate and executive performance empowers boards to excel in these important responsibilities.

Establishing the appropriate metrics to determine executive progress in achieving strategic goals and competitive success is a vital board task, yet given the company-specific nature of such decisions, little helpful guidance is available in the governance literature. This is the issue the commission was formed to address.

Directors see a lot of numbers, mostly historical data from financial reports. While this information is critically important, there is much more at work in an organization. Directors rarely receive regular reports on other critical issues, such as executive development or product innovation. While many companies are now enhancing their reporting on these areas, more can and should be done. Directors must focus on the information needed to understand what the company is truly...