Topics:   Corporate Governance,ESG,Risk Management,Strategy

Topics:   Corporate Governance,ESG,Risk Management,Strategy

March 28, 2018

Experts to Directors: Innovation, Culture Change Starts With You

March 28, 2018

There is a buzz in the air about renovating corporate culture in the name of innovation. Directors hear the changing desires of their stakeholders, and are developing a greater understanding of their business’s role for society at large. That buzz guided a recent roundtable discussion in Miami at NACD’s Leading Minds of Governance event.

A panel of governance experts and directors discussed recent trends in corporate governance with a full room of directors (fuller remarks from the panel will follow in the March/April 2018 issue of NACD Directorship magazine). Panelists included:

  • John Borneman, managing director, Semler Brossy Consulting Group LLC
  • Stuart R. Levine, nominating and governance committee chair and audit committee member, Broadridge Financial Solutions
  • Kathleen Misunas, director, Boingo Wireless and Tech Data Corp.; principal, Essential Ideas
  • Michael Stevenson, partner, BDO USA LLP
  • Peter P. Tomczak, partner, Baker McKenzie LLP

Highlights from their answers to select questions from directors in the audience follow. Comments have been edited for length.

To Build an Innovative Culture, Start with Hiring

I work in a heavily regulated industry. We’re in a very steady environment, but our industry is changing rapidly in all directions. Helping shift that culture is essential, so I’d love to hear your differing perspectives.

Misunas: I think it starts with the people you hire—and you need the buy-in from your senior staff. The people that are hired help you move in the right direction.

Levine: One of the criteria for hiring should be intellectual curiosity. If you’re hiring people at any level, including on the board, if those people do not express intellectual curiosity, I think you’ve got a problem on your hands. In the boardroom, consider sharing content that stimulates discussions around technology or governance trends.  By discussing strategic material, it encourages excellent outcomes.

Misunas: Right. This absolutely should cascade down through the organization. The C-suite alone shouldn’t be concerned with curiosity. The next level should be doing the same thing with their staff, and so on.

Tomczak: When you consider innovation strategy, what does innovation mean to your board? Do you mean bringing in new ideas from outside your industry? If you’re hiring the same 20-year industry veterans, you’re probably going to get the same 20-year-old strategy. I’ve also found that tying individual economic incentives to strategy outcomes is useful, and it’s hard. There’s no right answer to the compensation question and innovation.

Borneman: I’ll add that innovation should be on the CEO’s scorecard. Is it one of the top priorities that you want to hold her accountable to for the organization? You can say it’s important, but if it’s not on the scorecard, you’re merely talking about innovation. There’s no accountability. It doesn’t have to be tied to compensation—to put dollars on it gets tough. But we can find innovation measures in some kind of meaningful, quantifiable way.

Stevenson: I think that when some boards assess themselves, when they probe their expertise, they find that because of the complexity of transactions (for example, in financial instruments and other changes associated with this current business environment), audit committees are finding themselves ill-equipped to handle changes happening in their organizations. As you take a fresh look at your board, understand the other situations that they have been involved with will arm them for change. That’s a critical point to know about members of this committee. Boards that are refreshing [their composition] with this understanding are also the easiest to work with from an audit perspective.

Don’t Miss the ESG Bus

How do we translate ESG into something with real business meaning that management can be held accountable for to deliver results?

Levine: Approaching the governance standpoint, regardless of the business you’re in, we’re all trying to anticipate client and customer needs. If you don’t have people of diverse backgrounds on your board, you risk not understanding the people who are buying your products and services. If you’re looking to deploy capital, and you look around and don’t have representatives on your board of the populations you’re serving, I don’t know how you develop the right strategy.

Misunas: I don’t walk into a business anymore where this is not a topic of conversation. Boards and executives are peeling back the onion to see where their companies stand, and where they should be, on environmental issues. ESG is top of mind for millennials. They speak up about real environmental issues. As a result, companies can look at their distribution lines, for instance. What are our transportation means? What are those contracted companies doing to protect the environment? Could we switch out business partners for a company that is more responsive to these issues?

If there’s no penalty for not doing anything, you’re omitting ESG from culture. I’m not saying you should give an extra reward for doing something, but should there not be some penalty other than getting left off the bus?

Borneman: The penalty is the impact on your business, your employee population, and getting kicked off the bus. It’s not about your bonus. It’s not about compensation. It’s about a longer perspective on business.

Looking to read more expert insights? Read the current issue of NACD Directorship magazine.