Author Archive

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.

Cybersecurity: A Wickedly Hard Problem

October 13th, 2014 | By

This morning, Ken Daly, president and CEO of NACD, kicked off the second day of the 2014 NACD Board Leadership Conference with the announcement that NACD now has more than 15,000 members. NACD’s focus on timely and relevant information, changing the “unknown unknowns” to “merely uncertain,” is a key driver of the organization’s growth, according to Daly. He then went on to introduce the morning’s keynote speaker, White House Cybersecurity Coordinator Michael Daniel.

Michael Daniel at NACD Board Leadership Conference

Daniel opened his address with the declaration that “cybersecurity is one of the defining challenges of the 21st century.” He noted three macro trends that underlie the cyber threat, as it is

  • more diverse, we are moving from a wired internet to a mostly wireless one;
  • more sophisticated, malicious actors are dividing themselves into companies to levy their expertise; and
  • more dangerous, these actors show willingness to up the scale, to not only disrupt, but attempt to destroy data.

From a technical level, cybersecurity ought to be easy,” said  Daniel, but cybersecurity is much more than a technology problem–it is a technical, economic, psychological, business, physical, and political problem. “Many of these fundamental weaknesses have remained for years, and until we understand these listed human factors, we will continue to fail at this problem.”

In addition, Daniel mentioned an interesting analogy that touched on the impossibility of using a single group to monitor cybersecurity. In this scenario, everyone in the United States lived right on the Rio Grande River. With everyone living on the border, the federal government could not feasibly serve as the only entity in charge of border security. Extending this analogy to the Internet, which lacks an interior, just about everything touches a border in some manner. “Because of this, we cannot assign cybersecurity to just one part of the government or society.”

In that vein, partnerships–both between the government and the private sector and within the private sector–are key elements to defeat malicious actors, according to Daniel. He stated that there are two keys to building these partnerships: through reducing barriers; and encouraging companies to share more information. One former barrier, antitrust laws, should no longer be an impediment to cybersecurity information sharing.

Daniel concluded his address by saying that even though cybersecurity is a “wickedly” hard problem, we are starting to attack it across more dimensions. By working collaboratively across sector and company borders, we have access to many types of tools to address this growing issue.

NACD Chairman’s Address

October 12th, 2014 | By

Following their inspiring message of peace and love, Dr. Reatha Clark King, chairman of the National Association of Directors, thanked the World Children’s Choir, for “reminding us who holds the future.” She remarked that the numbers at the NACD Board Leadership Conference continue to grow, “tracing diverse participation in every way.”

Dr. King focused her remarks on the idea of the future saying that we are “watching entirely new landscapes rushing to us at lightning speed.” She took William Gibson’s quote: “The future is already here, it is just not evenly distributed yet” and applied it to the audience by stating that “the future is here and having a direct affect on our companies and boardrooms every day.”

Dr. King observed: “New times call for updated challenges for board leadership” and recommended five areas of focus for the updated agenda:

  1. World class excellence in board governance functions: Emphasize the basics. If we don’t take care of the basic functions we won’t have time to take care of the next compelling need.
  1. Innovation: Enable value creation to benefit shareholders, investors, customers, communities, and other stakeholders.
  1. Harness the transformational effects of new discoveries: Mitigate the risks and potentially harmful effects from these discoveries.
  1. Understand and embrace a broad view of our companies’ contributions to society: We need to shift away from being “place-bound” thinkers to being “global” thinkers.
  1. Communicate and keep the public’s trust: The challenge is to communicate clearly with stakeholders.

Warren Bennis has said: “Lleadership is the capacity to translate vision into reality,” and Dr. King pointed out that a major challenge for directors is, “to lead when the rate of change is accelerating rapidly.” She continued by noting that the concept of change is not new; to keep businesses fresh there must always be change. Now, however, simply keeping up with the pace of change is not enough, it is a matter of wholesale reinvention. She mentioned a number of companies and ideas embracing change such as Uber, Lyft, Zipcar, Airbnb, Coursera, Bitcoin, and Square that exemplify the idea—“revolution is relevance.”

Dr King concluded by observing that we cannot wait for the future; the future is here now. There are four things that directors must do in order to ensure their organization’s relevance:

  1. Learn what is coming;
  2. Observe where others are headed;
  3. Envision possibilities; and
  4. Inspire progress.