Taming Disruption

If there is a single common denominator to many of the stories in this issue of NACD Directorship it is reason. And in matters pertaining to business disruptors, maintaining calm, cool objectivity is no easy task. Any discussion of this subject oftentimes elicits an emotional response. Disruption is typically considered a negative force, prompting apprehension and, sometimes, outright fear.

Learning how to tame disruption is an underlying theme in our interview with The Vanguard Group’s F. William McNabb III, contributing author Raymond V. Gilmartin’s trenchant article on how to anticipate disruption and become a disruptive innovator, and a review of Vaporized, a new book postulating that any physical product or service which can be digitized will be. Fear not: all of these stories deliver the reassurance that there are proactive ways for corporate officers and directors to look at the known and unknown unknowns and, at the very least, make them seem more predictable.

Take shareholder activism, which is a potentially disruptive force in any boardroom. Statistics tell part of how this story is playing out: The number of activist campaigns has increased 60 percent since 2010, according to Factiva, and activist funds control northward of $130 billion in assets, per Hedge Fund Research. Not so long ago, passive index investors like Vanguard depended largely on the proxy advisers to inform their voting, but that too has changed.

Corporate attorney Martin Lipton recently described a “new governance paradigm” by which major investors like BlackRock and Vanguard take their activism in-house, making our interview with McNabb ever more timely. “It is not likely that activism and short-termism will totally disappear,” Lipton wrote in a client memo in June and reiterated in a speech at the World Economic Forum in August, “but I’m comfortable that the influence of major investors will be more favorable to shareholders generally and to the nation’s economy and society, than the self-seeking personal greed of hedge fund activists.”

Today, Vanguard owns at least 1 percent of every publicly traded company in the Fortune 1000. What it desires is nothing less than long-term success for those companies. And, what could be more reasonable than that?

This blog was originally posted as an Editor’s Note in the September/October 2015 issue of NACD Directorship magazine.