Six Economic Factors Boards Need to Address Now

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Dambisa Moyo

Dambisa Moyo is a renowned global economist, author, and board director. She is a preeminent thinker who advises key decision makers in strategic investment and public policy, as well as a trusted advisor on macroeconomics, geopolitics, technology, and millennial themes. Moyo currently sits on the boards of Barclays Bank and Chevron Corp. She will speak at NACD’s 2018 Global Board Leaders’ Summit on “Harnessing the Future” with Shelly Palmer. NACD’s Summit programming will feature a plethora of speakers who will focus on exciting future trends to keep board members ahead of the field.

We caught up with Moyo as she prepares for her keynote at Summit and for the release of her  book, Edge of Chaos: Why Democracy Is Failing to Deliver Economic Growth—and How to Fix It (Basic Books, 2018). Moyo shared her thoughts on the major economic issues that boards are overlooking, emphasizing why they should be addressed sooner rather than later. Highlights from the conversation follow.

What is one major economic issue that boards are currently overlooking that should be addressed sooner rather than later?

This quote is usually attributed to Mark Twain: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” I think that is really a powerful statement. Too often we understand risk as being a constant, immediate and short-term. When it comes to risk, we need to take a fundamental step back. We need to look at the bigger picture to think about how we approach risk over the long-term.

Ask yourself, “What are the things we are not seeing today that we will look back on and wish we saw coming?” Board members 10 or 15 years ago were making very rational bets assuming that we were going to be in a globalized economy and in a stable democracy where there would be no populism, but that has turned out not to be the case. We didn’t anticipate issues such as populism, trade risk, tariffs, and protectionism.

  1. Technology and the risk of a jobless underclass Moving forward, the risk of creating a jobless underclass as a result of increasing automation and technological advances is considerable. Tech holds benefits in terms of reducing costs for companies, but where will revenue come from if no one is working and a large number of people live in a jobless underclass?
  2. Demographic shifts Our planet will hold 11 billion people by 2100. How do we navigate the challenges around aging populations and shifting consumer demands? Where should we transact our business and how should we transact our business? Companies need to think about this not only in terms of business but also in terms of hiring human capital. We have to focus on the quality and quantity of the world’s population and then figure out where our talent pool lies.
  3. Income inequality It has become clear that issues around pay have come to the fore. The issues of pay inequality between the genders, and between the company CEO and the company’s median or lowest-paid employees are now top of mind. Companies are now being required to address some of these income-inequality issues, which means that in the public’s mind the board’s governance responsibility has broadened from the idea that companies are just there to maximize shareholder value.
  4. Natural resource scarcity Natural resource scarcity has come to the forefront due to the imbalance between increasing urbanization and demand for products and the shrinking supply of arable land, potable water, energy, and minerals. This dynamic could create a lot of inflation. How do we navigate that?
  5. Debt Debt is at an all-time high. Virtually every class of debt is at a historical high: government debt, household debt, credit card debt, auto loans and student debt. Is that sustainable? The US Congressional Budget Office notes that US debt and deficits are a big risk and caution that they are unsustainable. It’s a big risk for companies because they have to decide if they should borrow at a low interest rate and what the debt burden will do to their customer base.
  6. Productivity Productivity should be increasing in a world where we do things more efficiently thanks to technology, but unfortunately we are actually seeing productivity decline around the world. There are real questions about what the implications might be for companies and growth around a decline in productivity.

Your new book, Edge of Chaos, will inform directors’ understanding of the current economic climate. Which topic would have the greatest impact on their oversight duties?

For corporate board members the most important issue is myopia. This is economic short-termism in both the corporate and political space. A lot of the issues threatening the global economy are long-term, intergenerational, structural problems in the economy. These harken back to my list of six economic problems. These are all long-term problems.

One of the biggest challenges that we face is that policymakers are paid and rewarded for short-term thinking. Policymakers are constantly facing reelection and that means they’re thinking very short-term in terms of how they deal with issues. Companies face a challenge because they are focused on reporting quarterly earnings and their investors are very keen to see the short-term returns. This is a hurdle that we need to reevaluate.

The mismatch between long-term economic challenges and short-term political myopia needs to be bridged. My book offers 10 ways to get through that. I also highlight some of the biggest consequences of short-termism that we’ve seen in the corporate space. For example, CEO and CFO tenures have shortened and the holding period by portfolio managers has shortened a lot. There have also been issues around the life span of companies. A company in the 1930s had a life span of around 100 years. It’s now only about 16 to 17 years before a company is bought and sold. All of these things lead to how companies should think about their overall strategy and how they fund themselves.

Don’t miss out on Moyo’s keynote, at the 2018 Global Board Leaders’ Summit, happening September 29 through October 2 in Washington, DC. There will be plenty of opportunities at Summit to discuss the future of the economy, globalization, and much more. Register now to attend.

Innovation: Beyond Technology

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Peter Gleason

The word innovation typically conjures up images of new technologies like networked sensors and quantum computers. That was certainly my focus when I wrote my February blog on the age of innovation. We had just closed NACD’s cutting-edge program at the Consumer Electronics Show, and the buzzing excitement felt on the showroom floor was on my mind.

But as directors, we know that although tech is important for our businesses, it’s merely a means to an end: sustainable growth that benefits all stakeholders. Technology plays a major role there, of course, but the real drivers of company value are people and, more specifically, culture.

Recent remarks by Facebook CEO Mark Zuckerberg before the Senate’s Commerce and Judiciary committees, as reported by the Washington Post, made this point clear. During the hearing, Zuckerberg told senators that Facebook is going through a “broader philosophical shift.” This is precisely why my recent focus at NACD has been cultural innovation.

When I became CEO of NACD in January 2017, I knew from my previous 16 years here that we had a strong culture. I had seen our staff grow from 12 to nearly 100 during those years, most typically through internal promotion and the hard work of engaged teams. But what was our cultural secret? Could we articulate it, and thus preserve it and pass it on? I got a head start on the topic by serving on the NACD Blue Ribbon Commission on Culture as a Corporate Asset, which released its report in late 2017. But there was more to come.

One reason I was chosen as NACD’s president and CEO was that the board knew that I would champion corporate culture as a core asset of the organization. Quoted in Lori Sharn’s CEO Update story, our chair, Dr. Karen Horn, stated, “The top people have all been together a long time and really share these values. Because we’re growing so fast, we’ve brought in a lot of new people to the organization. We need to be sure the new people feel the same kind of engagement and buy in to the current culture, and buy in to the development of the ongoing culture.”

Encouraged by the board, one of my first acts as CEO was to establish a Directors Council, made up of the 13 director-level managers. The Council meets every other week to promote collaboration across departments, with the goal of continuing to foster a healthy, thriving culture. The Council suggested that we develop a Values Statement, so we appointed a Values Squad made up of Council members to interview staffers, and by summer a first draft was ready. The six values, which were formally announced in a soft launch to staff in January, follow:

  • We are one NACD.
  • We succeed through member impact.
  • We communicate openly.
  • We deliver.
  • We are continuous learners.
  • We are innovators.

The current phase of this initiative is to weave these six values into the fabric of our organization, and the board has been engaged throughout.

As our own internal effort at NACD demonstrates, directors can make a tremendous difference in culture. In her March 26 blog, Andrea Bonime-Blanc suggests that directors ask management if there is an “explicit culture program in place,” and if it is “intertwined and integrated” with the company’s mission, vision, values, and strategy—all clearly board-level issues.

Along these lines, a recent blog covering a March 28 panel discussion at a Leading Minds of Governance event was aptly titled “Experts to Directors: Innovation, Culture Change Starts With You.” As the blogger (our own Katie Swafford) said, “There is a buzz in the air about renovating corporate culture in the name of innovation.”

I, for one, have heard—and amplified—that buzz. Have you?

In Conversation with Jack London

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Dr. Jack London

“In my experience, we need to start all our discussions about board membership, accountability, and responsibility with the term ‘leadership,’” said CACI International Executive Chair Dr. J. “Jack” Phillip London. “Leaders cultivate and sustain an organization’s culture. They set the expectations right from the beginning. They are continually communicating what’s appropriate and what’s not appropriate in terms of behavior. And that’s done by example, by discussion, by dialogue, and by role modeling.” As London pointed out, however, having leaders with  strength of character is not enough to transform an organization’s culture.

London further explained his view of the role of the board in helping to establish and perpetuate a strategically advantageous culture during an interview with Steven R. Walker, NACD general counsel and managing director, Board Advisory Services Group. Among the highlights, excerpted from their interview, were his reflections on contagions, communication, and culpability.

For these aspiring directors and current directors, how can the board verify and check on the fact that every company holds itself as having high integrity and high ethics?

One of the things that we’ve done at CACI in the last year or so is put together our culture, character, integrity, and ethics [board] committee. We have at least 20,000 employees around the planet, and we surveyed them to get feedback on how they viewed the company’s culture, our standards of ethics, and our operational perspectives on being innovative. This committee is now in the process of putting together a dashboard of metrics that we can use to assess and evaluate as we go along. Turnover rates, anonymous reports of problems—those kinds of things. Of course, you want to do it in a light-handed way. You’re trying to bring people along and encourage them. It’s amazing what happens when you ask people to perform with sincerity and integrity. Good folks, well-intended folks, will tend to rise to the requirement, and it’s amazing how that can be contagious. And the beauty of that is, when there are people who come along who don’t subscribe to that kind of thing, they find a way to meander out the door.

What was the motivation to create the board’s culture, character, integrity, and ethics committee?

I saw too many things going in the wrong direction in our society, our culture, our government, religious institutions, and the athletic world that I didn’t care for. And I thought, “We’ve got a pretty good culture at CACI, and I think we’ve got a good reputation. Let’s put something together that can sustain this.”

How do you, as a leader, make sure the board has access to the layers beyond the C-suite and has open access to things and can nip problems in the bud?

We have concerns in that area. One of the things I do is go around to my organizations and sit down and talk to people. I meet with our customers. I’m confident that the board wants me to do that. And when you do it in the field, you’re diving way below a lot of players. And I’m amazed at the kinds of questions I get in one of these sessions.

Communication’s a big deal. And we work hard at making sure we communicate with our people. But it takes persistent effort and, again, priority, and one of the wonderful things is that our leadership group—the CEO, general counsel, and human resources executive vice president—are very on board with this. By the way, they are members of our culture, character, integrity, and ethics committee. It’s not just board people. It’s members of the C suite and others, and I’ve even thought about bringing on some people that are outside the corporation with appropriate liability considerations.

How do you address crisis from the top?

Well, you’re probably talking about our Abu Ghraib situation. If there’s anything that I’ll absolutely never forget in my career, it’s the experience that CACI went through with the wrongful allegations and charges with regard to our interrogators in the early days of [the war in] Iraq. I first found out when Seymour Hersh put out his article in The New Yorker [in 2004] making some claims. The public was ready to hang me. I made the fairly early discovery that the allegations in the leaked report had flaws in them. They had listed some people in there as being our employees, who weren’t our employees.

And so, I dug down into it and found out that our culpability was really misrepresented. It gave me the fortitude, commitment, and the confidence to stand up on it. The main problem was a lot of people wanted to have me fired because of the type of work that we were doing. I would save my neck in the media at least by letting all those people go, but that was not the right thing to do. If you just hang in there, and you’re credible, and you’ve got your facts together, you’re going to prevail—and our reputation today is probably better than ever.

 

Dr. J. “Jack” Phillip London is the Executive Chairman of the board of CACI International, a Fortune 1000 Largest company that provides services to many branches of the federal government, and serves on the boards of the U.S. Navy Memorial Foundation, the Naval Historical Foundation, Friends of the National WWII Memorial, the Senior Advisory Board of the Northern Virginia Technology Council, and CAUSE (Comfort for America’s Uniformed Services), the “wounded warriors” support organization. He has served on numerous other boards and foundations.