The uncertainty of looking to the future presses boards to consider how confident their senior executives and supporting teams are in executing strategy. How can the board help the companies they oversee to face the future with a greater sense of confidence?
Confidence is neither a cliché nor an assertion of mere optimism. Rather, it is a quality that drives leaders and their companies forward. The Oxford English Dictionary defines confidence as “the state of feeling certain about the truth of something” and “a feeling of self-assurance arising from one’s appreciation of one’s own abilities or qualities.” This definition focuses on the board and management’s appreciation of the collective capabilities of the enterprise, including the ability to carry out a company’s vision. It raises three fundamental questions:
Do weknow where we’re going directionally and why? Are our people committed to achieving a common vision that is clearly articulated, meaningful, and aspirational?
Are we prepared for the journey? Does our staff have the capabilities to execute our strategy? Do we have a great team, a strong roadmap, and the required processes, systems and alliances, and sufficient resources to sustain our journey?
Dowepossesstheability, will, anddiscipline to cope withchange alongthe way,nomatterwhathappens? Does our board have the mental toughness to stay on course? Is our management team agile and adaptive enough to recognize market opportunities and emerging risks, and capitalize on, endure, or overcome them by making timely adjustments to strategy and capabilities?
Definitive, positive responses to these questions from the board will enable confidence across the organization.
Looking back on experiences working with successful companies, seven attributes were identified that organizations must have when facing the uncertainty of future markets.
How to Build the Foundation for Confidence
Confidentorganizationssharecommitmenttoa vision. Commitment to a vision provides a shared “future pull” that is both inspiring and motivating. This perspective fuels enterprise-wide focus and energy to learn, which encourages participation and altruistic camaraderie. An effective vision crafted by the board and executive team leads people at all levels of a company to recognize that the enterprise’s success and their personal success are inextricably linked.
Confident organizations have a heightened awareness of the environment. A confident organization constantly reality tests its market understanding by facilitating effective listening to customers, suppliers, employees, and other stakeholders. Boards should encourage companies to generate sources of new learning, encouraging systemic thinking in distilling and acting on the environment feedback received, with the objective of driving continuous improvement. The confident organization fosters a culture of sharing and supports formal and informal continuous feedback loops to flatten the organization, get closer to the customer, and promote a preparedness mindset.
Confidentorganizationsaligntheirrequiredcapabilities. It is a never-ending priority of the board to ensure that the right talent and capabilities are in place to achieve differentiation in the marketplace and execute strategies successfully. Capabilities include an enterprise’s superior know-how, innovative processes, proprietary systems, distinctive brands, collaborative cultures, and a unique set of supplier and customer relationships.
How to Sustain Confidence
Achieving a foundation of confidence is necessary, but alone is not enough without concerted efforts to sustain confidence. Astute directors and executives know that the ability, will, and discipline to cope with change are also needed to sustain their journey. Those winning traits are enabled by the attributes below.
Confidentorganizationsare risk-savvy. The confident organization is secure in the knowledge that it has considered all plausible risk scenarios, knows its breakpoint in the event of extreme scenarios, and has effective response plans in place (including plans to exit the strategy if circumstances warrant). Most importantly, the confident organization should have an effective early-warning capability in place to alert decision-makers of changes in the marketplace that affect the validity of critical strategic assumptions. In a truly confident organization, no idea or person is above challenge and contrarian views are welcomed.
Confidentorganizationslearnaggressively. Confident organizations improve their learning by: creating centers of excellence; embracing cutting-edge technology to drive the vision forward; fostering an open, transparent environment of ongoing knowledge sharing, networking, collaboration, and team learning; perceiving admission of errors as a strength and requiring learning from the missteps; and converting lessons learned into process improvements. Aggressive learning stimulates the collective genius of the entire enterprise.
Confidentorganizationsplaceapremiumoncreativity. Innovation should be an integral part of the corporate DNA of the confident company, and should be evidenced by setting accountability for results with innovation-focused metrics at the organizational, process, and individual levels to encourage and reward creativity. Companies committed to innovation have the creative capacity to take advantage of market opportunities and respond to emerging risks. When innovation is a strategic imperative, companies empower and reward their employees to take the appropriate risks to realize new ideas without encumbering them with the fear of repercussions if they aren’t successful.
Confidentorganizationsare resilient. Confident organizations have adaptive processes supported by disciplined decision-making, and are committed to adapt early to continuous and disruptive change. They have the will to stay the course when the going gets tough, and are prepared to act decisively to revise strategic plans in response to changing market realities. They do not allow competitors to gain advantage by building large capital reserves, having great relationships with their lenders, and by cultivating trusting relationships with their customers, vendors and shareholders. The strategies that their boards approve include triggers for contingency plans that directors and management will implement if certain predetermined events occur or conditions arise.
In summary, the speed of change continues to escalate, creating more uncertainty about future developments and outcomes. If there was ever a time for a board to assess an organization’s confidence, we believe it is now. It’s one thing to have a confident CEO, but if the people within the entity lack confidence, the organization itself may not have the creativity and resiliency needed to sustain a winning strategy.
Jim DeLoach is managing director with Protiviti, a global consulting firm.
At a mainstage panel during NACD’s 2016 Global Board Leaders’ Summit on September 19, directors, economists, and former regulators discussed the potential regulatory, economic, and geopolitical implications of the coming election and reflected on how corporate directors and executive teams should adjust to greater levels of ambiguity. One of the panelists, Nicholas M. (Nick) Donofrio, director of Advanced Micro Devices Inc., BNY Mellon Corp., Delphi Automotive PLC, Liberty Mutual Co., the MITRE Corp., and NACD, and the former head of innovation at IBM, characterized today’s external environment as “lumpier and more abrupt than even a few years ago,” forcing companies and their boards to be always on alert and to act quickly in response to change.
The panelists offered a range of projections to help corporate directors assess the business impact of the upcoming elections. They emphasized that aside from a new occupant of the White House, the elections also have the potential to drive significant changes in Congress, major regulatory agencies, and the judicial system. The discussion centered on four major questions of importance for companies and the boards that oversee them.
How likely is a major reform of the tax code?
Reform of the corporate tax code is long overdue, said former U.S. Senator Olympia J. Snowe, director of Aetna, Inc. and the Bipartisan Policy Center. For years, companies have learned to accept the “permanent temporary tax code,” and the resulting policy uncertainty has made investment and capital allocation decisions more challenging. Snowe suggested that even if House and/or Senate control switches from one party to another, it is unlikely that Democratic and Republican congressional leaders will be able to transcend their fundamental differences about taxation and break the current gridlock. Most likely, she believes, the incoming president will use the power of the pen to tweak the current tax code through executive orders.
Should we expect continued regulatory activism?
Troy A. Paredes, director of Electronifie and former Commissioner of the U.S. Securities & Exchange Commission (SEC), shared his concern that “the tidal wave of regulations” seen in the past few years won’t slow down, and it will force companies to commit more time and resources to compliance. “Elections are always major inflection points,” he said, that either sustain or reset the policy priorities of the SEC and other key regulatory bodies such as the Commodity Futures Trading Commission, Federal Trade Commission, and Federal Communications Commission. Meanwhile, Paredes urged directors to be alert as to whether Mary Jo White, the current chair of the SEC, will have enough time in her remaining tenure to finish rule-making on key corporate governance matters covered in Dodd-Frank.
Will our political system address skill shortages in the labor market?
Nick Donofrio offered a mixed view of how the country is addressing the looming crisis in the labor market where current skill sets do not align with the future industry needs. “Our political institutions are too polarized to take meaningful action,” he said. However, it’s crucial that the United States build a digitally competent and productive labor force that can be employed to deliver high-tech manufacturing. “We cannot afford to only create [financial] value in this country, but we must also [manufacture] value here. That means returning much more research and development and production to American soil.” In the absence of government investment, he’s optimistic that the private sector will step up to address this critical challenge and find innovative ways to reskill displaced workers.
How will the United States make itself more competitive globally?
Harry Broadman, a seasoned economist and the CEO and managing partner of Proa Global Partners LLC, reminded the audience that the United States faced a similar set of challenges to its global competitiveness in the 1980s when Japan was projected to become the world’s economic leader. A major difference today may be the backlash against free trade, which could jeopardize the adoption of the Trans-Pacific Partnership and threaten the underpinnings of the European Union. Broadman underlined that it will be critical for U.S. policymakers to remove barriers to foreign investments from high-growth emerging market companies that will contribute to quality job growth. This new generation of enterprises is important to the future of global business, which will no longer be dominated by firms headquartered in the West.
He and other panelists also spoke extensively about the importance of major investments in public infrastructure. America’s crumbling highways, bridges, ports, and technology infrastructure significantly impede further productivity growth, which Broadman believes is the country’s major Achilles’ heel.
Few institutions represent American ingenuity and innovation more clearly than its space program. With rapt attention, the world watched July 20, 1969, as Mission Commander Neil Armstrong of NASA’s Apollo 11 spacecraft became the first person to walk on the moon.
Ron Garan—retired astronaut and chief pilot for commercial space launch provider World View Enterprises Inc.—was one of those who watched. “My most vivid childhood memory was July 20, 1969,” Garan said. “On some level, I realized that we had just become a different species. A species no longer limited to our planet.”
Garan delivered the opening keynote address to an audience of more than 1,300 on Sunday evening in Washington, D.C., at NACD’s Global Board Leaders’ Summit, the world’s largest gathering for corporate directors.
Four decades later, Garan’s childhood dream became reality. He had trained with NASA to become an astronaut himself. “That first day in space when I got to take a look at our planet, [I] was absolutely breathless.…What I felt was an incredible sense of gratitude. Being physically detached from the world made me feel closer to the people on it—more interconnected.”
Reflecting on his second space mission, Garan remembers similar feelings of gratitude, but that gratitude was coupled this time with internal struggle. The technological advances that make space flight not just possible but routine offer the potential to solve some of the world’s biggest problems. Yet, Garan pointed out, some people on this planet still do not have access to basic resources like clean water.
“These days we’re more connected than ever, and the Internet is the backbone,” said Garan. “The Internet can be our nerve center, enabling us to solve problems in an entirely different way.”
Garan further explored that challenge in his third mission, when the seeds to a solution began to root. The answer? Collaboration. On this space mission, Garan was weightlessly floating about 100 feet over the International Space Station, attached to the craft’s large robotic arm. That station represents the collaborative innovation of 15 nations—including the United States, Canada, Japan, the Russian Federation, and 11 European nations—that have, at times, been at odds with each other politically and ideologically.
“What would it look like for us to have that kind of collaboration here on the [Earth’s] surface?” Garan asked. “Collaboration doesn’t mean we agree on everything. What it does mean is that we find the things we do agree on so we have a platform to work [from in order] to address the things we don’t agree on.”
Risk: Necessary for Innovation
But innovation and collaboration don’t come without risk. As a highly decorated fighter pilot, Garan had run several missions and trainings in which he’d successfully flown and had no mechanical problems in flight. Then one day, while piloting a jet during a routine takeoff, he heard a loud pop that jolted him. He very quickly realized his engines no longer had any usable thrust. Garan tried to land in a wooded area and quickly realized that he had no need to be in the jet at that point. Seconds before impact, he ejected and his life was spared.
That incident, though life-threatening, did not change Garan’s outlook on life or risk. But the very next day, he was in flight and, because of a mechanical malfunction, had to conduct an emergency landing. After having completed thousands of flights, he’d had emergencies two days in a row. The second day is when the idea of what it means to take risks sunk in.
Before ever entering a plane or spacecraft, one must decide if doing so is worth the risk. The same is true for business leaders who want to innovate and collaborate. When NASA is planning a mission, they consider every possible issue that could go wrong and develop a response plan that’s ready and waiting to be activated. Boards should do the same. Similarly, a great idea on the shelf can only provide value if it’s activated. “Ideas are overrated. There’s got to be a streamlined path to action,” Garan shared.
“Any change involves some level of risk,” Garan said. “Any innovative business strategy must involve risk. Collaboration can help mitigate risk and also provide an engine for growth.”
Implications for Businesses
It’s important for businesses to understand that we don’t live on a globe; globes are just abstract lines on a map, Garan shared. We too often think of the world in terms of it being about business and economy supporting a society that sustains a planet, he said. “Instead, we live on a planet that sustains a society that has built an economy.” Understanding that concept is adopting what Garan calls an “orbital” view.
It’s time that enterprises realized that it’s good business to care about issues like sustainability and corporate social responsibility (CSR)—beyond just doing it to boost a brand or reputation, Garan shared. Issues like CSR should be part of a company’s DNA now, not just for future generations, he added.
The retired astronaut described how, on his last space mission, his spacecraft entered back into the Earth’s atmosphere and landed on its side. “Now out of my window, I saw a rock, a flower, and a blade of grass. I was home. In Kazakhstan, nonetheless,” he said. “I wasn’t in Houston, where my family was. But I was home and had a different idea of home.”
Thinking of the planet as “home” may be what’s required to actually make one small step for directors and one giant leap for corporate governance.