Author Archive

Eye of the Storm: The New Face of Global Risk

October 15th, 2013 | By

Droughts, heat waves, floods, and hurricanes: extreme weather events are on the rise. In 2012, worldwide incidents resulted in more than $130 billion in damages. As Jeffrey Cunningham, NACD managing director and senior advisor remarked: “Everyone talks about the weather, but no one does anything about it.” In the closing plenary session of the 2013 NACD Board Leadership Conference, he was joined by Hon. Eileen Claussen, president of the Center for Climate and Energy Solutions, and Jeffry Sterba, CEO of American Water, to discuss the most underestimated risk in the boardroom: volatile weather.

The Need to Oversee Weather-Related Risk

Not only do weather-related events destroy lives, they can significantly impact capitalism and profitability. Between the years 2001 and 2004, the earth experienced  the five warmest years since 1861. In 2012 alone, there were about 800 global weather- related incidents that cost more than $130 billion in damages.

Both Claussen and Sterba encouraged attendees to assess their critical customers, and ask: what are the potential impacts that volatile—not just extreme—weather can have? For example, Claussen asked: “Does your company have data centers that are heavily dependent on power or water? What if those services are lost?” Beyond data centers, how vulnerable is your supply chain, which tends to be global?

“The effects on urban areas,” Sterba observed, “are magnified by the sheer amount of people.” Further, many of the current major cities were developed centuries ago, without the intent of handling significant weather. In a recent study, New York City was least prepared for a flood. Amsterdam, however, is far more prepared, as it has had to withstand floods for centuries.

Developing a Process

To help companies develop processes to mitigate and work through weather-related risks, Claussen suggested drawing a map. “Figure out where everything comes from and the vulnerabilities in each of those locations,” she said.

Sterba added that it’s also important to examine climate change outside the political arena. “Think of it as a business challenge and consider the risks climate change presents for your business,” he said. “How do you manage the risks and opportunities presented?”

Blue Ribbon Commission Report on Talent Development

October 15th, 2013 | By

As the marketplace grows in complexity and turbulence, it is increasingly clear that true  success depends on people. As boards face more disruptions, they will need to ensure the company has the right skills and agility in the talent pipeline to meet these challenges. This topic—talent development—was the subject of this year’s Blue Ribbon Commission (BRC) report. In the second session of Tuesday’s Board Leadership Conference, NACD’s Managing Director and CFO Peter Gleason was joined by the chairs of the 2013 Report of the NACD Blue Ribbon Commission on Talent Development: A Boardroom Imperative Gregory Lau, managing director of the board of directors practice at RSR Partners, and Mary Pat McCarthy, director of Mutual of Omaha and Tesoro, to discuss the commission’s findings and examine the “next” practices in executive talent development.

Why Talent Development?

The reasons for the board to prioritize talent development are obvious. Over 50 percent of a company’s expenses are related to talent and people. “With the right talent,” observed McCarthy, “you can take on more risk than you might otherwise be able to do.” And yet, for the first time in decades, the talent pool is shrinking. When companies do find themselves at an inflection point, they may not easily have the necessary talent on deck.

Both chairs observed that traditionally, the board has focused on CEO succession. One of the report’s recommendations, however, is to have a multi-level, multi-year talent pipeline overseen by the full board. “Directors,” according to McCarthy, “need to think beyond the CEO and the current year.”

Building vs. Buying Talent

Directors need to take a critical look at the organization’s hiring philosophy. Does the company develop and promote from within, or hire from outside? Although there are situations that may require a significant external recruitment strategy—for example, a turnaround situation—internal hires are often less expensive and on average more successful.

Further, oversight of the talent pipeline should not be a “start and stop” process. The chairs recommended that the board continuously monitor the talent pipeline. Directors should spend time as a board thinking about strategy and the skills the company is going to need, and actually allocate time to do a deep dive. Going beyond the company, Lau recommended looking at competitors’ talent to figure out how they are developing their pipeline. A red flag for directors should in fact be that their competitors are consistently recruiting talent from them.

Strategic Human Resources Function

At BRC meetings, a significant portion of the debate was where the authority of talent development should rest in the company. The commission came to the conclusion that the human resources function should serve as a “strategic architect” to the company. The chief human resources officer or equivalent position, in fact, should make sure that the talent development process is “constant, moving, with good results,” according to Lau. “That person should have time on the board agenda, throughout the year, talking to the directors on talent.”

The Report of the NACD Blue Ribbon Commission on Talent Development: A Boardroom Imperative is available at the NACD Bookstore and free to download for all NACD Full Board Members.

In Conversation With David Selinger

October 15th, 2013 | By

Throughout Monday’s plenary sessions, a key message from panelists was the need for directors to blend quantitative—harder—data with qualitative—softer—complements. For example, a focus on shareholder return but with a stakeholder view, the intersection of situational awareness and the ability to use intuition, or the need to harness qualitative data with application of context. In an interview with Jeffrey M. Cunningham, managing director and senior advisor of the National Association of Corporate Directors, RichRelevance Co-founder and CEO David Selinger shared how directors can bring big data into the boardroom.

To a room full of attendees admittedly dissatisfied with the level of technological literacy on their boards, Selinger relied on his expertise in the field of e-commerce data analytics and groundbreaking work leading the research and development arm of Amazon’s data mining and personalization team.

The Creation of Data

The amount of data created today, and available for mining, is outstanding. As of 2012, 2.5 exobytes of data are created in one day. In 2004, the Internet traffic per month was 1 exobyte. According to Selinger, this figure both exemplifies the risk and the opportunity big data presents. For example, the current iPhone has the ability to tell Apple Computer where its user is at all times. Businesses can use this data to pinpoint the best offers and products that consumers may be interested in.

“All the different data around a consumer is the same as 100 years ago,” said Selinger, “but our ability to harness it has fundamentally changed.” Even broader, big data has significantly altered the rules of business competition, especially in Silicon Valley. Governance, however, has not yet adapted to this shift and technological pace. “Boardrooms are not designed to handle situations in which the tenets of the organization are subject to fundamental restructuring in just five years.”

Lessons for Directors

So what can directors do to tackle the unavoidable big data trend? From his experience as an executive and a director, Selinger observed that “the best thing my boards have done is force themselves to ask themselves the hard questions.” In many cases, the hard questions are the simple ones. How does this new product or technology impact our business? “It is the willing to be somewhat pedantic, somewhat provocative.”