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In Conversation with James Jones

October 14th, 2014 | By

As the business world is continuously reshaped through advances in technology, growth of new markets, and changing political landscapes, the issues that arise in both the public and private sectors have become increasingly complex. The international crises that dominate news headlines today–the emergence of the Islamic State, the ongoing war in Syria, and the crisis in Ukraine–will play a part in redefining global markets and impact how companies operate in the future. In a conversation with NACD Senior Advisor Jeffrey M. Cunningham, Gen. James L. Jones, USMC (Ret.), former national security advisor to President Barack Obama, Supreme Allied Commander Europe and Commander of the U.S. European Command, and 32nd Commandant of the Marine Corps, shared his perspectives on international policy and global competitiveness.

Gen. James Jones (Ret.) NACD Conference

We are living in dangerous times. Terrorist groups are the common enemy, but unlike the uniformed antagonists this country faced in the conflicts of the 20th century, these insurgents are asymmetric, omnipresent, and far from an easily contained problem. “We need leadership,” Jones said. “And leadership has got to have moral courage and the dedication to do the right thing at the right time. If you wait too long it’s hard to put things back together.” The new challenge of American leadership is, however, forming coalitions to effectively address these problems on the battlefield, as well as in the boardroom.

Looking at the trajectory of the United States in the 21st century, Jones looked to the past. By 1950, the United States had evolved into a global power with considerable presence on the international stage. That standing, however, is currently in flux, namely because this is a century of competition. “We have economic challenges coming from China, the European Union, Brazil, India, a whole host of areas. And how we compete with those areas is going to dictate where we will be in 2050.”

To enjoy the level of success in 2050 that we enjoyed in 1950, Jones said that the public and private sectors need to work more closely together. “All of our competitors are joined at the hip between public and private interests, and we don’t do that very well,” he said. “The pillars of governance and rule of law need to play a large role in that.” To that end, he added: “I think we talk too much. Before you talk about tactics, you need to make sure you have a strategy.”

Jones also emphasized the need for leaders to foster constructive relationships. Reflecting on his time as national security advisor, he remarked on President Obama’s inclusiveness during cabinet meetings. Jones shared that regardless of politics, President Obama sought out the perspectives of everyone at the table and ensured that anyone who had equity in the issue at hand was heard. And on a global scale, Jones observed that personal relations between heads of state drive the relations between nations.

When asked for his perspective on Edward Snowden, a figure who is as revered as he is reviled, Jones commented: “I don’t have a lot of respect for people who take the coward’s way out. There’s a way to work within the system and taking a lesser traveled road [to say what you need to say] is, in my way of thinking, not honorable and not good for the country. I completely stand behind the leadership aspect of moral responsibility. Leaders are responsible for everything their units do or don’t do. And I think that’s true of the private sector, as well as the public sector. It’s a matter of standing up for the right thing.” He also emphasized the need for leaders to understand the meaning and the impact that their privileged positions carry. “It’s easy to stand up and take a bow, but there are times when you need to stand up and take a hit and you need to be willing to do that.”

Rethinking IR: Investor Insights

October 13th, 2014 | By

Shareholder activism is on the rise. Between January 2010 and September 2013, shareholder actions carried out all over the world surged by 88 percent. Going back to the past 10 years, the number of shareholders with specific activist strategies has doubled. These statistics drive home the need for boards to have healthy investor dialogues year-round—not just when in the throes of proxy season. Looking ahead to 2015, a slate of top influencers in the investor community offered their insights on what the top priorities for boards are going to be. Panelists included: Donna F. Anderson, vice president and corporate governance specialist, T. Rowe Price; Glenn Booraem, principal fund controller, Vanguard; and Stu Dalheim, vice president, shareholder advocacy, Calvert. Peter Gleason, director, Nura Health and managing director and CFO, NACD, moderated the panel.

Using NACD’s Investor Perspectives: Critical Issues Board Focus in 2014 as a framework, Gleason noted that first and foremost: “It’s important for the board to know their investors. It’s too easy to lump them all together—but each investor has their own objectives. Engagement strategies are similarly different from one institution to the next. For example, Dalheim explained that at Calvert, their approach is always to engage with constructive outcomes in mind. Furthermore, there are three principles that guide their approach:

  1. Long-term value creation.
  2. Accountability, where management is accountable to the board and the board is accountable to shareholders.
  3. Sustainability, where companies that are sustainable from a financial, environmental, and societal perspectives will be more successful.

In addition, Dalheim explained that the approach to engagement strategy varies depending on the industry. Calvert has analysts that focus on specific sectors and know the governance practices in each sector. In that review process, they see which companies have room to improve. Furthermore, Calvert makes a point of fostering and developing relationships with portfolio companies over time, ensuring that there are open lines of communication. These open lines of communication are fortified by disclosures, which are critical to investor relations.

Anderson emphasized the responsibility of the shareholder on their side of the relationship. From her perspective, shareholders should respond to engagement requests in well-prepared ways, with the proper resources and with a team that is committed to creating a productive engagement experience. On the other side of the table, directors should engage if there has been a request to do so, or that there is a need for those exchanges to take place. With that in mind, she said that there are three key questions an institutional investor should ask before engaging with directors:

  1. Do we have standing to talk to these directors?
  2. Do we have something constructive to offer?
  3. Will this be constructive? And by extension, does the institutional investor think that the board will constructively work with them?

The panel closed by looking ahead at the pressing issues that will present themselves in the coming year. Anderson singled out the issue of bylaws: principles that institutional investors generally believe they can count on, but may not actually be in place for whatever reason. (For example, a company may have revoked its bylaws.) Boards may avoid putting certain bylaws into effect out of fear of activism; however, there needs to be a dialogue about what bylaws boards can change unilaterally.

Booream said that engagement is likely to be triggered by observable components that cause a board to be an outlier—for example, boards whose directors have above-average tenure or boards that lack minority directors. On this score he advised directors to observe the ways in which their boards are outliers, and either own it and explain why their governance practices are in shareholders’ best interests or fix the problems. Shifts in boardroom mindsets will not happen overnight, so it’s important to initiate those conversations as soon as possible.

Dalheim pointed to the issue of director qualifications. He said that boards should have a list of areas of expertise that are needed to effectively oversee the company and then explain how the current board slate illustrates those attributes. In his opinion, this list helps boards identify what’s needed to create growth. Nevertheless, there is currently little disclosure with regard to board evaluations, in terms of either the process or the outcomes. Some companies have an annual statement about board performance–and resulting action steps–which may be a pay that draws increased scrutiny in the coming year.

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.