McKinsey says directors have limited knowledge

Majority of corporate directors have a limited knowledge of the current and future strategy of their companies. They lack confidence in the management although they carry a desire to assume more active overall roles.

A recent McKinsey survey on 1016 directors showed that more than a quarter of the directors surveyed, had at best, a limited understanding of the current strategy of their companies.

More than half said that they had limited or no clear sense of their companies' prospects five to ten years down the road and an equal number indicated that they had little or no understanding of the five to ten key initiatives that their companies need in order to secure the long-term future.

With regards to risk, only 11 per cent of the directors, in the survey claimed to have a complete understanding of the risks their companies currently beared, while 23 per cent had limited understanding or none.

Further, only about 8 per cent claimed to have a complete understanding of the long term risk of their companies, and another 37 per cent said they had little or no understanding.

Likewise, more than half the directors admitted that they had no way of tracking changes in risks over time and boards were vulnerable to unforeseen shifts.

The survey also highlighted lack of confidence in executives. Only 8 per cent of the directors felt that the management fully understood the key initiatives required by strategies for the future, while 38 per cent said that it had, at most, a limited understanding.

It also showed that directors focused primarily on financial matters reflecting short-term corporate performance, but they wished to expand their reach into issues that shed light on the longer-term health of their companies.

Around 70 per cent of the directors however wanted to know more about customers, competitors, suppliers, the likes and dislikes of consumers, market share, brand strength, levels of satisfaction with products, and so forth.

More than 75 percent of the directors also said that they wanted to spend more time on strategy and risk.

This required directors across the globe to use their time in corporate meetings more effectively and develop a new understanding of their roles and responsibilities.

Moreover, the composition and culture of boards, as well as the agendas of board meetings, will require fresh thinking.

Directors, according to McKinsey want to be more actively involved in three areas: The company's health - its ability to survive and develop over the longer term and its short-term financial performance, its strategy and assessment of risk, and its leadership.

The survey also indicated that nearly one-quarter of the directors reported that the most recent CEO succession at their companies had failed.

The absence of appropriate core skills was the most important factor in abortive successions, but their presence was less important in good ones.

50 per cent of boards had little or no formal process of evaluating the performance of CEOs, despite the huge responsibility entrusted to them. Focus on short-term business goals accounted for the largest part of the assessment at 35 per cent.

"Longer-term goals play a smaller role, as do other metrics, such as the ability to lead people and manage stakeholders, as well as professional ethical behavior," the study revealed.