Viewpoints

How to engage your board of directors

in a borderless, competitive world
By Asuka Takaoka
APAC Lead, TMOA Lead Pillar
Senior Consultant, Corporate Governance Advisory Group
Willis Towers Watson, Japan

Today’s borderless, competitive world of rapid social, technological and economic change
is placing public companies under immense pressure. Investors that are accustomed to
more advanced governance practices in Europe and the U.S. have strengthened their
presence in Asian enterprises. Companies are increasingly expected to adopt world-class
governance standards to ensure that management decisions, board nominations and the
overall management of the board of directors satisfy a wide range of stakeholders.

Social demands for compliance and governance have
increased significantly, and corporate governance codes
regulated by governments across Asia have been almost
universally strengthened. Not least, pressure is growing
for companies to respond appropriately to their social
responsibilities and ensure that the short-, mid- and long-
term concerns of shareholders and other stakeholders are
diligently considered.
Many leading companies in Asia are responding by
assessing the management and governance of the board of
directors, the organization’s ultimate decision-making body,
and reporting the results externally to investors in order to
maintain a competitive edge. Often reviews are conducted
by third parties to ensure objectivity and to encourage
continued improvements.
At the corporate governance seminar recently hosted
by Willis Towers Watson in Japan, Hiroki Sampei, Head
of Engagement for Fidelity International, examined the
influence of board decisions on investor perceptions. An
effective board of directors, that is guiding the company’s
future direction, is essential for investors to consider
long-term investments, he explained. So it’s of utmost
importance that the company is run properly and such
future steps as succession planning and long-run growth
are considered, Sampei added.
What then are the expectations for an effective, functioning
board of directors? Currently, the expectations most often
discussed include an independent chair’s leadership,
diversity and balance among board members (i.e., expertise,
experience, background and, increasingly, gender and
other demographic traits); clarification of the expectations/
requirements of the chair and each director; an agenda
focused on key issues; a relationship of trust among the
chair, CEO and directors; and a culture that encourages
open and constructive discussion. Among these we review
what are, in our experience, essential requirements for an
effective board of directors in light of the drastic changes
impacting global businesses.
1. Leadership of a board’s chair
One of the biggest worldwide governance trends at the
moment is the separation of the chair and CEO roles.
In Germany, governance law makes it impossible for an
individual to concurrently serve as both CEO and chair. In
the U.K., the roles of chair and CEO are separated in more
than 95% of public companies. The number of companies
in the U.S. S&P 500 whose chair and CEO positions are
combined has declined sharply from 71% in 2005 to 52% in
2015, while independent chair positions increased rapidly
from 9% in 2005 to 29% in 2015. Varied approaches exist
in Asia: The majority of chairs in Japan are CEOs, whereas
in Singapore and Hong Kong, the percentage holding a dual
role is less than 20%.1 We see that either approach can be
effective.
That said, there are two main arguments for separating
the CEO and chair roles. First, management of the board
of directors and management of the company are two
completely different responsibilities, requiring different
skill sets, competencies and attributes. In theory, it’s more
efficient if the chair supervises the board of directors and
the CEO runs the business. Second, when both positions
are held concurrently, a concentration of power can
potentially create a conflict of interest and damage the
independence and quality of board discussion. It raises
concern as to whether or not all of the directors can share
their viewpoints frankly and challenge the status quo. An
independent chair (separate from the CEO) will be able
to truly concentrate on board oversight and demonstrate
leadership that encourages open discussion, leading to a
more engaged, effective board of directors.
2. Diversity and balance in expertise,
experience and background
There is no golden rule for the ideal composition of
directors within a company. It is recommended that each
company define the role and vision of its board and the
optimum composition to realize that goal. Defining a
board’s vision should reflect the following: (1) the business
environment of the company and its mid- to long-term
strategic direction, (2) the balance between supervision
and daily business execution and mid- to long-term
management, and (3) focusing the board of directors on
the key issues that need to be addressed to achieve the
first two points.
A board’s ideal composition should account for: (1) the
total number of directors, (2) the ratio of the number of
external to internal directors, and (3) the balance of gender,
race, generation, experience, expertise and background.
Although not guaranteed, diversity of thought can create a
1. Source: Brunswick Review, Spring 2016
2. Source: Chris Clearfield and Prof. Andras Tilcsik, “How board diversity might have prevented the Theranos Fiasco”
3. Source: Spencer Stuart Board Index, 2017
2 How to engage your board of directors in a borderless, competitive world
healthy skepticism that encourages meaningful discussion
among board members. It ensures that a team considers
different viewpoints and does not concur too easily. Like a
speed bump, it snaps us out of our comfort zone and makes
it hard to barrel ahead without thinking.2
A relatively small difference in the total number of directors
in a board exists among different countries. Japan has an
average of 11 members; Germany, 16.3; the U.S., 10.8; and
the U.K., 10.2. However, a marked difference exists between
the ratio of internal and external directors: 85% of the board
of directors are independent nonexecutive directors (NEDs)
in the U.S., 69% in France and only 33% in Japan.3
There is an even greater difference in the nature of
expertise among NEDs. In Japan, for example, the
overwhelming majority of NEDs have experience as a CEO.
However, the recent global trend is that experts with a
more specific expertise (e.g., digital, marketing and fintech),
particularly younger talent, are invited to become NEDs.
The argument is that companies need more millennial board
members to stay relevant and keep up with the average
pool of potential customers.
3. Clarification of the expectation/requirements
of the chair and each director
A key step in building an effective board of directors is
to define and agree upon the competencies and skills
required of the board as a complete entity, as well as the
expectations and requirements of the chair and each
director. It is not unusual for the board to skip a series
of essential processes such as clarifying expectations/
requirements, defining job descriptions and setting key
performance indicators — most of which are considered
basic behaviors for many managerial positions within
companies. But because the board is a company’s ultimate
decision-making body, performance and behavioral
expectations and requirements need to be clearly defined
and agreed upon, and the performance of each person
benchmarked against these expectations.
For example, we suggest each company create a list of Finally, the most important element in a board evaluation
requirements for NEDs and an evaluation process for each is to openly discuss the actions needed to improve
requirement based on the following standard proposal: performance and address the board’s development areas.
By steadily repeating the cycle of “diagnose, plan, do,
Category Contents
check and act,” and further disclosing the progress results
annually both internally and externally, board effectiveness
Competencies Integrity and high ethical standards
will inevitably improve.
Independent-minded but team player
Willingness to challenge and probe
Determination/driving for success
For more information
Receptiveness to feedback
Asuka Takaoka
Knowledge and Deep understanding of the business
Experience
+81 3 6833 4838
Risk management and control
asuka.takaoka@willistowerswatson.com
Financial management and control
Governance
Skills Ability to assess information
Communication/interpersonal skills
Critical thinking skills
Strategic thinking and planning skills
Conflict management skills
Others Energy and time commitment
Gravitas
Source: Willis Towers Watson

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