Category: Corporate Governance

Perspectives for Leadership: The New World Order

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Regardless of which party is in the White House, the National Association of Corporate Directors’ (NACD) more than 17,000 members will have a significant impact on both our economy and the country’s social fabric. The importance of strong corporate leadership was one of many topics discussed when the NACD Atlanta Chapter hosted a discussion about the Trump administration’s new world order.

Despite different party allegiances, six-term Vermont Governor Howard Dean and Republican strategist Ron Kaufman shared their optimism about the country and the global economy. Moderator Eric Tanenblatt led an informative and insightful discussion in which each panelist shared his perspective on topics relevant to business leaders.

President Trump’s Victory

AtlantaNewWorldOrder

From Left: Eric McCarthey, NACD Atlanta Chapter chair; Governor Howard Dean; Renee Glover, NACD Atlanta Chapter board member and event organizer; Ron Kaufman; and Eric Tanenblatt

Governor Dean, former chairman of the Democratic National Committee and six term-governor, opined that despite some of the unpleasant overtones of the Trump campaign, President Trump’s victory can at a high level be attributed to discontent with the economy, and specifically to the impacts of automation and the Internet. The perception that jobs have been lost to overseas manufacturing is more likely due to workforce reductions resulting from automation. At the same time, the Internet has changed both how people receive information, and the quality of the information they receive.

As a result, many people voted for Trump because he represented change in a time when the “haves” and the “have nots” are at odds. A similar sentiment has been seen in England with the Brexit vote, and in current political tides elsewhere in Europe.

Mr. Kaufman, a senior advisor to US presidents, governors, and members of congress, concurred that the appetite for change was a significant factor in Trump’s election. He shared that during his work on behalf of candidate Jeb Bush and then candidate Trump, many of the voters he met were attempting to decide between Trump and Senator Bernie Sanders.

Trade and Foreign Policy

Despite both political parties having adopted anti-trade rhetoric, both panelists emphasized the ongoing importance of global trade. Dean noted that global trade has lifted billions out of poverty, and Kaufman added that in the new world order, the economy continues to be global. Misunderstanding this fact, he added, could be disastrous.

While both panelists were optimistic in general, Dean cautioned that the Trump administration’s foreign policy ultimately could have a significant impact on the domestic economy.

Healthcare

Given Congress’ intent to make sweeping changes to the Affordable Care Act, our panelists turned to healthcare. Both Dean and Kaufman agreed the issue is extremely complex and that buying insurance across state lines is trickier than it might seem. State insurance regulators would likely take steps to fight a system under which its citizens could buy policies from other states. States, Kaufman said, built programs based on their specific problems, like those Governor Mitt Romney addressed in Massachusetts. Other states have different challenges and concerns, which make a national plan difficult.

Dean suggested that the ACA could be modified, including the fee-for-service model, which is a major driver in the increasing cost of healthcare. He also suggested that the individual mandate should be repealed, given how much Americans dislike government mandates.

Role of Millennials

In speaking about the Democratic Party, Dean emphasized how important millennials are to the future of the party and the future of the country. This demographic doesn’t like institutions, and millennials know that they can take part in changing societal behavior using nothing more than a smart phone. Millennials also tend to be libertarian on fiscal issues and progressive on social issues. Young people are impatient for change and have the energy to make it happen. According to Dean, the Democratic Party should ensure its next leader resonates with this group.

Key Issues

Dean believes key issues the nation must address include:

  • Election reform – have an independent commission determine voting districts
  • National debt – bring the debt under control
  • Income inequality – change the tax code to allow people to get rich by helping others (ex., building affordable housing)

Kaufman added his key issues:

  • Term limits – impose de facto term limits by means such as taking away retirement plans for government officials and their staffers
  • Education – deploy resources to this, our biggest challenge
  • Opiate addiction – declare war on opiates, especially in rural areas
  • Defense – reorganize defense and use the savings for education

Education

Both speakers stressed the importance of education in terms of growing tomorrow’s workforce.

Kaufman believes that charter schools and vouchers can play an important role. Dean agreed on charter schools; however, he expressed concern about vouchers creating a more segregated society, where parents send their children to school with those of a similar background. Dean feels that such segregation would be problematic for the country in the long term. He shared that Republican school board members in rural areas are sometimes the biggest opponents to vouchers, as they would allow parents to move their children to larger school systems with more benefits.

Dean warned that student loan debt is a simmering issue that is impacting incentives in the workforce and could provoke a crisis in the years to come. He pointed to the fact that some communities are suffering from a physician shortage because many medical students are choosing specialties more lucrative than primary care in order to repay staggering student loan debt.

Kaufman suggested that, while we must change the education system, the answer may not lie in Washington, DC, and a variety of approaches may need to be deployed. In any case, he suggested that the older generation “should get out of the way and let the kids be in charge.”

This intelligent and respectful discussion of the issues came to an end with both speakers agreeing that America is an exceptionally strong country in which leadership—including the kind provided by American corporations—matters.


Dean and Kaufman are both Senior Advisors in the Public Policy and Regulation practice at Dentons, and Tanenblatt is chair of Dentons’ US Public Policy practice and a leader of the global Government sector team and global Public Policy and Regulation practice, focusing on governmental affairs at the federal, state, and local levels.

Note: The views and opinions expressed in this blog are those of the speakers at this event and do not necessarily reflect the views or opinions of NACD or the NACD Atlanta Chapter.

Kimberly Simpson is NACD’s regional director for the Southeast, providing strategic support to NACD chapters in the Capital Area, Atlanta, Florida, the Carolinas, and the Research Triangle. Simpson, a former general counsel, was a U.S. Marshall Memorial Fellow to Europe in 2005.

Best Practices for Overseeing Talent and Tone

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A company’s human capital can be a complicated area of oversight for any board, especially when attentions must be turned to the top spot in the C-suite. Here, directors must ensure that the company is attracting and retaining the next generation of leading talent that will realize the company’s future success while setting a tone that promotes integrity throughout the organization.

A daunting task, yes, but one that’s not insurmountable.

The National Association of Corporate Directors (NACD) invited Blair Jones, a managing director at Semler Brossy Consulting Group, and Craig Woodfield, a partner at Grant Thornton and leader of the firm’s audit services practice, to offer their insights on these issues as part of a larger panel discussion at the Leading Minds of Governance–Southwest event.

Highlights from their conversation with NACD Directorship Publisher Christopher Y. Clark follow.


What is the compensation committee’s role in succession planning and talent development?

Blair-Jones

Blair Jones

Blair Jones: While responsibility for succession planning ultimately rests with the full board, there are a number of things the compensation committee can do from a process perspective to support this objective.

First, the committee can look at leadership competencies and the overall leadership development process. The succession plan needs to be supported by a pipeline of talent throughout the organization. And the committee needs to know how that pipeline is developed—be it on-the-job mentoring, developmental role assignments, action learning programs, individual coaching, or relationships with business schools. Consider bringing in a leader who has been involved in these leadership development programs to speak about their experiences.

Second, the compensation committee can spend time with high potential candidates at board dinners and through individual meetings. When the committee is determining end-of-year pay decisions, the CEO typically reviews people. Having met some of these individuals, it’s easier to participate in a discussion of what’s being done to take them to the next level. The committee can also make sure that the pay decisions actually fit the directions coming out of the succession planning process.

Compensation committees should also consider following results from employee engagement surveys. Ask: What do these results say about our ability to motivate talent and to retain them in the organization? This will help you get a better feel for the tone and culture of the company.

Look at diversity and inclusion initiatives. Understand the statistics and how those are changing over time throughout the organization. Also, spend time with talent management and succession planning the next level down. The board primarily works with the senior level, but the company’s future leaders are going to come from another level in the organization and the compensation committee can help with succession planning by taking an initial look at the next generation.

What are the best practices for the board to make sure the company has the right tone at the top?

Craig-Woodfield

Craig Woodfield

Craig Woodfield: I look at this from an auditor’s perspective, which defaults to the financial reporting side. The appropriate tone at the top deals with every risk of significance that could face a company.

Directors who are in a public company environment are probably familiar with the Committee of Sponsoring Organization of the Treadway Commission’s framework for internal controls and I would encourage private and nonprofit company directors to familiarize themselves with it. The revised framework from 2013 really is the gold standard and it applies to every company and every board. There are seventeen principles listed in that framework and the first five all deal with tone at the top issues. If you look at them, none of them are focused specifically on financial reporting.

As directors, we need to take these criteria seriously to ensure that there are structures in place that create a tone that promotes ethical values. The chief executive is the key here. As an auditor, I have a lot of exposure to public companies, and while most of them have a good tone, there are exceptions. The commonality among those exceptions is a chief executive who doesn’t have the right approach combined with a board that doesn’t have the right level of oversight.

Here are a couple warning signs: a chief executive who has a very domineering personality, that doesn’t take feedback well, or doesn’t respect the board’s responsibility to protect him or her. On the other side, if you have a weak leader and there’s a power vacuum at the top where there is no system of checks and balances, that’s an even greater warning sign because the board becomes dependent on each individual leader of each group within the organization. That situation is much more difficult to control.

We all want strong leadership in the companies we serve. One of the things that boards can do is help educate the chief executive about the nature of that relationship. And the role of the board is to help control that. A warning sign that that balance isn’t there is if we as board members don’t have access to the direct reports. And you want to empower the CEO—you don’t want to undermine or go around them. From an audit standpoint, it’s a real warning sign when the CEO or CFO tries to get in the way of the auditor or audit partner’s direct relationship with the board.


Want more? A panel of Fortune 500 company directors and subject matter experts will offer their insights on issues ranging from cyber resilience to the latest regulatory trends at Leading Minds of Governance–Southeast. Join us on March 16 in New Orleans, LA. Space is limited—register today.

Next week, coverage of the Leading Minds of Governance–Southwest event continues with highlights from a discussion on cyber risk and the legal liabilities of international companies.

The Board’s Role in Brand Oversight

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Jim DeLoach

Jim DeLoach

Branding is the process by which a company establishes a significant and differentiated presence in the marketplace that attracts and retains loyal, long-term customers. A strong brand has a significant impact on the company’s shareholder value. As such, the board should dedicate some time to oversight of the brand’s reputation and stability.

Several thoughts on the board’s governance and oversight of the company’s branding and brand management follow that are based on my firm’s experience and a recent NACD Dallas chapter roundtable discussion I facilitated in September involving active directors and marketing executives.

  • Understand the brand and brand portfolio. While the board’s governance role is rarely involved in the intricacies of managing or communicating the brand, directors should understand the company’s positioning and related brand promise. This baseline understanding is the price of entry into any conversation about a company’s branding. For example, what expectations does the brand inspire in current and prospective customers that differentiate the company’s offerings from competitors’ offerings? Does the company deliver on that brand promise in every customer interaction? Most importantly, how does management know this vital alignment exists? Consider brand implications from other aspects of the business, too: employee relations, supplier interactions, quality processes, research and development, and advertising.
  • Ask management where and when they would value input. Does the board clearly understand the type of interaction management would like to have with respect to the brand management process? Executives and directors should have a mutual objective: engage in dialogue in the right way and at the right time, and focus on the issues that most demand board oversight.
  • Think strategically about branding and brand management. Brand discussions are tied inextricably to discussions about strategy and markets. Therefore, the board’s focus should be directed to strategic oversight rather than to the tactical, day-to-day nuances of managing the brand or brand portfolio. For example, one company conducts a two-day strategy retreat where directors and senior management focus on important questions about what the future looks like, the pain points that present opportunities, what the company is doing to face the future confidently, and the adjustments necessary to the strategy. Debates about strategic direction incorporate discussions about the company’s markets, key differentiators, and brands.
  • Measure the contribution of branding to shareholder value. The level of investment in the company’s brands, the return on those investments, and the process for monitoring each brand’s performance are worthwhile topics on the board’s agenda. How is the company measuring the return on investment (ROI) and sustaining and increasing the contribution of branding to shareholder value? ROI can be difficult to measure because customer loyalty, which helps to promote stable cash flow over time, is an integral component. That said, the math underlying the cost of winning new customers versus that of retaining existing customers is not difficult to understand. Neither is the contribution of effective brand management to reducing the volatility associated with future growth expectations and economic downturns.
  • Be involved in discussions about new branding opportunities and building value from acquired brands. How does management decide whether to build or buy a brand to diversify the brand portfolio? This conversation can evolve into a mergers and acquisitions (M&A)-type dialogue that, if the transaction is significant, should take on all characteristics of board M&A oversight spanning the pre-acquisition, acquisition, and post-acquisition integration phases of the process. If the company is acquisitive, the board should understand the possible strategic contribution of acquired brands when approving the company’s strategic plan. The board may also want to become familiar with the M&A pipeline and the potential targets in management’s line of sight. If brand acquisitions are an integral part of the strategy, directors need to ensure that the management team includes individuals with the requisite skills to execute transactions and integrate acquired brands into the company’s portfolio.
  • Oversee the management of how risks impact branding. There are many risks to consider with respect to brand image. Risk management is an important skill from a branding standpoint because severe unmitigated risks can erode the value of a brand if there are persistent headlines about a high-profile crisis (e.g., data breaches, pervasive quality failures, corruption violations, litigation, and egregious financial restatements). In addition, when there is a re-branding with a new “look and feel” to the brand, a thorough search related to the proposed brand name, word marks, logos, tag lines, and other intellectual property (IP) should be conducted to ensure the new brand is unique and does not infringe on another company’s rights. As the initial years of using a new brand are a period in which opposition can be raised, an effective search process is a prudent investment to undertake before the company spends heavily on the roll out and advertising campaigns. Once a branding architecture is established and protected by trademark, there is a need to monitor and protect the brand from other users to avoid dilution.
  • Periodically evaluate the board’s experience and diversity. Directors with a background in marketing and/or experience with brand-driven organizations are more likely to be comfortable inquiring and raising issues about management’s branding process. Even though industry experience helps, this is an area where perspectives outside the industry may contribute even more value. As in other realms of oversight, the more diverse the board members’ experience and backgrounds, the healthier the debate leading to a more robust branding strategy.

An important closing comment: The board can help temper the propensity of an aggressive management team to develop or acquire new additions to the brand portfolio. Management must have the capacity to manage new and acquired brands to deliver to ROI expectations. The board can help management frame a realistic portfolio diversification strategy. Then, it’s up to management to execute.


Jim DeLoach is managing director with Protiviti, a global consulting firm.