Crickets, Divorce, Silicon Valley, and the Future of Governance

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One of my favorite comments from an attendee at last year’s Global Board Leaders’ Summit went something like this: “I was expecting to be informed; I wasn’t expecting to be inspired.” For a team that works year-round scouring the globe to discover and deliver to you voices that are shaping the future, that’s about as good as it gets.

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This year’s Global Board Leaders’ Summit is on track to be our biggest ever, and one big feature of the Summit remains the same: a diverse array of thought leaders will share paradigm-shifting insights that will challenge the way you think about leadership, give you new tools to approach your directorship practice, and perhaps inspire you in surprising ways.

Here’s a sampling of some of the most exciting sessions at Summit this year:

  • Michelle Crosby’s start-up Wevorce is not only shaking up Silicon Valley, it’s turning the historic, antagonistic model of divorce on its head. The company’s mission is to “help couples ensure their divorce is less damaging to themselves, their finances, and the people they love.” Crosby was named one of the American Bar Association’s Legal Rebels in 2014, a distinction reserved for “lawyers who are breaking new ground using technology.” “Every institution is subject to change, and the more entrepreneurs who learn to work in the system to create that change, the further we’re going to get,” Crosby said in an interview with USA Today. In an intimate fireside chat, Crosby will discuss innovation, entrepreneurship, disruption, and how the company applies the Wevorce model to talent management inside the company.
  • Howard Ross, one of the most highly rated thought leaders at last year’s Summit, is back again to share insights from his groundbreaking work on unconscious bias, diversity, leadership, and organizational change. The question directors should ask themselves, says Ross, is not “Is there bias?” Rather, directors should ask one another, “What biases do we have that keep us from making choices counter to the values that we say we believe in?” Ross will open the Diversity Symposium on Saturday and will lead an in-depth workshop on Monday focusing on board dynamics.
  • The United Nations estimates that by 2025, two-thirds of the world’s population may face fresh water shortages, a critical concern for business and society. Whitewater rafting guide turned CEO Pat Crowley is betting that the solution to that crisis might literally be in our backyards. Crowley’s passion for the outdoors led him to work as a water resource planner, which drew his curiosity to crickets, of all things. “I heard about insects as a more environmentally friendly form of nutrition. From a water perspective, it was clearly a game-changer,” he said. Crowley founded Chapul, a company that makes cricket-based energy bars, in 2012, “to leap over this psychological hurdle of eating insects in the United States.” With explosive growth— 500 percent annually for the past two years alone—Crowley is on track to break through those barriers. On the summit mainstage on Monday, Crowley will discuss what it means to be part of building a new industry that is challenging societal norms, reshaping the competitive landscape, and may just help save the planet.
  • Phil Gilbert has been working with start-ups for the past 30 years, the most recent of which was acquired by IBM in 2010. Now Gilbert leads IBM’s design team with a focus on an empathy-centered workforce. Bringing a start-up mentality to 100-year-old company can be a challenge and almost immediately Gilbert was forced to confront a disconcerting question: “Is the entire way we’re working an anachronism?” Embracing that hard truth has been nothing short of transformational. Gilbert comes to the Summit mainstage to discuss lessons learned in this transformation. “We’re at an interesting crossroads in business. I think the way business is done and businesses work inside themselves has got to fundamentally change in the twenty-first century,” he said.
  • As managing director of famed Silicon Valley venture capital firm Andreessen Horowitz, Scott Kupor has been part of building brands like Airbnb, Buzzfeed, Facebook, Foursquare, Lyft, Pinterest, and Skype—companies that have become synonymous with disruption. “Things that are fringe today might become mainstream over time,” Kupor explained on Fox News back in June, describing the philosophy that underpins Andreessen Horowitz’s approach to finding the next disruptive trend. In a mainstage fireside chat Tuesday, Kupor will discuss this philosophy in context with everything from M&A activity and shareholder activism, to IPO trends and the next big innovations he sees poised to disrupt the business landscape.
  • When Chelsea Grayson took on the role of general counsel at American Apparel, she faced a daunting task: to help turn around a company that was operating in an increasingly competitive industry and was coming off of a tumultuous series of events, including high-profile sexual harassment allegations, layoffs, bankruptcy, and protests. In February, Grayson told the legal blog Above the Law, “I have been in-house for over a year now, and I have encountered just about every legal issue a general counsel might experience in an entire career.” Next month, Grayson will share her insights on governing complexity, a subject she has become adept at navigating during her tenure at American Apparel.

These are just a few snapshots of the incredible line-up of thought leaders who will join us in September. Want to learn more? View the full list of speakers and sessions at www.NACDonline.org/summit.

 

‘Secret Sauce’ for the Nominating and Governance Committee Chair

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Overseeing a company’s corporate governance process and structure, the nominating and governance (nom/gov) committee is essential to a company’s long-term success. In this BoardVision interview—moderated by NACD Director of Partner Relations and Publisher Christopher Y. Clark—Bonnie Gwin, vice chair and co-managing partner of the global CEO and Board Practice at Heidrick & Struggles, and Thomas Bakewell, CEO and board counsel at Thomas Bakewell Consulting, discuss the qualities of an effective nom/gov committee chair:

  • Sets the right mix between board culture and composition
  • Facilitates cross-committee communications
  • Performs effective board evaluations
  • Spots diverse talents in director candidates

Bonnie Gwin, vice chair and co-managing partner of the global CEO and Board Practice at Heidrick & Struggles (left) and Thomas Bakewell, CEO and board counsel at Thomas Bakewell Consulting.

Here are some highlights from the discussion.

Christopher Y. Clark: Depending on what your definition of best is, why should the best director on the full board be the chair of the nom/gov committee?

Bonnie Gwin: In my opinion, it is an incredibly critical role. You’re talking about a director who is helping guide the board in not just developing a great composition for the board that is strategic and focused…, but also a director who understands the culture of the company and the board that they’re trying to build. You really need an outstanding director who understands that mix between composition and culture and can work closely with the board to get it right.

Thomas Bakewell: Bonnie is spot on in terms of composition and having the right team around the table. The other magic that you need in a terrific nom/gov chair is somebody who can draw people out, spot talent, make sure everybody gets heard, [and] really…build the team. Coming from a baseball town where we have a pretty good manager [who] wins a lot of World Series, we know the value of having a great person who can draw everybody out and get the team to work together. It’s really [about teamwork] … and using a lot of the tools that are available today. One of the trends in tools is…much more thorough and in-depth evaluations. [These are] … not just check-the-box or check-the-list [exercises] but in-depth individual board evaluations to know what’s really going on in the boardroom and among directors.

Clark: NACD [held] a combined meeting of the NACD Audit Committee Chair Advisory Council and NACD Risk Oversight Advisory Council. … It was invaluable for both sets of committee members. How do you feel about [meetings between committees] … whether it’s audit and risk [or] compensation and nom/gov? Do you think those interrelationships of committees should be enhanced or promoted?

Gwin: Generally speaking, transparent communication across all the committees of the board is essential. It’s essential for a high-functioning board. And in particular where you have, for example, [the] nominating [and] compensation [committees], there’s a lot of interplay between them and the issues they’re addressing. I think it’s important to ensure that there [are not only] good transparent lines of communication between those two committees, but frankly across the whole board.

Bakewell: The magic ingredient is how people work together, and part of that key element is how they communicate. The old approach to boards was everybody showed up the day before the board meeting [and] went to the committees. A lot of times people went to every committee [meeting]. What’s the point [now]? You don’t have the time. You don’t have the energy. You don’t have the resources today. So how do you have a board where everybody trusts each other and they communicate? If you’re not on the audit committee and important issues come up…, can you simply pick up the phone and reach out to the audit committee chair, or is there another process that’s very helpful for you to get the information you need?

Clark: Please give us one last piece of wisdom.

Gwin: The piece of wisdom I would share is the importance of long-term succession planning. We’ve talked about that several times, but I really think, looking at board composition [and] board dynamics… over the next four or five years…is very important.

Bakewell: I would say my secret sauce is [that when looking at director candidates] it’s not so much [looking at] … particular talents, [because] everybody can look at a resume and see what somebody has. They’re going to see if they’re a CEO, [or] they’re skilled in marketing. The real magic is [asking], “What is their true personality? Are they a ‘driver’ personality? Are they a curmudgeon?” Sometimes boards need curmudgeons. Is somebody a strategic thinker, or is their skill set not [being] a strategic thinker but taking strategy and converting it into action? What have they done in their past experience that really makes them qualified for this role?

Clark: Well I think we’ve got all the synapses popping. I wanted to thank the both of you for joining me today.

Additional Resources:

Report of the NACD Blue Ribbon Commission on the Governance Committee: Driving Board Performance

NACD Resource Center: The Nominating and Governance Committee

Report of the NACD Blue Ribbon Commission on Board Evaluation: Improving Director Effectiveness

William Young is the editorial and research assistant for the National Association of Corporate Directors.

Beating the M&A Odds: Three Big Risks and Key Questions for Directors

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Director Essentials: Strengthening Oversight of M&A

Director Essentials: Strengthening M&A Oversight is available exclusively to NACD members. To become a member, please contact Brandan Nass at Join@NACDonline.org. To learn more about NACD, visit NACDonline.org

Every corporate director knows the importance of M&A in the grand scheme of enterprise. With some 40,000 significant transactions announced annually, M&A is hard to ignore. Yet there are persistent risks that directors need to understand and mitigate through insightful questions and the dialogue that ensues.

  1. Risk: Not all bets will pay off—at least not right away. Buying a company means placing a bet on the future. Given the level of unpredictability involved, there is some chance that the merger will fail to achieve its goals and/or fail to return incremental value to shareholders. It is commonly cited that “80 percent of all mergers fail” to add value; however, this percentage is an exaggeration. Event studies that compare transactions over time present a more realistic picture by showing that incremental financial value is not assured. For example, a study conducted by Kingston Duffie, publisher of the digital magazine Braid, indicates that companies actually lost 4.8 percent of their value when they spent at least five percent of their market capitalization on M&A during the 18-month period between October 2014 and March 2016. The interactive graphic included in the study shows differentiated performance during the period—high for Stamps.com Inc., medium for Starwood Hotels & Resorts Worldwide Inc., and low for EV Energy Partners. Your company could experience returns like any one of these.

Question for Directors: If this merger ends up having a slightly negative result for our shareholders, what are the compelling strategic reasons to do this deal? When do we believe that deal synergies will materialize?

  1. Risk: As a director, you could be named in a lawsuit—especially if you are voting on the sale of a company. In 2015, lawsuits were brought in 87.7 percent of completed takeovers. Although most cases settle, some do go to trial. In a trial setting there are four main standards for judging director conduct in the sale of the company, ranging from lenient to stringent:
  • The business judgment rule (trusting the decision as long as directors have no conflicts of interest and are reasonably well informed).
  • The Unocal standard (protecting anti-takeover moves only if a threat is real).
  • The Revlon standard (requiring an auction process once a company is in play).
  • Entire fairness (requiring both a fair price and a fair process).

In addition, when a company has promised its shareholders the right to have the company appraised, the court itself can impose its own valuation. In the original Dell go-private transaction, the court retroactively forced the company to pay aggrieved stockholders what the court deemed to be a missing increment to their premium.

Question for Directors: How can we find assurance that sale is in the best interest of the company and its owners, and that we have chosen an optimal price? How can we ensure that there is a litigation-ready record of our deliberations in this regard?

  1. Risk: You could lose your board seat. According to a study by Kevin W. McLaughlin and Chinmoy Ghosh of the University of Con­necticut, there is a higher rate of retention for directors from the acquiring firm (83 percent) following a merger, with the most likely survivors being individuals who serve on more than one outside board. Only about one-third of directors from the target board (34 percent of the inside directors and 29 percent of the outside directors) continue to serve after the merger.

This October, when Dell Inc. and EMC Corp. officially merge (assuming full regulatory clearance following their recent shareholder approval), many who serve on the EMC board may not be on the post-merger Dell board, including retiring EMC Chair-CEO Joe Tucci. When the merger was first announced last October, a spokesman for Elliott Management Corp. stated in a press release, “Elliott strongly supports this deal. As large stockholders, we have enjoyed a productive and collaborative dialogue with Joe Tucci and EMC’s Board and management. We are confident that this Board has worked tirelessly to evaluate all paths for the company and that today’s transaction represents the best outcome for stockholders.”

Saying goodbye to some or all of these incumbents this fall will seem to be an ironic outcome for creating value. And yet that is how it must be. Fiduciaries are not self-serving, but rather they serve on behalf of shareholders to promote the best interests of the company. As such, they need to be ready to move on when that is the best outcome for the corporation. Still, it is disruptive (and not always creatively so) to be a trusted voice of wisdom for the future one day, and mere history the next.  

Question for Directors: If we sell this company and our board must merge or disband, who among us will be most useful in steering the combined company in the next chapter?

These are not easy questions. But by asking them, directors can help their companies beat the tough M&A odds.

For more insights, see Director Essentials: Strengthening M&A Oversight, and Governance Challenges 2016: M&A Oversight—two new publications available without charge to all NACD members. See also “Does the Deal Fit the Strategy?” in Metropolitan Corporate Counsel, and “Project M&A” in Financier Worldwide.