Each of us can look back and be baffled by how much change is possible in a short amount of time. Remember landlines? Flip phones? How about the BlackBerry? It’s human nature to be resistant to change: boards and corporate directors are no different. Maintaining the status quo is more comfortable than change. Especially because leading the change requires a straightforward vision, strong leadership, and clear communication. In the words of the cartoon Dilbert: “Change is good, you go first.”
But change is necessary for company growth and success. And the National Association of Corporate Directors is one organization that not only talks about change but gives board members and leaders the tools to help boards model and implement change. At NACD’s Global Board Leadership Summit this fall, we’ll discuss how we as board directors can embrace our leadership role, set a positive example, and encourage change.
Oversight Is No Longer Enough
Emerging technologies and new customer demands are now constant threats to established products and business models. These threats affect sustainable and profitable growth, but boards can counter these issues by continuously helping management to evolve their business models, investments, and skill sets.
Expectations of capitalism and acceptable corporate behaviors are also changing, forcing a better balance of achieving profits and having a positive societal impact. A good example is a company’s focus on reducing its environmental footprint. This means that we are now seeing the focus on shareholders shift to include all stakeholders, such as employees, suppliers, customers, and communities.
All this is part of taking an active role in creating the optimal organizational mission and culture. Changing our behavior, processes, and interactions from oversight and support to an active leadership model is crucial to ensure success in our evolving world.
Leading Change Is Necessary
External pressures, rapidly changing governance requirements, and differing stakeholder expectations are all good reasons to call for change.
Failure to change may jeopardize not only a company’s performance, but also its very survival. Poor performance impacts everyone, but proper board and director performance can create a competitive advantage that increases value for all stakeholders. Stagnation is the enemy and change will keep your organization sustainable and on the lookout to avoid pitfalls.
Necessary Board Components for Success
When I look back over my career as a board member, these four pieces are critical to effectively lead and enact change:
Boards need to be comprised of directors who understand and have effectively led change management;
A board’s culture of embracing change should be a model for the entire company;
Board information and processes need to align with and support the new culture to achieve its goals; and
A board’s composition should reflect and support its new evolving culture and behavioral design.
Key Takeaways to Remember
To start leading change in your boardroom, define and describethe mission, values, and culture that you want your company to embody. Boards should assess what the organization needs to retain and what aspects would be most beneficial to change.
Build off of the strengthsin your company and initiate change management plans to achieve your new vision. This includes evaluating the current board composition, leadership and processes and taking action to make changes in a timely manner. Once initial changes have been made, continually assess progress towards your vision and course correct as needed. Don’t be afraid of needing to shift direction in the future.
If there’s one constant, it’s that change will always continue. It never stops. Change impacts all of us, and for boards and company leadership to be successful, effective change management should be a required element in the makeup of every board.
Like our cartoon friend Dilbert challenges us, are you ready to go first, lead, and create an inspiring vision for sustainable value creation for your constituencies? I’m looking forward to discussing change, the ever evolving transformation of our world and more at the 2018 Global Board Leaders’ Summit September 29 through October 2 in Washington, DC. Register now and join me there.
Martin Coyne is a director of EyeNuk. Coyne is the chair and founder of the CEO Learning Network and he is the chair emeritus of the National Association of Corporate Directors’ New Jersey Chapter.
Dambisa Moyo is a renowned global economist, author, and board director. She is a preeminent thinker who advises key decision makers in strategic investment and public policy, as well as a trusted advisor on macroeconomics, geopolitics, technology, and millennial themes. Moyo currently sits on the boards of Barclays Bank and Chevron Corp. She will speak at NACD’s 2018 Global Board Leaders’ Summit on “Harnessing the Future” with Shelly Palmer. NACD’s Summit programming will feature a plethora of speakers who will focus on exciting future trends to keep board members ahead of the field.
We caught up with Moyo as she prepares for her keynote at Summit and for the release of her book, Edge of Chaos: Why Democracy Is Failing to Deliver Economic Growth—and How to Fix It (Basic Books, 2018). Moyo shared her thoughts on the major economic issues that boards are overlooking, emphasizing why they should be addressed sooner rather than later. Highlights from the conversation follow.
What is one major economic issue that boards are currently overlooking that should be addressed sooner rather than later?
This quote is usually attributed to Mark Twain: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” I think that is really a powerful statement. Too often we understand risk as being a constant, immediate and short-term. When it comes to risk, we need to take a fundamental step back. We need to look at the bigger picture to think about how we approach risk over the long-term.
Ask yourself, “What are the things we are not seeing today that we will look back on and wish we saw coming?” Board members 10 or 15 years ago were making very rational bets assuming that we were going to be in a globalized economy and in a stable democracy where there would be no populism, but that has turned out not to be the case. We didn’t anticipate issues such as populism, trade risk, tariffs, and protectionism.
Technology and the risk of a jobless underclass Moving forward, the risk of creating a jobless underclass as a result of increasing automation and technological advances is considerable. Tech holds benefits in terms of reducing costs for companies, but where will revenue come from if no one is working and a large number of people live in a jobless underclass?
Demographic shifts Our planet will hold 11 billion people by 2100. How do we navigate the challenges around aging populations and shifting consumer demands? Where should we transact our business and how should we transact our business? Companies need to think about this not only in terms of business but also in terms of hiring human capital. We have to focus on the quality and quantity of the world’s population and then figure out where our talent pool lies.
Income inequality It has become clear that issues around pay have come to the fore. The issues of pay inequality between the genders, and between the company CEO and the company’s median or lowest-paid employees are now top of mind. Companies are now being required to address some of these income-inequality issues, which means that in the public’s mind the board’s governance responsibility has broadened from the idea that companies are just there to maximize shareholder value.
Natural resource scarcity Natural resource scarcity has come to the forefront due to the imbalance between increasing urbanization and demand for products and the shrinking supply of arable land, potable water, energy, and minerals. This dynamic could create a lot of inflation. How do we navigate that?
Debt Debt is at an all-time high. Virtually every class of debt is at a historical high: government debt, household debt, credit card debt, auto loans and student debt. Is that sustainable? The US Congressional Budget Office notes that US debt and deficits are a big risk and caution that they are unsustainable. It’s a big risk for companies because they have to decide if they should borrow at a low interest rate and what the debt burden will do to their customer base.
Productivity Productivity should be increasing in a world where we do things more efficiently thanks to technology, but unfortunately we are actually seeing productivity decline around the world. There are real questions about what the implications might be for companies and growth around a decline in productivity.
Your new book, Edge of Chaos, will inform directors’ understanding of the current economic climate. Which topic would have the greatest impact on their oversight duties?
For corporate board members the most important issue is myopia. This is economic short-termism in both the corporate and political space. A lot of the issues threatening the global economy are long-term, intergenerational, structural problems in the economy. These harken back to my list of six economic problems. These are all long-term problems.
One of the biggest challenges that we face is that policymakers are paid and rewarded for short-term thinking. Policymakers are constantly facing reelection and that means they’re thinking very short-term in terms of how they deal with issues. Companies face a challenge because they are focused on reporting quarterly earnings and their investors are very keen to see the short-term returns. This is a hurdle that we need to reevaluate.
The mismatch between long-term economic challenges and short-term political myopia needs to be bridged. My book offers 10 ways to get through that. I also highlight some of the biggest consequences of short-termism that we’ve seen in the corporate space. For example, CEO and CFO tenures have shortened and the holding period by portfolio managers has shortened a lot. There have also been issues around the life span of companies. A company in the 1930s had a life span of around 100 years. It’s now only about 16 to 17 years before a company is bought and sold. All of these things lead to how companies should think about their overall strategy and how they fund themselves.
Don’t miss out on Moyo’s keynote, at the 2018 Global Board Leaders’ Summit, happening September 29 through October 2 in Washington, DC. There will be plenty of opportunities at Summit to discuss the future of the economy, globalization, and much more. Register now to attend.
Our mission at the National Association of Corporate Directors (NACD) includes continuous learning for directors. In pursuit of that mission our staff also seek out the most exciting events across the country to learn more about the disruptions that will impact members’ boards. I caught up with Erin Essenmacher, NACD’s chief programming officer, after her appearance at SXSW to discuss takeaways from the conference and how corporate directors can continue the conversation on technology disruption.
Erin moderated a panel, in partnership with KITE, titled “Innovation: the Board Director’s Cut,” featuring leadership representatives from Spredfast, OurOffice, and Capital Expert Services. The panel discussed the strategies directors should take in order to best manage technology disruptions at their companies. Highlights from our conversation follow. Katie Swafford: What led your panel to discuss technology disruption? What do you see at NACD—or among NACD’s members—that surfaced this particular topic for the panel?
Erin Essenmacher: Across the spectrum of industries, companies are being disrupted because they are not focused on how new technologies, paired with shifting trends, are completely changing business models. My first major takeaway from the panel was the need to focus on disruption. I don’t even like to say technology disruption, because I think that makes the issue sound too small and prescribed, which it is not. While technology is a big driver of disruption, so are issues like social and demographic shifts and other market-shaping forces as they intersect with technology. Disruption is a huge challenge to navigate for boards at companies of all sizes. We are reaching the point where the swift changes are blurring the lines between industries, and directors should be raising questions with managers about what is on the horizon for their companies, and if their companies are thinking sufficiently about the big picture and the nature and impact of those changes.
In terms of the discussion here at SXSW, the panel was really focused a lot more on flipping the script. A lot of the folks in the audience were on the boards of early-stage companies, and the panel really looked at how boards can add value to companies of all sizes. The panelists brought many perspectives—some are involved on the inside of early-stage companies, some are making investments in start-ups, and they all serve as directors at companies of various sizes, so it was a really interesting discussion.
Swafford:Are there specific skills gaps that NACD has seen when it comes to handling technology disruption or innovation?
Essenmacher: I would say the biggest skill gap is very low tech, but critically important: a sense of curiosity and a willingness to be a continuous learner. When you get to the top of your career and you’re on a board, you’re extremely seasoned and experienced. You’re an expert in many things that relate to the company business model or to the industry you serve, and it’s easy for that expertise to make you complacent. When you have a business environment like ours where things are changing so quickly, I think the most successful boards are the ones that acknowledge that disruption is happening. Most importantly, they acknowledge that because the environment is new, they will not have all of the answers. They are willing to get serious about what’s happening, they are willing to get curious about the gaps in their own knowledge, and they are willing to challenge the management team to evaluate the existing assumptions and expectations of the company culture and business model.
Swafford: Is there an ideal board composition that’s best able to navigate disruption? Is there a leading practice when it comes to board composition?
Essenmacher: I wouldn’t say that there’s an ideal board composition, because every company is different. Composition is going to vary widely depending on industry, company size, and many other factors. An overarching leading practice is to continually consider the board’s composition compared to your long-term strategy as a company. It’s not just about bringing in people that have the latest and greatest technology expertise. There is a critical role on any board for business judgment and experience. We need all of that in our boards. Once you start to dig into how you can think differently about your business model in the face of disruption, you can start to think differently about your board composition. It’s also not just about defaulting to a former CEO or CFO. Boards need to think critically about how diversity of experience, perspective, and expertise can help elevate their strategic discussions to map to where consumers and the market are headed.
Swafford: Where do you foresee some of the topics that came up in the panel flowing over into the Global Board Leaders’ Summit? I would think diversity, board composition, and growth, among other topics, will really flow into the conversations you will be having at Summit.
Essenmacher: We need to challenge ourselves to learn about new trends from the ground-level up. Our panel here at SXSW discussed topics that are important for board members to engage in, so how can we extend this conversation? At the NACD 2018 Global Board Leaders’ Summit we will be hosting the third annual “Dancing with the Start-ups” pitch competition. This event allows us, as board members, to hear what the leaders of start-ups are creating from the ground level—how they are using technology, how they are leveraging or setting trends, and how their ingenuity is disrupting the industry of the company on whose board you might serve. Yes, it’s a fun format and very exciting, but there is also a lot of great content. I think of it as a “meet the disruptors” session. It’s really an opportunity for directors to see the earliest stages of the next iteration of products, services, and trends that are disrupting their industry.
Our Summit theme this year is transformation. The theme provides a wonderful opportunity to keep engaging in this conversation on disruption, but to also look at disruption through a proactive lens. How can we take what we know about the shifting business landscape and leverage it for strategic advantage? On the risk side, we will learn from people who are experts on the important issues of technology and privacy, enabling us to delve into what those issues mean for public trust. We will discuss how new regulations are shifting what disruption means, including the European Union’s General Data Protection Regulation (GDPR). I believe this shift in how companies market their products and how business models are changing is creating an opportunity for large and small companies to learn from each other.
There will be a lot of opportunity to discuss disruption at the 2018 Global Board Leaders’ Summit happening September 29 through October 2 in Washington, DC. Don’t miss out on our early bird pricing through March 31 to save on registration.