Posts Tagged ‘strategy’

Small-Cap Boards: Challenges or Opportunities?

March 24th, 2014 | By

As NACD works with corporate directors of public, private, and nonprofit boards to oversee and ensure the long-term sustainability of the enterprise and bolster investor confidence, I am frequently asked: “What companies have the most significant challenges?” While unique challenges certainly exist across boards of all company types, many view the roles of small-cap public company boards to be quite challenging.

These unique challenges span time and effort (workload) requirements, compensation, talent, financing, regulation, risk, strategy, competition, and internal resources, just to name a few. Small-cap directors and governance professionals may identify and prioritize the unique challenges of these companies differently, however, but one thing remains constant and that is that small-cap companies represent the majority of companies listed on U.S. exchanges, and the long-term prosperity of these small-cap companies is essential to a growing, thriving economy.

So where can small-cap company directors turn to reinforce their strategic agility?

First, I suggest all directors read, and share with their director and C-suite colleagues, NACD’s Bridging Effectiveness Gaps: A Candid Look at Board Dynamics and NACD’s C-Suite Expectations white papers. These are both short, quick reads that can help create a constructive framework for meaningful dialogue.

Second, I highly recommend that all directors read NACD’s Board Building white paper, another high-impact, quick read. Most important in this resource is the skill set matrix enclosed in the appendix. Many companies are now using the skill set matrix to both determine and articulate the experiences and talents required for their future strategies.

Lastly, I suggest that current and aspiring small-cap directors attend NACD’s Small-Cap Forum on April 10 in San Antonio or on July 17 in San Francisco. Both sessions will focus on current and emerging issues facing small-cap boards, and these interactive events will include a range of interactive, peer-to-peer networking opportunities for robust dialogue.

Contact me at hstoever@NACDonline.org if you have specific questions or suggestions on how NACD can assist you, your board, and other small-cap directors advance exemplary board leadership.

Blue Ribbon Commission Report on Talent Development

October 15th, 2013 | By

As the marketplace grows in complexity and turbulence, it is increasingly clear that true  success depends on people. As boards face more disruptions, they will need to ensure the company has the right skills and agility in the talent pipeline to meet these challenges. This topic—talent development—was the subject of this year’s Blue Ribbon Commission (BRC) report. In the second session of Tuesday’s Board Leadership Conference, NACD’s Managing Director and CFO Peter Gleason was joined by the chairs of the 2013 Report of the NACD Blue Ribbon Commission on Talent Development: A Boardroom Imperative Gregory Lau, managing director of the board of directors practice at RSR Partners, and Mary Pat McCarthy, director of Mutual of Omaha and Tesoro, to discuss the commission’s findings and examine the “next” practices in executive talent development.

Why Talent Development?

The reasons for the board to prioritize talent development are obvious. Over 50 percent of a company’s expenses are related to talent and people. “With the right talent,” observed McCarthy, “you can take on more risk than you might otherwise be able to do.” And yet, for the first time in decades, the talent pool is shrinking. When companies do find themselves at an inflection point, they may not easily have the necessary talent on deck.

Both chairs observed that traditionally, the board has focused on CEO succession. One of the report’s recommendations, however, is to have a multi-level, multi-year talent pipeline overseen by the full board. “Directors,” according to McCarthy, “need to think beyond the CEO and the current year.”

Building vs. Buying Talent

Directors need to take a critical look at the organization’s hiring philosophy. Does the company develop and promote from within, or hire from outside? Although there are situations that may require a significant external recruitment strategy—for example, a turnaround situation—internal hires are often less expensive and on average more successful.

Further, oversight of the talent pipeline should not be a “start and stop” process. The chairs recommended that the board continuously monitor the talent pipeline. Directors should spend time as a board thinking about strategy and the skills the company is going to need, and actually allocate time to do a deep dive. Going beyond the company, Lau recommended looking at competitors’ talent to figure out how they are developing their pipeline. A red flag for directors should in fact be that their competitors are consistently recruiting talent from them.

Strategic Human Resources Function

At BRC meetings, a significant portion of the debate was where the authority of talent development should rest in the company. The commission came to the conclusion that the human resources function should serve as a “strategic architect” to the company. The chief human resources officer or equivalent position, in fact, should make sure that the talent development process is “constant, moving, with good results,” according to Lau. “That person should have time on the board agenda, throughout the year, talking to the directors on talent.”

The Report of the NACD Blue Ribbon Commission on Talent Development: A Boardroom Imperative is available at the NACD Bookstore and free to download for all NACD Full Board Members.

The Boardroom Reality of Cyberattacks

May 23rd, 2013 | By

It is requisite to start every NACD session on boardroom oversight of cybersecurity with the adage: “There are two types of companies: those that know they have been hacked and those that don’t.” And so begins the one- to two-hour panel discussions—experts in cyber technology outlining and explaining the various methods that have already been employed to hack into companies. Understandably, attendees usually leave these sessions a bit pale and speechless.

Cyberattacks on the private sector are a reality, not merely a threat. In 2013, 50 percent of companies with more than 5,000 employees surveyed by the Ponemon Institute reported one or more phishing attacks, a figure that has nearly doubled since 2009. Further, it is those at the higher levels of organizations that are targeted in attacks. In a recent Verizon report on data breaches, it was reported that executives—with higher public profiles and access to secure information—top the list of employee categories targeted in phishing attacks.

Oversight of cybersecurity is at the intersection of national security and the private sector. In the most recent issue of NACD Directorship magazine, Jeff Cunningham, in “The Art of Cyber War,” details the evolution of the cyber battle currently ensuing between China and the United States. Under Chairman Mao, China was defended by the Red Guard. Today, however, the Red Guard has been replaced by “digital warriors,” expert in technology and the English language, working from residential areas of China. In a report representing the culmination of six years of research from Mandiant—an American security company—Chinese hackers have stolen technology blueprints, negotiating strategies, and manufacturing processes from more than 100, mostly American, companies.

At NACD’s Spring Forum this week, cybersecurity expert Richard A. Clarke summarized the current environment: “China does not want to fight the United States in a military war, they want an economic war. You have the Chinese government against your company.” During this session, however, Clarke and Karl Hopkins from SNR Denton went beyond the harsh realities of cyber risk to provide guidance that directors can use at their next board meeting.

  • Understand you are on your own. The government’s cyber defense budget is allocated toward the military and national security, not toward the private sector. It is up to each company to create a cyber defense strategy.
  • Define and protect the “crown jewels.” Companies can’t afford to defend every aspect of the organization. As such, it is wise to develop a minimalist strategy that foremost protects the sources of competitive advantage.
  • Don’t wait for the “big event.” Most frequently, companies are not crippled by one significant event, but instead a “death of one thousand cuts”—a slow creep of proprietary information.
  • Incorporate the general counsel. At most organizations, the role of the CIO is to keep the company running and costs down, and therefore the CIO may not be the best choice to be responsible for cyber risk management. At American Express, for example, the general counsel has a key role in cyber risk management.
  • Spend intelligently. You can spend the entire company’s budget on cyber defense and still not know if the company is truly secure. The company should develop a defense strategy first, and then purchase the necessary supporting technology.
  • Ask the right questions. At the next board meeting, directors should ask: “Have we been breached?” Then, “what forensics team have we brought in to look at these threats?” Most likely, directors will require outside expertise to aid in the understanding of cyber risks.

Technology risk oversight is an area that will require more dedicated effort in the future. As such, NACD will continue to raise the discussion with white papers at upcoming educational events and in our NACD Directorship 2020 initiative.