Posts Tagged ‘Risk Oversight’

NACD BLC 2014 Breakout Session – Going Beyond: Stories of Pushing Past Personal Limits

October 28th, 2014 | By

It should go without saying that governance in today’s complex business environment is no walk in the park. But are there lessons to be learned from a run in the Sahara? At the recent 2014 NACD Board Leadership Conference, documentary filmmaker Jennifer Steinman aimed to provide the answer to that question in a session titled “Going Beyond: Stories of Pushing Past Personal Limits.”

In the session, Steinman told the story of the creation of her latest film, “Desert Runners,” which follows people who take on the formidable challenge of competing in the 4 Deserts Race Series (4 Deserts). 4 Deserts includes a series of four ultra-marathons: races involving distances greater than the 26.2 miles that compose a typical marathon. The races take place in some of the most inhospitable environments on earth, including the Sahara, Gobi, and Atacama deserts, and Antarctica.

Steinman began the film project with a series of questions, including “what are these perceived limitations that we put on ourselves?” and “are these crazy people?” She arrived at the first race expecting to find a group of elite, superhuman athletes, and was surprised to find that, for the most part, the runners were what you might call “everyday” people; people with day jobs, mortgages, and families. Steinman’s film follows four people who decided to take on this challenge. In the course of the conference session, attendees were introduced—through video clips—to three of them: a student named Samantha, age 25; an American consultant named Ricky, age 33; and Dave, a 56-year-old marketing director and friend of Steinman’s who introduced her to the competition. Dave was one of 13 runners attempting to complete all four grueling races of 4 Deserts in one year, a feat known as the “Grand Slam.”

Steinman shared a series of her favorite clips from the documentary, and as might be imagined, Samantha, Ricky, and Dave confronted a wide variety of physical challenges, including dehydration, illness, exhaustion, and a great deal of pain.

So how did all of that tie into directorship? The challenges and struggles of the runners echoed many of the themes emphasized elsewhere at conference.

An injury suffered by Ricky provides an example. Given the long distances and extreme conditions involved in the races of 4 Deserts, some degree of pain is unavoidable. However, as Steinman pointed out, racers must constantly ask themselves, “is this real pain, pain I need to deal with, pain that can do real damage?” If the answer is “yes” to those questions, as it was in Ricky’s case, a runner needs to recognize this and give it the attention it requires. However, if the answer is “no,” any runner who intends to finish the race must recognize this, and avoid attaching more meaning to the pain than is merited.

As part of risk oversight, directors also receive an overwhelming amount of urgent information from a variety of sources, and must contextualize it on the basis of their own experience so they can ask the right questions of management. The board should ensure that the risk oversight processes in place have the capability to differentiate between a real threat and the intermittent challenges that occur in the normal course of business. When a real threat is detected, a director must not let pride get in the way of taking the appropriate actions, as the consequences could become progressively worse.

Another of Steinman’s film clips showed a series of gruesome injuries suffered by runners. Watching the clips quite naturally might cause one to wonder why anyone would willingly participate in such a competition. Steinman found that part of the answer to that stemmed from the camaraderie of being marooned in the desert with a common goal. While a small contingent of elite runners are in the race to win, the vast majority have the simple goal of finishing. Even a relatively competitive person would likely concede that running consecutive marathons across the Sahara or Antarctica is hardly your typical “participation medal,” and many runners rely on each other at times to accomplish this remarkable feat.

In a particularly poignant clip, a professional runner holds Samantha by the hand and they help each other to the next check point. Though they may be significantly different in kind, corporate directors certainly face their own challenges. The reasons directors take on the responsibilities and liabilities inherent in the role are many, but by concentrating on the reasons they are there, and augmenting their own expertise with the expertise of others around the table, each director, board, and company can reach their goals.

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.

How Boards Can Strengthen the Risk Oversight Dialogue With Management

July 10th, 2014 | By

This spring, members of the NACD Advisory Council on Risk Oversight convened in Washington, D.C., to discuss how boards can strengthen their dialogue with management on risk oversight. Participants—including Michael Hofmann, the former chief risk officer of Koch Industries and current director of Calpine—shared experiences, lessons learned, and effective approaches for embedding risk in board-level strategy dialogue. From that discussion—detailed in the meeting’s Summary of Proceedings—delegates focused on these steps directors can take. They include:

  • Establish a clear definition of what “risk” means at the company: For management and the board to work together, they need to establish a shared definition of what risk means to the company.
  • Monitor the company-wide risk culture: Directors should ensure that the company has a culture that supports the discussion of risk throughout the entire organization and is seen as part of the company’s fabric.
  • Avoid the trap of false precision: Looking at only the expected return of a new business program or strategic move can restrict dialogue and lead to minimization of the potential downside.
  • Get out of the weeds by taking a deep dive: To help counteract the tendency of boards and management to focus on operational, regulatory, and financial reporting risks, many boards conduct an annual “deep dive” or “off-site” meeting. These meetings are dedicated to thinking about, understanding, and challenging assumptions of strategic moves and risks.

The Summary of Proceedings also investigates ways in which directors can and do incorporate these practices into their boards’ activities. NACD members can click here to access the full list of takeaways.