NACD Issues Guidance for Corporate Directors on Aligning Short-Term Results with Long-Term Strategy

The National Association of Corporate Directors (NACD), the advocate for the profession of directorship, has released the Report of the NACD Blue Ribbon Commission on the Board and Long-Term Value Creation.

Board members have a fundamental responsibility to help management navigate a complex environment without allowing near-term pressures to undermine the organization’s focus on its long-term strategic objectives. This new report identifies levers that boards can use to encourage stronger alignment between short-term activities and long-term value creation.

“Instead of viewing short-term results and long-term strategy as mutually exclusive, boards and executives should view them in terms of degrees of alignment,” said Karen Horn, co-chair of the NACD Blue Ribbon Commission; vice chair of the NACD board; and director of Eli Lilly & Co., Norfolk Southern Corp., Simon Property Group, and T. Rowe Price Mutual Funds. “It should be possible to draw a clear line from the company’s day-to-day activities to its long-term objectives.”

Approximately 70% of respondents to NACD’s annual corporate governance surveys said that, for the purpose of executive compensation plans, their companies define long-term as three years or less. The report includes 11 warning signs that indicate potential misalignment between short-term operations and long-term value creation.

“Board agendas need to accommodate sufficient time for substantive discussions about long-term opportunities and risks, rather than being dominated by backward-looking reviews of past performance,” said Bill McCracken, co-chair of the NACD Blue Ribbon Commission, former CEO of CA Technologies, and director of MDU Resources and NACD.

This timely report contains information that will be useful to every board:

  • 10 recommendations on the board’s role in driving long-term value creation;
  • 11 red flags that may indicate lack of alignment between short-term activities and long-term strategy;
  • specific action steps that directors can take regarding CEO selection and evaluation, discussions about strategy and performance goals, capital allocation decisions, incentive plan design, board composition and assessment, and board-shareholder communications; and
  • numerous appendices with detailed guidance and boardroom tools.

“Public companies may have to deal with the ‘meet or beat quarterly earnings’ syndrome, but every organization faces short-term pressures of some kind,” said Ken Daly, NACD CEO. “This report offers practical guidance and tools to help all boards ensure that their organizations’ short-term objectives are the building blocks of their long-term strategies.”

The Report of the NACD Blue Ribbon Commission on the Board and Long-Term Value Creation is available exclusively to NACD members and can be found at www.NACDonline.org/Value.

The report’s commissioners are distinguished corporate directors and governance experts. In aggregate, they serve on a total of 34 publicly traded, 10 privately held, and 62 nonprofit company boards.

Commission members, with primary affiliations and selected board seats:

  • Karen Horn, co-chair: Eli Lilly & Co., Norfolk Southern Corp., Simon Property Group, T. Rowe Price Mutual Funds
  • Bill McCracken, co-chair: Executive Consulting Group; Former CEO and Chair, CA Technologies; MDU Resources
  • Dennis Beresford: University of Georgia
  • Janet Clark: EOG Resources, Goldman Sachs BDC Inc., Texas Instruments
  • Ken Daly: NACD, Powerlytics Inc.
  • Cari M. Dominguez: ManpowerGroup Inc., Triple-S Management Corp.
  • Theodore Dysart: Heidrick & Struggles, CEO and Global Board of Directors Practices
  • Charles Elson: University of Delaware Weinberg Center for Corporate Governance; Bob Evans Farms, HealthSouth
  • John Engler: Business Roundtable
  • Margaret Foran: Prudential Financial; Occidental Petroleum Corp.
  • Jonathan Foster: Current Capital LLC; Berry Plastics Group, Chemtura, Lear Corp.,Masonite, Sabine Oil & Gas
  • Helene Gayle: McKinsey Social Initiative; The Coca- Cola Co., Colgate-Palmolive
  • Raymond V. Gilmartin: General Mills
  • Peter Gleason: NACD; Nura Health Inc., International Professional Practices Framework Oversight Council
  • Holly J. Gregory: Sidley Austin LLP, Global Corporate Governance and Executive Compensation Practice
  • Michele Hooper: The Directors’ Council; Center for Audit Quality, PPG, UnitedHealth
  • Reatha Clark King: Malcolm Baldrige National Quality Award Board of Overseers
  • Patrick Lee: KPMG Audit Committee Institute
  • Linda Fayne Levinson: Hertz Global Holdings, NCR, Western Union, Ingram Micro
  • William Roskin: Lyons, Benenson & Co. Inc.; Martha Stewart Living, Omnimedia, MailPix Inc., NACD New York Chapter
  • Charles Rossotti: The Carlyle Group, Booz Allen and Hamilton, ECi Software, Primatics Financial Corp.; AES Corp.
  • Olympia Snowe: Olympia Snowe LLC; Aetna, T. Rowe Price Group, Bipartisan Policy Center, Commission on Presidential Debates
  • David Swinford: Pearl Meyer
  • Laura Unger: Navient Corp., CIT Group, CA Inc., Nomura Securities International Inc./Nomura Financial Products Group
  • Dennis T. Whalen: KPMG Audit Committee Institute
  • William White: Northwestern University; ContextMedia Inc., The Field Museum
  • Alex Wittenberg: Marsh & McLennan Cos. Global Risk Center
  • Dona Young: Aegon N.V., Foot Locker, Save the Children Federation Inc.