The Sarbanes-Oxley Act of 2002 - which makes boards of directors more directly accountable for their companies’ financial affairs - is also having an effect on the overall leadership environment for many manufacturers. As these companies redefine expectations for their board members, they’re also revising management structures to better support their organizations’ strategic objectives and long-term health.

Even companies without boards have recognized the need to engage principal stakeholders more directly. Across the manufacturing sector, the principals of manufacturing companies large and small are intensifying their involvement in the fundamental areas of business performance.

What directors need to know

There are several key indicators of business health that the new principals will need to understand. Financial performance is the most obvious factor. Unfortunately, few reporting systems combine the short- and long-term perspectives that boards will want.

Market performance is an intensely important issue to the new manufacturing leadership. This includes a desire to understand customer segment profitability, customer satisfaction, marketplace competition, and branding strategies.

The health of the organization’s culture is also a key concern. Forward-thinking principals understand the importance of company culture for efforts to improve employee retention, enhance talent recruitment, and encourage leadership development - all essential to the company’s long-term growth and productivity.

Perhaps most of all, they’ll want to invest more energy in implementing business strategies and monitoring attendant risks. Even the best strategies won’t work unless they are effectively implemented, and that requires commitment from all stakeholders. 

New roles for executives

For executives, involving board members or other principals in core performance goals often requires a fresh approach. The information exchange process must be expanded beyond the basic profit-and-loss statement that many principals are accustomed to seeing. Executives must spend more time communicating strategic information, data and business metrics. Even if that information is readily available, group decision-making processes must often be revamped.

Principals are also becoming more involved in core planning activities such as short- and long-term objectives, value creation, and strategic initiatives. Executives must invest the time to link actions and metrics to strategy, then revise and refine their communication processes.

The upside of this movement is an evolution toward a new generation of board members and management leaders willing to take on the new responsibilities along with a more active role in the state of their companies. These Sarbanes-era leaders often seek out deeper insights into their companies’ long-term survival plans, market strategies, and risk-and-regulation environments. To harness this energy, executives may want to match strategic initiatives to particular principals based on their skills, their experiences, and even their personal interests.

Encouraging greater involvement from key principals requires different mindsets and new commitments. Manufacturing execs may have to overcome longstanding traditions, poor communication channels, and conflicting interests. Executives accustomed to making strategic plans independently might find themselves exposed to new judgments and perspectives, but opening up the process will also result in stronger buy-in and a sense of shared responsibility.

Higher involvement, higher returns

Board members and principals who develop a deeper understanding of their companies’ overall health and performance can become assets to manufacturers’ leadership teams. Likewise, executives and managers who develop broader company perspectives can more effectively work with their more-involved principals.

Information is power, and regardless of where they sit within the organization’s leadership structure, key decision-makers must have a complete and honest picture of the health of their business in order to contribute to that health.