Through their research, “Why Boards fall short”, Barton and Wiseman, clearly identify that boards are not working.   Their contention is that the constituents forming the board do not understand what being a board member entails.  As a result, boards are failing to support the management teams in creating long term value and focusing on short term gains.  In this write up, I will cover the most import idea identified by the authors – fiduciary duty of the boards, followed by application of some of the ideas in the market place and lastly identify gaps that should be considered.

To reverse the myopic foresight of the boards and the boards failing trend, Barton and Wiseman suggest that each board member first and foremost needs to grasp the idea of their “fiduciary duty”.  Being fiduciaries of the company, board members have to be loyal and prudent – which means their focus needs to be companies long term success.  While loyalty will drive companies interests ahead of personal interests of the board members, prudence will ensure business decision diligence.  

With this shift in the mindset , the boards will support management teams in setting direction for long term value creation vs getting pressured by the market to deliver on short term financial gains.  I found the defining of the fiduciary concept to be most important as it ensures value creation in the long term.  Also, the authors have clearly identified this as working model in emerging markets, allowing them to reinvest for long term growth.

From a practical application point of view - every board meeting should start by first re-iterating the purpose of the board i.e their fiduciary duty.  This will help the incumbents and the new board members realize their roles and responsibilities to the company.  It will also ensure that each board member understands and aligns on a strategy for long term success vs short term gains.

Secondly, prior to the electing board members, it is pertinent to ensure they have relevant experience in the market and target segment and or adjacent organic markets/segments.  New perspectives and relevant knowledge will provide insights that might not be otherwise available or considered by the sitting board (think representative inclusiveness).  

Additionally, Christensen and Bever in their article “The capitalist's dilemma”, state that companies are sitting on un-used capital.  As such, boards must understand the financials of the company and make bold recommendations to management that will allow for long term growth and value creation in the market place.

Barton and Wiseman, have suggested four areas that can drive changes in the boards.   Their first suggestion is the selection of the right people, followed by strategy, engagement of long term investors and wrapping up with higher payouts.  These are novel suggestions, though need to consider that applicability for all size companies might not be valid. 

For example, a company just starting out might not be able to attract the same talent pool for its board as mature organizations.  Pivoting in strategy is much easier in the embryonic stages of a company, as shareholders might force the hand of the board and the management to deliver on financial results.  In the same breadth if venture capitalists are primary investors in the company, their targets are short term financial gains, so they can recoup their cost “x” folds and move to the next venture.  Last but not least, higher payouts for startups and smaller companies might not be an option, they turn profitable.  Even so, they will need to re-invest the profits to sustain growth.  

Ref: Barton, D., & Wiseman, M. (2015). Where boards fall short. Harvard Business Review, 93(1/2), 98-104. 
Ref: Christensen, C. M., & Bever, D. V. (2014). The capitalist's dilemma. Harvard Business Review, 92(6), 60-68.