Benchmarking Corporate Governance Capacity
America’s corporate boards have become accustomed to continuous scrutiny by institutional investors, shareholder activists, and special interest groups. Unfortunately, the majority of public comment is, for the most part, often negative. Boards are blamed for almost everything that can conceivably go wrong with a company. Seldom do these critics ever single out a board for “exemplary performance”, which raises the question of objectivity.
We concluded some years ago that the time was right for an objective assessment of the governance capacity of America’s boards. Those who work closely with America’s boards know that the number of boards that govern well, far exceeds the number of boards that govern poorly. Most of America’s Chairpersons agree with the fundamental premise that director business acumen is the most important factor in calibrating governance capacity. Without it, the weaker the board’s ability to grasp the significance of complex business issues, and the more flawed its decision making ability and governance process.
With a fresh perspective, JamesDruryPartners developed a model that measures a board’s governance capacity, based on the weight of director business acumen in the boardroom – addressing the question of whether a board’s directors are “heavyweights” or “lightweights”. It is important to note that our model assesses “governance capacity”, not “governance effectiveness” – in other words, the capacity to govern well. However, without capacity, there can be little effectiveness.
Our report, The Weight of America’s Boards, is published annually, and evaluates the governance capacity of America’s 500 largest companies ranked by both revenue and market cap. We are pleased that our report has gained wide acceptance as an objective barometer of a board’s governance capacity. One of the revelations of our report, which may come as a surprise to many, is that governance capacity is not in direct proportion to a company’s stature. Many of our largest corporations miss the mark in terms of governance capacity, while a great number of smaller companies significantly exceed expectations. A copy of our most relevant report is available here.