Archive for the ‘Risk Management’ Category

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.

In Conversation with Dona Young and Carolyn Miles

October 12th, 2014 | By

The differences between nonprofit and corporate governance are few and far between when the nonprofit in question has a budget of almost $700 million and operations in more than 120 different countries. But when you are a nonprofit of this size, what should the board’s expectations of management be—and vice versa? Carolyn Miles, president and CEO of Save the Children, and Dona Young, who is a director on the Save the Children board, spoke with NACD Senior Advisor Jeffrey M. Cunningham about how directors can navigate the perils and opportunities of operating around the globe while fostering a top-notch organizational culture.

One of the problems of working in the nonprofit space is controversial topics—for example, immigration, an issue that came to a head with the recent influx of children crossing the U.S. border. For Miles, Save the Children didn’t adopt the attitude of choosing sides, but rather, they chose children. With that mindset, the organization was able to push beyond the immigration debate and focus on the issue of taking care of kids and ensuring their basic human rights. It’s a position that drew criticism but doing otherwise would have been a disservice to the company’s mission.

Both Miles and Young drove home the importance of bringing into the boardroom what’s going on in the field. Young emphasized the need of having a CEO who is continuously communicative with the board. Miles explained a practice she has used of bringing people who are working in the field to attend boardroom meetings and explain their needs to directors. Those lines of communication better inform the board and is a boon to helping the board helping the company accomplish its mission.

Miles also explained how Save the Children’s directors venture out to experience the work that their organization is doing, what she believes is a critical practice. Save the Children’s directors have been to the places that are the toughest—Afghanistan, Liberia, and Iraq. On a recent trip to Liberia, Miles was confronted with about 4,000 cases of Ebola in Liberia, which has created about 2,000 orphans. As a result, Save the Children wanted to consider sending aid, even though the issue at hand was out of the company’s traditional scope.

“We vet the issues together as a board,” Young said. “At the core of our mission, we have to assume risk.” She offered the following process of evaluating resources to ensure that the company can address a certain area of risk.

  • Identify each component of that risk.
  • Identify how each component is to be addressed.
  • Evaluate if the board has the skill sets to attack the issue at hand.

These are tactics that are as relevant for Save the Children as they are for a company such as IBM. Although the traditional scope of Save the Children’s activity did not lie within epidemic disease control, they did, however, know a lot of the pieces of how to assist (e.g., setting up hospital), and the company was able to respond to the Ebola crisis in the ways that it could and in a fashion that was true to its core mission.

Miles also discussed the importance of metrics. From her perspective, it is critical for nonprofits to focus on metrics and not just the “greater good of the cause.” If a company is able to produce palpable results, people who bankroll the organization look to their contributions not as a donation, but as an investment. Young added the importance of the board’s role as a steward of those funds, and the need for discipline and process—if that is not in place, there’s no way company is achieving its goals.

GE CEO and Board Chair Encourages Directors to Anticipate Emerging Trends

October 2nd, 2014 | By

Jeffrey Immelt, CEO and chairman of GE, spoke at our recent NACD chapter event here in New England. Joining him on the panel were Cathy Minehan, the dean of the School of Management at Simmons College, and Suffolk Construction CEO John Fish. Immelt’s insights were informative, interesting, and actionable. Afterward, I found myself thinking how well his remarks align with NACD’s efforts to future-proof boardrooms around the world.

We’ve pursued this effort in a variety of ways, but none so directly as the NACD Directorship 2020 initiative. “2020,” as we at NACD have come to call it, focuses on arming directors with the knowledge and foresight that feeds success in a changing world. The initiative encourages boards to diversify backgrounds, perspectives, and experiences in ways that prepare their organizations with the leadership necessary to remain competitive in the midst of volatile geopolitical, technological, and environmental situations.

Immelt’s discussion with our chapter touched on many of these disruptive market forces, especially economics. The facts are clear: we live in a new normal, and things aren’t going to simply settle down. “The uncertainty is the state of affairs, and it’s just going to be there for a long time,” said Immelt.

So how can directors help guide their organizations through this perpetual uncertainty? Immelt recommends a focus on U.S. manufacturing, an area where he believes our country is currently more competitive than it has been in 30 years. He was also quite prescriptive about the need for boards and their organizations to address underemployment, calling that goal the “major social responsibility initiative of business.”

But perhaps one of the most pertinent points Immelt made was also the most provocative: “The thing that drives growth is small- and medium-size business. Everyone says they love them, and everyone does their best to kill them every day.”

I take that to heart as an NACD chapter president. NACD has many members from the Fortune 100, but we also count plenty of small- and mid-size organizations among our membership. Only by working together–not separately–can we effectively address all the disruptors we face as we lead our organizations into the next decade. NACD will continue to bring all our members together for collaborative and educational opportunities. Capitalism is ever changing, so we must adapt, evolve, and lead.

For more information about NACD, please visit www.NACDonline.org. For more about NACD Directorship 2020®, please visit www.NACDonline.org/2020.