At NACD’s Master Class this August, directors from companies like Boingo Wireless Inc., Colgate-Palmolive Co., Kimberly-Clark Corp., GameStop Corp., and the Royal Bank of Canada convened in Laguna Beach, California, for peer-to-peer discussions on strategy, risk, and leading through disruption. One common thread ran throughout the discussions: companies expend enormous resources and efforts to mitigate cyber, geopolitical, and other threats, but they have yet to allocate the same attention to technology disruption. Kelvin Westbrook— president and CEO of KRW Advisors LLC, and a director of Archer Daniels Midland Co., Stifel Financial Corp., and T-Mobile US Inc.—framed the issue this way for Master Class participants: “Companies can survive cyber data breaches, but many don’t survive innovative technology disruption. It’s a bigger deal that we need to address.”
A prosthetic hand created using low-cost 3-D printing technology was demonstrated at the 2015 Global Board Leaders’ Summit. Photo by Denny Henry.
This year’s Global Board Leaders’ Summit puts technology and disruption front and center, with a variety of leading-edge speakers and sessions that focus on these themes. But more than just convening discussions, the director community get hands-on experience with emerging trends via Innovation Nation. This popular feature, launched at last year’s Summit, is back once again, featuring an even more robust cross-section of the trends, technologies, and innovations that are disrupting your businesses and shaping your world. This year’s exhibits include opportunities to immerse yourself in virtual reality, experience the sharing economy at work, and see the latest in drone technology up close. Here is a sampling of who will be on hand:
Dancing With the Start-Ups, a new feature modeled after the popular show Shark Tank, builds on popular sessions from past Summits that gave directors a chance to “Meet the Disruptors.” This fast-paced competition will feature 12 companies across three key industries—healthcare, financial services, and energy— to showcase the latest and greatest in emerging business. Both the competition and a booth showcasing the startup talent in Innovation Nation will offer Summit attendees the chance to meet the entrepreneurs who are hoping to be your next competitors in the marketplace. For those who can’t make the Sunday session, or who just want to get to know the companies a little better, swing by Innovation Nation to learn more about innovative new ways to diagnose malaria, the latest in solar energy technology, the intersection of market data with sustainability, and much more.
Dave Meadows is a self-described “lifelong ‘tinkerer’ and inventor”—inclinations that served him well in his former role as a senior research and development executive with Novartis International AG. Several years ago, Meadows set out to solve a problem that has plagued wine drinkers for nearly 9,000-years—adverse physical reactions, especially when drinking reds. Five years later, The Wand™ was born. This invention removes 95 percent of the histamines and sulfite preservatives from wine. The result—a whole legion of wine enthusiasts who had previously learned to avoid wine can once again partake without the fear of headaches and other adverse reactions. You can experience the power of The Wand™ firsthand and talk to Meadows about and his work in the areas of medical diagnostics, sports medicine, and consumer packaged goods.
Big data and analytics are driving the growth of nearly every business, from heavy hitters like General Electric and Alibaba to early stage start-ups and family farms. This new trend is poised to transform industries, power new business models, enable innovation, and create greater value. According to research from International Data Corporation, worldwide revenues for big data and analytics will grow to $187 billion by 2019—a 50 percent increase from revenues in 2014. But Powerlytics Inc. cofounder Kevin Sheetz cautions that, when it comes to data, big doesn’t mean better, and behind the hype are a number of critical questions boards should be asking to ensure their companies are taking full and smart advantage of this trend. Sheetz will be at the Summit to give directors real-time interaction with the company’s platform, which aggregates publicly available consumer and business financial data from sources like IRS tax returns, the U.S. Census Bureau, and the U.S. Department of Labor.
February 15, 2011 became a milestone in both game show and artificial intelligence (AI) history, as the IBM-designed super computer, Watson, bested previously undefeated players Ken Jennings and Brad Rutter to win Jeopardy! The Watson team has been hard at work in the intervening five years to use natural language processing and machine learning to make sense of large amounts of unstructured data. IBM developers will be available to demo this technology and answer questions about the intersection of AI and analytics.
The Internet of Things (IoT) is reshaping the business landscape in ways that aren’t yet fully understood. The U.S. Department of Transportation (USDOT) is one of many organizations harnessing the IoT to save lives. According to data from the National Highway Traffic Safety Administration (NHTSA), there were more than six million police-reported crashes on U.S. roads in 2015. While the number of people surviving car accidents has increased significantly thanks to airbags, antilock brakes, and other technology, USDOT’s Connected Vehicles program aims to stop many of those crashes from happening in the first place. This unique partnership between state and local transportation agencies, vehicle and device makers, and the public, aims to test and evaluate technology that will enable motor vehicles, roads and other infrastructure, and devices to “talk” to one another so every vehicle on the road is aware of the position of other nearby vehicles. Chris Gerdes, USDOT’s chief innovation officer, will discuss the program Monday on the main stage. Swing by the Innovation Nation to check out this technology, learn more about how you can bring the program to your home city, and get inspiration for how the IoT might just help your own business survive and thrive.
These are just a few snapshots of the incredible line-up of thought leaders and emerging technology at next month’s Summit. Want to learn more? View the full list of speakers and sessions at NACDonline.org/summit.
Meet Jeannine Strandjord, a seasoned public company director whose board experience has spanned information technology to retail, and whose executive résumé includes the role of chief integration officer at Sprint, where she oversaw the transformation of the telecom giant during a period of radical change. She recently spoke with NACD Directorship magazine about her path from being a first-time director to becoming a boardroom leader and shared her best advice for new or aspiring directors.
Just what should newly minted or aspiring directors keep top-of-mind? “First of all, learn what you have to offer to that board,” Strandjord said. “Be sure that it’s something that adds value—not just that you’d like to be on a board. Second, if you really want to serve on a board, you better learn how to network. Meet as many other people as you can and find a great mentor who could be helpful in finding the right board for you. A wonderful mentor provided much of the reading material and later helped recruit me to his board, and I’ve acquired other mentors along the way through networking.”
Strandjord currently raises the bar for boardroom excellence at Euronet Worldwide, MGP Ingredients, American Century Mutual Funds, J.E. Dunn Construction, and the Ewing Marion Kaufmann Foundation. To advance her boardroom education and enhance her director skills, she decided to pursue the NACD Board Leadership Fellowship. “I believe I owe it to my boards to continue my education,” she said. “Continuing education is extremely important for all board members. You can’t be as effective in any endeavor unless you keep up your skill sets, because things are changing too quickly.”
NACD Fellowship, the gold standard for director credentials, is a comprehensive program of study developed to educate directors about perennial and emerging boardroom issues and best practices. Completion of this rigorous program demonstrates a director’s serious commitment to exemplary board leadership. “NACD brings the most value in terms of the education that they provide—and I’ve been to programs at the New York Stock Exchange and the Investment Council Institute,” Strandjord said. “NACD’s program is terrific, and I really believe in it.”
Read the full interview with Jeannine Strandjord in the September/October 2015 issue of NACD Directorship magazine, where she also talks about the biggest disruptors she faced at Sprint, her experience as the first and only woman on a board, and how the decision to pursue NACD Fellowship has shaped her board service.
Future issues of NACD Directorship will introduce you to other outstanding NACD Board Leadership Fellows. To learn more about the program and how you can attain the NACD Fellowship credential, click here.
Dawn Mahler and Jesse Rhodes contributed to this piece.
If a tree falls in the forest, and no one hears it, does it make a sound?
If an NACD Blue Ribbon Commission (BRC) makes a recommendation, and no one heeds it, does it have an impact?
The answer to both questions may be no, but neither question is realistic. You can’t have a forest without living creatures to hear its noises, and you can’t have a BRC without a community to hear its message. So let’s ask instead: “How much do readers of the BRC reports hear?” and “What do they do about it?” Certainly these matters are worth pondering. After all, what is the point of giving guidance if few follow it?
The current issue of NACD Directorship brings this question to life as Ashley M. Marchand interviews past chair Robert E. (“Bob”) Hallagan about the BRCs’ potential for shaping board practices. This blog validates that claim with some of the more convincing findings from NACD’s annual public company governance surveys, referred to here by the year the survey data was collected (titling conventions have varied over time). In conclusion, we will ponder what it all means.
1993 – The BRC on Executive Compensation recommended pay for performance. Before vs. After: Taking NACD’s 1992 and 1995 surveys as respective before and after snapshots, we see directors paying more attention to performance in the wake of this very first BRC report. The 1992 survey showed that corporate performance was the #1 corporate governance issue for only 15% of respondents. By 1995, corporate performance had become a top issue for 52% of respondents.
1995 – The BRC on Director Compensation recommended director payment in equity, with dismantling of benefits. Before vs. After: Whereas in 1995 it was common for directors to receive benefits but no stock, by 1999 the trend was the opposite. By then nearly two-thirds of companies included stock as part of director pay, and under 10% paid benefits.
1996 – The BRC on Director Professionalism recommended executive sessions. Before vs. After: The 1997 survey showed that 10% of companies held executive sessions; the 1999 survey recorded a rise to 44%. The Director Professionalism sold 10,000 copies in its first printing and has been reissued with updated notes and appendices several times since. It was cited in Brehm v. Eisner (2000) for its emphasis on director independence. The Brehm case would lead to the In Re Walt Disney Derivative Litigation (Del. Chancery 2005, Del. Supreme, 2006) over compensation awarded to Michael Ovitz. Also, Justice Jack Jacobs of the Delaware Supreme Court later made the following statement (in a talk at the University of Delaware): “Are corporate guidelines relevant? Yes of course. Consider the Report of the NACD Blue Ribbon Commission on Director Professionalism. With perfect hindsight, one would think that the persons who drafted this document were clairvoyant, because many of their suggestions for best practices have now become law in one form or another” (Delaware Discourses: Governance Guidelines , p. 19).
1998 – The BRC on CEO Succession recommended board engagement in succession. Before vs. After: The 1997 survey showed that CEO succession ranked #5 as a board concern at that time. But the following three surveys would show a steady rise from #3 to #2 to #1 in 20013.
1999 – The BRC on the Audit Committee recommended all-independent membership for the AC (as did a competing “Blue Ribbon Committee” report sponsored by the New York Stock Exchange that same year—a recommendation that would eventually lead to a listing requirement under the Sarbanes-Oxley Act of 2002). Before vs. After: Prior to 1999, audit committees only had to have a majority of independence members, so all-independent audit committees were relatively rare and not even the subject of a survey question. The 2001 survey did ask about committee independence and showed 70% of audit committees as entirely independent. (Percentages went up from there due to passage of new stock-exchange requirements for listed company governance in the wake of Sarbanes-Oxley: the 2003 survey showed that 75.3% of companies reported having only outside directors on their audit committee. By 2005, that percentage had risen to 86.3%.)
2000 – The BRC on the Role of the Board in Strategy recommended that boards make strategy a higher priority. Response to this recommendation was delayed, but decisive. Before vs. After: In 1999, strategy ranked second, after corporate performance. From 2001 to 2004, in seeming contradiction to the Commission’s recommendation, it dropped progressively lower. But in 2005 it rose to number 1 and has held that place ever since.
2001 – The BRC on Board and Director Evaluation recommended formal evaluation of boards and directors. Before vs. After: The NACD had visited the topic of CEO and board evaluation in 1994, but its recommendations at the time had little impact (so it is not listed above). This 2001 BRC came at a better time to ride a wave of interest. The 1999 survey showed 32% of boards conducted evaluations; the 2003 survey showed that 85% did so. This was no doubt due to stock exchange requirements referenced immediately above. But the stock exchange rules themselves were born in part out of the BRC process. In 2001, NACD CEO and President Roger W. Raber testified before the House Energy and Commerce Committee, which asked him to make listing recommendations to the stock exchanges. He submitted those in a letter dated March 4, 2002. Nine of NACD’s 10 recommendations—all based on Blue Ribbon Commission recommendations—subsequently became stock exchange listing requirements.
2002 –The BRC on Risk Oversight recommended that the board play an active role in overseeing risk management. Before vs. After: The 2001 survey showed that only 5% of respondents ranked this issue among their top three. The 2003 survey saw this percentage increase to 26.1%, and the 2005 survey saw it rise to 33.2%—more than one in three respondents.
2003 –The BRC on Executive Compensation recommended an entirely independent compensation committee for all public companies (not just those covered by the Sarbanes-Oxley–mandated stock-exchange rules that would be issued in November of that year). Before vs. After: The 2005 survey showed a rise in overall independence of compensation committees compared to 2003. “Three-fourths (75.9%) of firms overall, up from 65.5% in 2003, indicated that they had only independent outsiders on their compensation committees.”
2004 – The BRC on Board Leadership recommended that boards consider using an independent lead director in cases where they did not have an independent chair.
Before vs. After: In the immediate and near-term aftermath of this report there was an apparent surge in the use of the lead director—even greater than that seen when the “presiding director” disclosure requirement of the New York Stock Exchange became effective in 2003. The 2005 survey indicates that over a third (38.5%) of the boards studied had a designated lead director, almost four times the number (10.0%) shown in the 2003 survey.” The 2007 survey says that “44.8% of respondents’ boards have a designated lead director.”
2005 – The BRC on Director Liability recommended active board oversight of ethics and compliance. Before vs. After: In 2005 the prevalence of board committees to oversee ethics and compliance was 5% (with one in five committees combining with another committee, such as audit or governance). In 2007 the prevalence of a standing committee to focus on ethics and compliance doubled to 11.2%.
2007 – The BRC on the Governance Committee recommended director orientation (as well as ongoing director education). Before vs. After: In 2007, 60% of respondents said that their boards had a policy or program on director education. In 2009, 72.8% said they had such a program.
2008 – The BRC on Board-Shareholder Communications made several recommendations on improving relations with shareholders. Before vs. After: The 2007 survey showed that 80% of respondents considered relations with shareholders to be critical or important; the 2009 survey showed a rise in interest, with 90% seeing the issue as critical or important.
2009 – The BRC on Risk Governance, building on its 2002 predecessor, recommended strong board oversight of key risk factors. Before vs. After. Risk oversight had already been on the rise as a top of mind issue at the time of this survey, moving from a ranking of 14th in 2007 and 2008 up to 6th in 2009, partly as a result of the financial crisis. By 2011 it would rank 3rd.
2010 – The BRC on Performance Metrics recommended inclusion of non-financial metrics when assessing executive performance and awarding compensation.Before vs. After. The 2010 survey explored the use of non-financial metrics such as customer satisfaction, workplace safety, and workplace diversity in setting executive pay. In that year, between 14% and 54% of boards used specific nonfinancial metrics for this purpose. The 2011 survey showed a range of 13% to 50%, and the 2012 survey showed a range of 11% to 39%. So for the near term, at least, this BRC clearlydid not change board behavior. The 2015 BRC report, which will focus on the importance of long-term value, will revisit this issue and build on this foundation.
2010 – Issued in the same year as the BRC study of performance metrics, the BRC on the Audit Committee recommended that the AC and board assess the “tone at the top,” including ethical performance of senior management. Before vs. After. The 2010 survey showed that 76.6% of companies measured ethics; the 2011 survey showed that 79.3% measured did so; and the 2012survey showed that 82.1 did.
2011 – The BRC on Lead Director (like its predecessor on board leadership) recommended continued use of the lead-director role as a viable alternative to an independent chair. Before vs. After: The 2011 survey showed that 65.4% of respondents sat on boards with lead directors; the 2012 survey showed 82.8% had a lead director; the 2013 survey showed “three quarters.”
2012 – The BRC on Board Diversity recommended inclusion of diversity of personal identity as one of several value-adding dimensions (along with diversity of experience and expertise). Before vs. After: In 2014, 77% of boards had at least one woman director%, up from 72.6% in 2012 and 68% in 2011 (no data for 2013). Impact on minority representation was not as positive.
2013 – The BRC on Talent Development recommended that the board put more focus on talent—and that talent cascade. Talent management stayed flat before, during, and after this BRC was issued. Surveys from 2010 to 2014 all showed that talent management ranked 5th—so the BRC did not raise this issue any higher than it had been. Note, however, that this was up from a much lower ranking (16th, calculated by a slightly different method) in 2009. In this case the survey was a lead, and the BRC was a lag.
2014 – The BRC on Strategy Development recommended that the board get involved in strategy earlier and more dynamically. Our 2015 survey just went into the field, so we don’t yet have results.
In 2015, the NACD’S Blue Ribbon Commission will focus on Value Creation, reprising the theme of the performance metrics BRC, which was a good half decade ahead of its time. The new Commission’s first meeting on April 9 included a lively exchange on the intersection of public and private interests, with both public servants and corporate directors engaged in the discussion. Luminaries in the room included not only this year’s BRC co-chairs Karen Horn (board member at Eli Lilly & Co.) and Bill McCracken (former CEO and chair of CA Technologies [now CA Inc.]) but also former Gov. John Engler of Michigan and former Sen. Olympia Snow of Maine, both retired from political leadership but active on corporate boards. NACD Chair Reatha Clark King and other BRC veterans (notably including NACD president and longtime BRC ex-officio member Peter Gleason) carried forward past wisdom even as all looked ahead.
Caveats and Conclusions
So, based on the foregoing, can we say that NACD BRC reports change the governance world? Maybe not, but they certainly do make ripples.
With 21 BRCs to date, and multiple recommendations per BRC (typically 10), overall impact is hard to trace. Proof of impact is more circumstantial than scientific, even with the many positive findings above. The surveys themselves present a moving target, as field dates, wording, response rates, and target populations have changed over time. Even BRC release dates vary, as some took more than a year to produce (there were no reports in 1997 or in 2006). Furthermore, there are other factors—such as new laws and investor pressure—affecting board behavior; so a mere change in a BRC-compatible direction does not mean much in itself. And even when change does occur in the wake of a BRC recommendation, independent of any other known causal factor, we can’t know for certain which came first: the respondent boards’ impetus to change or the BRC they read. (That is, did NACD foresee an impending change and thus mirror or reinforce it in their recommendations, or did the BRC reports in fact alter reality?)
All these caveats aside, survey findings have been instructive in assessing BRC impact. My “null hypothesis” was that no correlation exists between BRC recommendations and subsequent board behavior. My challenge was to disprove this hypothesis—to show that, in some cases, there is indeed a positive correlation. I made this case by comparing what the survey data showed about the issue shortly before and shortly after a BRC recommendation. The raw data stream indicates that, even when legislative and investor co-impacts are taken into account, BRCs accurately predicted trends and/or may have influenced them.
To be sure, there were negative or flat examples as well—two instances in which the data stayed the same or moved in the opposite direction from a recommendation, indicating ignorance or disregard of a key recommendation. These instances were rare, however, and may have needed more time to play out. The 1994 BRC on evaluating the CEO and the board did not change behavior, but it laid the groundwork for the 2001 BRC on evaluation, which did. And the 2010 BRC on performance metrics and 2012 BRC on board diversity have not yet moved the needle, but their influence may unfold over time. NACD will revisit both topics in 2015. As mentioned earlier, this year’s BRC will focus on value creation, and we plan to launch a new diversity initiative, paying sustained attention to the related issue of talent.
Clearly, there will always be a sound somewhere when a tree falls in a forest, just as there will always be some impact when a new BRC emerges. Get ready for the boom!
The following links lead to the most recent editions of these uniquely useful reports.