Complexity and the Boardroom

October 14th, 2014 | By

At the final plenary session of the 2014 NACD Board Leadership Conference, NACD President and CEO Ken Daly spoke with Steven Reinemund, director of Walmart, Exxon Mobil, Marriott, and American Express, and Gen. H. Hugh Shelton (Ret.), chairman of Red Hat and director of L-3 Communications on the issue of business complexity. The current environment is dynamic, fast-paced, and tumultuous, Daly observed. Not only must boards stay vigilant of disruptive forces—including those identified by NACD’s Directorship 2020®: economics, geopolitics, competition, technology, demographics, innovation, and environment—these forces rarely appear solo. Indeed, multiple forces can strike a company at once, creating a formidable force: complexity.

Drawing from his military background, Gen. Shelton suggested applying a process of “branches and sequels” in boardroom discussions to reduce unknown factors. This process requires that strategy development takes into account all possible actions of your adversaries or competitors—forcing directors to consider the “knowns and the unknowns.”

Reinemund used different terminology to address unknown and unanticipated factors. He said that boards may wish to view disruptors and risks through both offensive and defensive lenses. Most importantly, boards must also combine the two. Although defensive moves can be easier for boards to understand and address, by considering offensive actions the board can help move the business forward.

Turning to the topic of innovation, Daly noted that an unusually high number (95%) of the Standard and Poor’s 500 company earnings have been used to buy back stock or pay dividends. He posed the question: does returning earnings to shareholders reduce or limit the funds available for innovation or acquisitions?

Both panelists agreed that many companies have a large amount of cash available, but often the board can’t find a potential acquisition that fits the company strategy, or the target has such a high multiple that it is not a good purchase. Despite these potential issues, though, the panelists agreed that most large companies need to invest in innovation, through acquisitions or otherwise. Above all, the board has to think in terms of the amount of risk they are willing to take and—if necessary—encourage management to make innovation a priority.

The session ended with a discussion on board accountability. The panelists noted that directors must hold each other accountable for recruiting the right leaders, keeping their skills current, and maintaining the right mix of directors on the board.

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Future Trends in Market Disruption

October 14th, 2014 | By

Seasoned venture capitalists during a keynote session this morning at the 2014 NACD Board Leadership Conference discussed future trends in marketplace disruption.

Scott Kupor, director of the National Venture Capital Association and managing partner at the venture capital firm Andreessen Horowitz, said that from an entrepreneurial standpoint, the so-called next big thing is whatever a business is doing to be innovative in their field. What many entrepreneurs are doing is streamlining the chain by which products or business ideas make it to market. They’re getting rid of the middle man.

John Backus, managing partner of venture capital firm New Atlantic Ventures, highlighted the importance of companies being aware, and staying ahead, of upcoming trends. As an example, Backus recalled a past employer, a home phone company in the 1990s that was so focused on its way of doing business that it totally missed the technological innovation of the Internet. Companies can essentially be wearing blinders, seeing only what they and their three or four nearest competitors are doing, ignoring the potential for disruptive innovation.

Kupor said his firm missed out on becoming an early investor in Airbnb.com–a San Francisco-based startup founded in 2008 that allows people to list rooms in their homes as being available for temporary rental instead of a hotel. Airbnb is now connecting people to available rooms–or couches to sleep on, in some cases–in 190 countries and more than 34,000 cities. Kupor said that the mistake that he and his team of investors made was in limiting their thinking to whether they would use the service. Their group wouldn’t, so they decided not to invest in the business; however, they later realized that many other people would use the service, so Kupor’s team later decided to invest in Airbnb.

“Big businesses have a really hard time changing the way they do business,” Backus said. “If you don’t innovate, somebody’s going to do it for you.”

Bill Reichert, managing director of Garage Technology Ventures, said that when a company finds out about a new innovative idea, corporate directors can’t just sit in the boardroom at the strategic level and say: “We’ve got to watch that, monitor that.” A company must react.

That reaction can play out in a variety of ways, depending upon the innovation and the industry.

Backus said that in some cases, companies react with merger and acquisitions. They purchase a company whose innovation might be disruptive and competitive to their company’s strategy. Then, they can either foster that innovation and bring it to market, or–in some cases–shutter the innovation to get rid of the threat of competition.

Other companies decide to invest in research and development hubs overseas, outsourcing their innovation to less expensive and more highly concentrated development teams in other countries.

Still other companies spin off their own team of venture capitalists to travel and seek innovative technologies in which to invest.

All the panelists agreed that the key to staying ahead of marketplace trends, after becoming aware of potential innovative ideas, was to take action. In other words, innovation ignored is a bad business practice.

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In Conversation with James Jones

October 14th, 2014 | By

As the business world is continuously reshaped through advances in technology, growth of new markets, and changing political landscapes, the issues that arise in both the public and private sectors have become increasingly complex. The international crises that dominate news headlines today–the emergence of the Islamic State, the ongoing war in Syria, and the crisis in Ukraine–will play a part in redefining global markets and impact how companies operate in the future. In a conversation with NACD Senior Advisor Jeffrey M. Cunningham, Gen. James L. Jones, USMC (Ret.), former national security advisor to President Barack Obama, Supreme Allied Commander Europe and Commander of the U.S. European Command, and 32nd Commandant of the Marine Corps, shared his perspectives on international policy and global competitiveness.

Gen. James Jones (Ret.) NACD Conference

We are living in dangerous times. Terrorist groups are the common enemy, but unlike the uniformed antagonists this country faced in the conflicts of the 20th century, these insurgents are asymmetric, omnipresent, and far from an easily contained problem. “We need leadership,” Jones said. “And leadership has got to have moral courage and the dedication to do the right thing at the right time. If you wait too long it’s hard to put things back together.” The new challenge of American leadership is, however, forming coalitions to effectively address these problems on the battlefield, as well as in the boardroom.

Looking at the trajectory of the United States in the 21st century, Jones looked to the past. By 1950, the United States had evolved into a global power with considerable presence on the international stage. That standing, however, is currently in flux, namely because this is a century of competition. “We have economic challenges coming from China, the European Union, Brazil, India, a whole host of areas. And how we compete with those areas is going to dictate where we will be in 2050.”

To enjoy the level of success in 2050 that we enjoyed in 1950, Jones said that the public and private sectors need to work more closely together. “All of our competitors are joined at the hip between public and private interests, and we don’t do that very well,” he said. “The pillars of governance and rule of law need to play a large role in that.” To that end, he added: “I think we talk too much. Before you talk about tactics, you need to make sure you have a strategy.”

Jones also emphasized the need for leaders to foster constructive relationships. Reflecting on his time as national security advisor, he remarked on President Obama’s inclusiveness during cabinet meetings. Jones shared that regardless of politics, President Obama sought out the perspectives of everyone at the table and ensured that anyone who had equity in the issue at hand was heard. And on a global scale, Jones observed that personal relations between heads of state drive the relations between nations.

When asked for his perspective on Edward Snowden, a figure who is as revered as he is reviled, Jones commented: “I don’t have a lot of respect for people who take the coward’s way out. There’s a way to work within the system and taking a lesser traveled road [to say what you need to say] is, in my way of thinking, not honorable and not good for the country. I completely stand behind the leadership aspect of moral responsibility. Leaders are responsible for everything their units do or don’t do. And I think that’s true of the private sector, as well as the public sector. It’s a matter of standing up for the right thing.” He also emphasized the need for leaders to understand the meaning and the impact that their privileged positions carry. “It’s easy to stand up and take a bow, but there are times when you need to stand up and take a hit and you need to be willing to do that.”

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