The Environmental and Competitive Disruptors That Lie Ahead

July 23rd, 2014 | By

More than 100 directors gathered at The Ritz-Carlton, Denver on July 15 to learn about competitive and environmental forces that can disrupt business as usual.

The half-day symposium was the second of three NACD Directorship 2020® events this year. The forums are addressing seven disruptive forces (competition, demographics, economics, environment, geopolitics, innovation, and technology)—the major trends and transitions expected to drive significant change for companies and industries in the near future—and the implications for the boardroom.

Environmental Disruptors

Linda J. Fisher, vice president of safety, health, and environment and chief sustainability officer at DuPont, called attention to five key sustainability trends: population growth, water supply, climate change, resource scarcity, and circular economies.

Population growth. The earth’s population is expected to reach nine billion by 2050. Population growth will lead to increased demand for food and other goods, while supply may be limited. This could lead to price hikes, increased regulation, and shortages.

Water supply. Water will become limited somewhere within businesses’ value chains, potentially affecting—among other things—transportation of goods. In December 2012 and January 2013, low levels in Mississippi waterways resulted in more than $6 billion in commodity losses when barges carrying goods were unable to pass through the river, according to waterways groups.

Climate change. The Intergovernmental Panel on Climate Change reported last year that they are 95 percent sure that human activity is primarily responsible for global warming.

Resource scarcity. Focus also should be placed on resource efficiency concentrating mostly on improving building performance and food waste reduction.

Circular economies. Also gaining traction is the trend of circular economies in which products are designed so they can be used, deconstructed, and have the remaining materials captured for reuse or recycle.

And while companies are accustomed to the government regulating environmental issues, concerned consumers now are playing a regulatory role. These consumers increasingly are business savvy, understanding the degree to which companies rely on their reputations and brands. Activist consumers can call negative attention to a company’s brand until they see the change for which they have advocated.

These increased demands mean that companies should stay abreast of environmental and sustainability issues. There must be a balance found between sustainable market growth, environmental stewardship, and social responsibility.

Competitive Disruptors

Adam Hartung, managing partner at strategy consultancy Spark Partners, CEO of Soparfilm Energy Corp., board member of 6 Dimensions, and an NACD Fellow, shared his thoughts and concerns about the impact of competitive disruptors and how boards should help set the competitive edge at their companies.

People often think about bankruptcy filings as being the sign of business failure, but Hartung proposed that business failure begins when a company loses its relevancy.

He said the biggest risk to companies’ competitiveness is getting stuck maintaining the status quo. The secret of being successful in today’s marketplace is to overcome the “lock-in” to past successes.

Hartung detailed four steps that boards could take to stay competitive:

  1. Focus on trends and potential future competitors, rather than on companies that have been competitors in the past.
  2. Shift direction away from current solutions and customers’ desires and instead steer more toward marketplace needs and competitors.
  3. Ask how your company can disrupt the marketplace—not just how it can do things better, cheaper, and faster.
  4. Allow for white space innovation, in which creative thinkers (outside the board of directors) can develop business or product ideas that are outside the status quo. White space innovation can lead to ideas that will set the competitive curve in your industry.

No Comments »

Responding to Activist Challenges in the Boardroom

July 17th, 2014 | By

Recently, NACD convened the spring 2014 meeting of the Nominating and Governance Committee Chair Advisory Council. Delegates discussed the impact of activist investor challenges in the boardroom, with guests Janet Clark, a former director of Dell and Bill McCracken, a former chairman of CA Inc. This session built on dialogue from the council’s previous meeting in November 2013, where delegates discussed shareholder activism from the investor perspective with two representatives of activist hedge fund Trian Partners: Nelson Peltz, CEO and founding partner and Brian Schorr, partner and chief legal strategist. Insights from the April meeting include:

  • Understand the specifics of key investors’ profiles and priorities: Boards should ask management to report on takeaways from the company’s dialogue with “both sides of the house”—that is, those making investment decisions, as well as those who vote the proxy statements.
  • Activist campaigns often have a significant impact on board dynamics: Directors may have differing views on how to respond to an activist campaign, which can create tension among board members.
  • Senior management should maintain a focus on employees during an activist campaign. Many delegates agreed with one who urged boards to keep an eye on culture and employees: “We have to keep generating revenue and retaining our talent, in an uncertain and potentially very contentious environment.”
  • Use outside perspectives to help prepare for potential activist challenges:Independent assessments, including analyst reports, shareholder surveys, and third-party reviews of board members’ tenure and skill sets, as well as perspectives from the firm’s independent advisors, can be useful in this regard.

The forum also included a discussion on building the boardroom of the future through effective “board refresh practices.” For an in-depth discussion of these and other insights and questions, click here to read the full Summary of Proceedings.

No Comments »

How Boards Can Strengthen the Risk Oversight Dialogue With Management

July 10th, 2014 | By

This spring, members of the NACD Advisory Council on Risk Oversight convened in Washington, D.C., to discuss how boards can strengthen their dialogue with management on risk oversight. Participants—including Michael Hofmann, the former chief risk officer of Koch Industries and current director of Calpine—shared experiences, lessons learned, and effective approaches for embedding risk in board-level strategy dialogue. From that discussion—detailed in the meeting’s Summary of Proceedings—delegates focused on these steps directors can take. They include:

  • Establish a clear definition of what “risk” means at the company: For management and the board to work together, they need to establish a shared definition of what risk means to the company.
  • Monitor the company-wide risk culture: Directors should ensure that the company has a culture that supports the discussion of risk throughout the entire organization and is seen as part of the company’s fabric.
  • Avoid the trap of false precision: Looking at only the expected return of a new business program or strategic move can restrict dialogue and lead to minimization of the potential downside.
  • Get out of the weeds by taking a deep dive: To help counteract the tendency of boards and management to focus on operational, regulatory, and financial reporting risks, many boards conduct an annual “deep dive” or “off-site” meeting. These meetings are dedicated to thinking about, understanding, and challenging assumptions of strategic moves and risks.

The Summary of Proceedings also investigates ways in which directors can and do incorporate these practices into their boards’ activities. NACD members can click here to access the full list of takeaways.

No Comments »