Archive for the ‘Corporate Governance’ Category

Voluntary Public-Private Partnership on Cyber-Risk Oversight

July 30th, 2014 | By

On Tuesday, the U.S. Department of Homeland Security selected and posted the NACD Director’s Handbook on Cyber-Risk Oversight on the Critical Infrastructure Cyber Community (C3) Voluntary Program website. At a press conference yesterday, four panelists, Ken Daly, president and CEO, NACD; Mark Camillo, head of cyber products for the Americas Region, AIG; Larry Clinton, president and CEO, ISA; and Dr. Andy Ozment, Assistant Secretary for Cybersecurity and Communications, DHS, spoke generally about cybersecurity as an issue for directors, and specifically about the contents of the handbook, created by NACD in association with AIG and ISA, which focuses on cybersecurity oversight at the board level.

Larry Clinton observed that the first of two goals for combatting cyber risks at board level is to raise awareness of cybersecurity as a risk directors must oversee. NACD has been actively engaged in educating the board member community on cyber issues for some time. In summer 2013, The Art of Cyber War graced the cover of NACD Directorship, followed by coverage in subsequent issues; NACD has held multiple roundtables and events focused on cybersecurity issues, including a day-long cyber-risk summit in Chicago, and has built the topic into the flagship Master Class program. In addition to the director’s handbook, other recent NACD thought leadership includes the white paper Cybersecurity: Boardroom Implications and a video series focused on technology and cybersecurity.

On Tuesday, Dr. Ozment emphasized the fact that cyber risks affect organizations of all sizes, sectors, and industries, stating that a director who doesn’t know about cyber incidents falls into one of two categories: either “your CEO doesn’t think you care about cyber incidents,” or “your CIO doesn’t know about the cyber incidents.” He followed with, “unfortunately the bad guys are doing more for cybersecurity awareness than any one of us can do.” Clinton’s first goal, realizing the “why” of cyber-risk oversight at board level, has been scarred into directors’ understanding.

Clinton’s second goal is simple but even more challenging: we have to work together to “solve it.” According to the forthcoming 2014-2015 NACD Public Company Governance Survey, 90 percent of directors believe their boards’ understanding of cyber risk needs improvement. Though directors get the “why,” they need guidance on the “how,” advice practical to boards’ oversight of cyber risk.

The NACD Director’s Handbook on Cyber-Risk Oversight provides insight into the “how.” Daly stated that cyber “is simply another risk [that] fits within the enterprise risk management system.” Camillo indicated that the handbook’s five principles “can be used immediately” and applied to an organization’s existing ERM program:

  • Principle 1: Directors need to understand and approach cybersecurity as an enterprise-wide risk management issue, not just an IT issue.
  • Principle 2: Directors should understand the legal implications of cyber risks as they relate to their company’s specific circumstances.
  • Principle 3: Boards should have adequate access to cybersecurity expertise, and discussions about cyber-risk management should be given regular and adequate time on the board meeting agenda.
  • Principle 4: Directors should set an expectation that management establish an enterprise-wide cyber-risk management framework with adequate staffing and budget.
  • Principle 5: Board-management discussions about cyber risk should include identification of which risks to avoid, accept, mitigate, or transfer through insurance, as well as specific plans associated with each approach.

Daly further emphasized the “voluntary public-private partnership” between NACD, ISA, AIG, and DHS reflected in the fact that the handbook is the first, and currently only, private-sector document featured on the DHS C3 Voluntary Program website. The concept of cross-sector partnership to combat cyber risks is a centerpiece of the president’s 2013 executive order, Improving Critical Infrastructure Cybersecurity. The handbook’s release signifies that the partnership-based approach is bearing fruit and the private sector is taking responsibility for cyber risk. Dr. Ozment agreed, stating that “managing cybersecurity is a shared responsibility,” and this handbook demonstrates widespread acceptance of the NIST cybersecurity framework. The handbook’s creators’ combined cyber, risk, and governance expertise to provide recommendations, broadly applicable to directors of all economic sectors, for combatting a national and international problem.

Through the Boardroom Lens

July 25th, 2014 | By

Directors attending the recent NACD Directorship 2020® event in Denver, Colorado engaged in group discussions about how boards can anticipate and effectively respond to environmental and competitive disruptors in the marketplace.

The half-day symposium at the Ritz-Carlton on July 15 was the second of three NACD Directorship 2020 events this year addressing seven disruptive forces and their implications for the boardroom. Summaries of the Denver speakers’ main points are available here.

Following each speaker, directors developed key takeaways for boards. Those takeaways fell within the parameters of the five elements of effective board leadership defined at last year’s NACD Directorship 2020 forums: strategic board leadership and processes, boardroom dynamics and culture, information and awareness, board composition, and goals and metrics.

Environmental Disruptor Takeaways

Strategic Board Leadership and Processes

  • Crisis response plan. Ensure that the company has a contingency plan in place that takes into account a potential environmental crisis. The plan should include how the company will respond to disruptions in the supply chain and production cycle, as well as to employees, customers, and investors.

Boardroom Dynamics and Culture

  • Culture. Boardroom culture should reflect that directors are ready and willing to be held accountable for environmental or climatological issues that arise for the company.

Information and Awareness

  • Engagement. The company should have an established communications plan to use in response to requests from shareholders and stakeholders regarding environmental matters.

Goals and Metrics

  • Green metrics. Becoming a sustainability-focused company requires adopting a long-term commitment to the cause. The board can communicate that commitment by establishing environment-related performance metrics that align with the corporate strategy.

Competitive Disruptor Takeaways

Strategic Board Leadership and Processes

  • Board agenda. Set aside time on the board agenda to discuss forward-looking strategy, so that the board’s focus is not limited to reviewing the company’s past performance.

Boardroom Dynamics and Culture

  • Culture. Fostering innovation requires risk. The culture throughout the organization should support failure and risk taking within the company’s tolerances. Also invite outside experts—or “white space” teams—to help trigger new, innovative thoughts.

Board Composition

  • Composition. Board composition should reflect a diversity of thought and experience. Regardless of background, directors should be willing to ask probing questions and stay aware of marketplace trends.

Goals and metrics

  • Understanding the marketplace. Management should be able to answer who future competitors might be and what trends might gain traction.

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.