Wednesday, June 08, 2016
Year after year, Nordic companies outperform the global average in The Boston Consulting Group’s annual study of value creation. This impressive feat holds true whether we look at annualized returns over time periods of 5, 10, or 15 years. Nordic companies’ superior performance is also evident across most industries.
While many factors contribute to Nordic companies’ superior returns, we believe these companies’ unique model for corporate governance plays an important role. The Nordic model establishes a board of directors that does not include any of the company’s executives. This nonexecutive board’s responsibilities include appointing and monitoring the CEO, approving the corporate strategy, and overseeing legal compliance and risk management.
Although the Nordic model shares some attributes of the two more widely used governance models, key differences give Nordic nonexecutive boards a more active role in steering their company.
In a recent study, BCG sought to understand the best practices that enable nonexecutive boards to create superior value for the company’s owners. While previous research on the nonexecutive board’s role has primarily considered governance issues, our study is distinctive in that it focuses on the board’s role in value creation.
In conducting the study, we interviewed more than 50 CEOs, chairmen and -women, and nonexecutive board members of leading Nordic companies and surveyed more than 100 other CEOs and nonexecutive board members of Nordic companies. These participants work for companies that have total revenues of approximately €430 billion ($482 billion), equal to 30% of Nordic countries’ GDP. Although the research considered only Nordic companies, we believe that our findings are relevant globally.
Impressively, all of the Nordic CEOs we surveyed believe that their company’s nonexecutive board understands the factors that promote high performance. In contrast, a survey of CEOs globally by Colin Carter and Terry Atkinson found that only approximately two-thirds held this view about their board. CEOs in our study also nearly universally involve the board in urgent strategic decisions. Such results suggest that the best practices of Nordic companies may serve as a model for companies in other regions that seek to promote greater board involvement in strategy and value creation. We also identified clear improvement areas for Nordic companies and a wide variety of practices for addressing these issues.