By Barry Jaruzelski, vice president and managing partner, U.S. Communications & Technology Practice, and Frank Jones, vice president and managing partner, U.S. Operations Practice, Booz Allen Hamilton Inc.
Across the developed world, attention has been focused on effective corporate governance as an essential risk management tool for business. The collapse of Enron and WorldCom, the Koslowski trial, the compensation scandal at the New York Stock Exchange and even the mutual fund scandal have reminded directors that their responsibility to protect shareholder interests requires them to do more than merely rubber stamp management's decisions. It also reminds CEOs that they must have boards that are independent and active.
In the current debate over directors' roles, it is often forgotten that effective corporate governance is an essential driver of growth. A well-assembled, well-run board is management's best adviser. Smart, experienced directors can be a company's finest advance-sensing mechanism. They help identify and secure critical business relationships. They can locate gaps in the organization's structure and strategy, and pinpoint opportunities for advancement.
Deploying such collective expertise is more necessary -- and more difficult -- than ever. A traditional legal compliance approach to governance is not enough. For a company to be truly resilient, directors must have the information and rapid analysis capabilities required to anticipate risk and discontinuities, as well as the mechanisms to prioritize efforts and make decisions quickly to capture opportunities inherent presented by market discontinuities. These mechanisms must be backed up by operational flexibility and a culture of transparency and adaptability if they are to translate into effective action and rapid change.
With critical information coming to directors and officers on an "early warning" and ongoing basis, they can remain focused on and aware of the status of risks to key value drivers and efforts to manage them, and they can strengthen the strategic plan on a continuous basis, working to overcome unexpected challenges and to capture unexpected opportunities. The rewards will include, but go beyond, fulfilling basic duties and protecting against liability. By minimizing disruptions to value drivers, resilience-driven governance will ensure growth strategies can move forward, reduce the cost of capital and build trust. And the most resilient organizations will drive growth by capturing market opportunities that less-resilient competitors will miss.