Idea in Brief

The Problem

Most directors confess that the boards they serve on don’t fully understand their companies’ strategies, how those firms create value, and the dynamics of their industries. Directors also admit that they themselves are the main source of the pressure to focus too much on maximizing short-term results.

Why It Happens

Boards fail to recruit members who are independent thinkers and have relevant expertise. Directors don’t spend enough quality time discussing strategy and are also too influenced by investors who care only about the short term.

The Solution

Invest more effort in attracting the right expertise. Hire board advisers with deep, specialized knowledge. Apply retirement rules in a way that balances the need to refresh the board with the need to retain valuable experience. Foster longer and richer strategic conversations. Get boards to engage more with key long-term investors, and pay directors more, especially for long-term performance.

Boards aren’t working. It’s been more than a decade since the first wave of post-Enron regulatory reforms, and despite a host of guidelines from independent watchdogs such as the International Corporate Governance Network, most boards aren’t delivering on their core mission: providing strong oversight and strategic support for management’s efforts to create long-term value. This isn’t just our opinion. Directors also believe boards are falling short, our research suggests.

A version of this article appeared in the January–February 2015 issue of Harvard Business Review.