At NACD’s Master Class this August, directors from companies like Boingo Wireless Inc., Colgate-Palmolive Co., Kimberly-Clark Corp., GameStop Corp., and the Royal Bank of Canada convened in Laguna Beach, California, for peer-to-peer discussions on strategy, risk, and leading through disruption. One common thread ran throughout the discussions: companies expend enormous resources and efforts to mitigate cyber, geopolitical, and other threats, but they have yet to allocate the same attention to technology disruption. Kelvin Westbrook— president and CEO of KRW Advisors LLC, and a director of Archer Daniels Midland Co., Stifel Financial Corp., and T-Mobile US Inc.—framed the issue this way for Master Class participants: “Companies can survive cyber data breaches, but many don’t survive innovative technology disruption. It’s a bigger deal that we need to address.”
A prosthetic hand created using low-cost 3-D printing technology was demonstrated at the 2015 Global Board Leaders’ Summit. Photo by Denny Henry.
This year’s Global Board Leaders’ Summit puts technology and disruption front and center, with a variety of leading-edge speakers and sessions that focus on these themes. But more than just convening discussions, the director community get hands-on experience with emerging trends via Innovation Nation. This popular feature, launched at last year’s Summit, is back once again, featuring an even more robust cross-section of the trends, technologies, and innovations that are disrupting your businesses and shaping your world. This year’s exhibits include opportunities to immerse yourself in virtual reality, experience the sharing economy at work, and see the latest in drone technology up close. Here is a sampling of who will be on hand:
Dancing With the Start-Ups, a new feature modeled after the popular show Shark Tank, builds on popular sessions from past Summits that gave directors a chance to “Meet the Disruptors.” This fast-paced competition will feature 12 companies across three key industries—healthcare, financial services, and energy— to showcase the latest and greatest in emerging business. Both the competition and a booth showcasing the startup talent in Innovation Nation will offer Summit attendees the chance to meet the entrepreneurs who are hoping to be your next competitors in the marketplace. For those who can’t make the Sunday session, or who just want to get to know the companies a little better, swing by Innovation Nation to learn more about innovative new ways to diagnose malaria, the latest in solar energy technology, the intersection of market data with sustainability, and much more.
Dave Meadows is a self-described “lifelong ‘tinkerer’ and inventor”—inclinations that served him well in his former role as a senior research and development executive with Novartis International AG. Several years ago, Meadows set out to solve a problem that has plagued wine drinkers for nearly 9,000-years—adverse physical reactions, especially when drinking reds. Five years later, The Wand™ was born. This invention removes 95 percent of the histamines and sulfite preservatives from wine. The result—a whole legion of wine enthusiasts who had previously learned to avoid wine can once again partake without the fear of headaches and other adverse reactions. You can experience the power of The Wand™ firsthand and talk to Meadows about and his work in the areas of medical diagnostics, sports medicine, and consumer packaged goods.
Big data and analytics are driving the growth of nearly every business, from heavy hitters like General Electric and Alibaba to early stage start-ups and family farms. This new trend is poised to transform industries, power new business models, enable innovation, and create greater value. According to research from International Data Corporation, worldwide revenues for big data and analytics will grow to $187 billion by 2019—a 50 percent increase from revenues in 2014. But Powerlytics Inc. cofounder Kevin Sheetz cautions that, when it comes to data, big doesn’t mean better, and behind the hype are a number of critical questions boards should be asking to ensure their companies are taking full and smart advantage of this trend. Sheetz will be at the Summit to give directors real-time interaction with the company’s platform, which aggregates publicly available consumer and business financial data from sources like IRS tax returns, the U.S. Census Bureau, and the U.S. Department of Labor.
February 15, 2011 became a milestone in both game show and artificial intelligence (AI) history, as the IBM-designed super computer, Watson, bested previously undefeated players Ken Jennings and Brad Rutter to win Jeopardy! The Watson team has been hard at work in the intervening five years to use natural language processing and machine learning to make sense of large amounts of unstructured data. IBM developers will be available to demo this technology and answer questions about the intersection of AI and analytics.
The Internet of Things (IoT) is reshaping the business landscape in ways that aren’t yet fully understood. The U.S. Department of Transportation (USDOT) is one of many organizations harnessing the IoT to save lives. According to data from the National Highway Traffic Safety Administration (NHTSA), there were more than six million police-reported crashes on U.S. roads in 2015. While the number of people surviving car accidents has increased significantly thanks to airbags, antilock brakes, and other technology, USDOT’s Connected Vehicles program aims to stop many of those crashes from happening in the first place. This unique partnership between state and local transportation agencies, vehicle and device makers, and the public, aims to test and evaluate technology that will enable motor vehicles, roads and other infrastructure, and devices to “talk” to one another so every vehicle on the road is aware of the position of other nearby vehicles. Chris Gerdes, USDOT’s chief innovation officer, will discuss the program Monday on the main stage. Swing by the Innovation Nation to check out this technology, learn more about how you can bring the program to your home city, and get inspiration for how the IoT might just help your own business survive and thrive.
These are just a few snapshots of the incredible line-up of thought leaders and emerging technology at next month’s Summit. Want to learn more? View the full list of speakers and sessions at NACDonline.org/summit.
Times sure have changed. Whether a company’s equity is owned by a few venture capitalists or a league of activist investors, investors today want to have their say about where the company is headed and who is leading it.
Perhaps the time has come for companies, both public and private, to consider better use of an underused and under-appreciated asset that many of them already have and others should acquire: the role of the investor relations (IR) professional. Integral to the board’s oversight of corporate asset allocation (i.e., dividend policy, investment in research and development, external growth through M&A and other measures to return value) is a current understanding of how the securities and capital markets work, characteristics and propensities of investor types, investor attitudes and concerns, and relative values of the enterprise.
Request Reports From Your IR Professional
It is commonplace today for the corporate IR professional to present quarterly market analysis reports to the C-suite and in particular the CEO and CFO, regarding relative market performance, changes in ownership, and current investor perceptions and concerns. In my opinion, such reports should find their way to the board of directors as well, both in formal, written form, and as in-person presentations, inviting questions and discussion—all in an effort to keep the board up to date regarding pertinent market activity and best prepared for contingencies.
In the current market environment, the IR professional requires special and multi-disciplined skill sets that can help a board. As spokesperson for the company and often the proxy for the CEO and CFO with investors, the IR professional must be thoroughly familiar and conversant with the business plan, financial structure and strategy, and the performance of the company. He or she must be aware of and sensitive to disclosure Regulation FD, securities laws, and other regulatory imperatives.
Intentionally Include IR Experience and Perspective on the Board
In addition, nominating committees should consider seeking an outside director who has IR experience in addition to other useful boardroom skills. Just as public companies are required to have a financial expert on the audit committee, perhaps boards should be urged to have a skilled investor relations professional among their ranks. While the same might be said of other core disciplines (cybersecurity, finance, human resources, law, marketing, technology, and so forth), the domain of IR knowledge seems worthy of particular consideration at this time of market turmoil and uncertainty. Having IR expertise on the board certainly would make the board smarter and better prepared to deal with myriad corporate and financial decisions within its purview.
The corporate IR professional could be an invaluable asset to the board, as he or she must be cognizant of the pulse of the investment community on specific issues, while bringing this critical perspective to bear on the board’s discussion and decision-making process. The corporate investor relations discipline has evolved significantly over the years out of necessity. No longer simply a stockholder relations functionary, the IR professional is the primary, and sometimes the only daily, interface with owners (as well as prospective owners and market influentials) of the enterprise. The IR professional thus has a keen sense of investor interests and concerns, their perceptions of relative value, and of their voting propensities.
Suggesting the addition of an IR skill set on the board is not to be taken lightly. Recognize that there are numerous skilled and experienced IR professionals available, all of whom, in addition to the aforementioned experiences, know how investors think and know all the hard questions and concerns regarding material corporate events, financial performance, prospects and policies—all in a constantly changing economy.
Robert D. Ferris is an investor relations and crisis counselor and commentator, with more than four decades of experience with both domestic and foreign issuers. A former chairman of National Investor Relations Institute’s Senior Roundtable, his ideas on C-suite communications strategies in challenging corporate situations have been widely published.
One of the board‘s key responsibilities is the oversight of a company’s conduct, including the strength of its culture and the effectiveness of its ethics & compliance (E&C) program. In recent years, that responsibility has become even weightier. Recent corporate scandals, such as Volkswagen, Unaoil, and Mitsubishi Motors, have created public skepticism about business ethics, and policy makers have responded with a new emphasis on accountability for both companies and responsible individuals, including directors who are either negligent in preventing fraud or willingly participate in it. Enforcement agencies now scrutinize a company’s E&C efforts before making prosecutorial decisions by inquiring about board oversight in the company’s approach to E&C.
Organizations around the world invest tremendous resources to establish internal E&C programs and prevent corporate wrongdoing. Although E&C was historically a U.S. focus, a number of international standards have heightened the importance of E&C programs globally: the UK Bribery Act; the new International Organization for Standardization (ISO) 19600 Compliance Management System Guidelines; and the OECD Anti-Bribery Convention.
Directors observe these developments and scratch their heads. What does an effective E&C program look like? How can we succeed with E&C without stifling our business? What is the board’s role in E&C oversight? Has any organization gotten it right?
There is good news for directors. There are exemplary organizations—representing a wide variety of sizes, sectors, and industries—that have raised the bar even higher than mere compliance with the law. These organizations have transformed their workplaces through their E&C efforts to yield stronger, more positive results. And even better, there is now a framework to help directors guide their own organizations in establishing such an E&C program.
The Framework: Principles and Practices of High-Quality E&C Programs
In May 2015, the Ethics & Compliance Initiative (ECI) convened a group of 24 thought leaders with E&C program experience, including corporate directors, former deputy attorneys general, former members of the United States Congress, business executives, senior E&C practitioners, and academics. The panel produced a new report with leading principles and practices for effective E&C program implementation: Principles and Practices of High-Quality Ethics & Compliance Programs. The report includes five key principles practiced by organizations not satisfied with “minimum” E&C efforts; these organizations are referred to in the report as high-quality programs (HQPs). The principles, which should be tailored to each company’s individual circumstances, are adapted below from the original report:
Principle 1: Ethics and compliance is central to business strategy.
E&C is both a function on the organizational chart and is considered to be an essential element within every operation.
A high standard of integrity and compliance is articulated as a business objective, and every strategic decision is evaluated for alignment with the organization’s values and standards.
An HQP ensures compliance with law and regulation, and is resourced to help leaders across the organization understand their critical role in setting and meeting the standard for integrity.
The E&C program is expected to provide an independent voice, and regularly updates the board on E&C objectives, risks, and progress.
HQP staff maintains excellence by dedicating themselves to continuous improvement in E&C through innovation, engagement with stakeholders (inside and outside the organization), and consistent consideration of employee feedback.
Principle 2: Ethics and compliance risks are identified, owned, managed, and mitigated.
While organizational values are the heart of any E&C program, risk assessments provide the foundation upon which HQPs are built.
E&C staff collaborates across the organization to support a risk assessment process that identifies, prioritizes, and mitigates risk consistently.
Compliance performance, strength or weakness of organizational culture, employee willingness or fear to report, and other key E&C areas are evaluated and reported to the board as potential risks to the organization.
Leaders at all levels assume ownership for the ongoing identification and mitigation of risks that are relevant to their areas, both inside and outside the organization.
The board is regularly briefed on emerging E&C risks and how the E&C program is monitoring and mitigating risks where necessary.
Principle 3: Leaders at all levels across the organization build and sustain a culture of integrity.
Culture is the largest influencer of business conduct, and leaders are recognized as the primary drivers of that culture.
Leaders throughout the organization are committed to, and responsible for, making ethical conduct and decision making central to the organization and its operations.
The board assumes responsibility for evaluating the performance of senior management in providing ethical leadership and setting a proper tone at the top.
HQPs equip managers and supervisors with the support needed to make those values relevant to their day-to-day operations.
Recognizing that employees at all levels make ethics-related choices every day, HQPs provide resources, guidance, and training that emphasizes to all employees the importance of acting in accordance with shared values, seeking help, and speaking up.
Principle 4: The organization encourages, protects, and values the reporting of concerns and suspected wrongdoing.
HQPs focus on establishing an environment where issues can be raised long before situations are elevated to the level of misconduct.
HQPs prepare leaders and supervisors to respond appropriately if/when employees do come forward with concerns about wrongdoing.
Managers understand the impact of their actions, and HQPs hold them accountable for contributing to a culture that does not support the reporting of concerns.
There are focused efforts to prevent and deter retaliation.
HQPs treat all those who report violations fairly and consistently, and effectively support employees who report suspected violations.
The board is regularly briefed on high-level trends in employee reporting, and management is expected to be transparent with the board when substantive “bad news” transpires.
Principle 5: The organization takes action and holds itself accountable when wrongdoing occurs.
Investigations are timely, neutral, thorough, competent, and consistent.
When a violation is confirmed, the organization responds with appropriate consequences, regardless of the violator’s position within the company.
The organization maximizes learning from every substantiated case of wrongdoing.
HQPs recognize that technology has increased reputational risk.
HQPs have well developed systems for escalating issues, with regular testing for crisis management and response.
When appropriate, HQPs disclose issues to appropriate regulatory and government authorities and work cooperatively to respond to their concerns.
The board is well informed when substantive issues arise that require organizational accountability to stakeholders.
As corporate directors know better than anyone, there is no one approach to effective ethics and compliance. Each company’s circumstances are unique; therefore, their E&C programs must vary accordingly. But there are some universals among organizations that “get it right,” particularly when it comes to implementing a proper E&C tone at the highest levels of the organization. The board has an essential role in setting the expectation that the organization will not be satisfied with upholding only the minimum standard. Understanding the principles and practices that characterize leading E&C practice will help board members engage with management to ensure that the highest standard of integrity is seamlessly aligned with the performance of the organization overall.
Patricia Harned is CEO of the Ethics & Compliance Initiative (ECI) and frequently speaks and writes about workplace ethics, corporate governance, and global integrity. Ronnie Kann is executive vice president of research and program development at ECI, having served chief ethics and compliance officers, general counsel, and chief human resource officers throughout his career. Harned and Kann both contributed as authors to the ECI reportPrinciples and Practices of High-Quality Ethics & Compliance Programs. The Ethics & Compliance Initiative (ECI) empowers its members across the globe to operate their businesses at the highest levels of integrity. ECI provides leading ethics and compliance research and best practices, networking opportunities, and certification to its membership, which represents more than 450 organizations across all industries. ECI is comprised of three nonprofit organizations: the Ethics Research Center, the Ethics & Compliance Association and the Ethics & Compliance Certification Institute. www.ethics.org