Throughout Monday’s plenary sessions, a key message from panelists was the need for directors to blend quantitative—harder—data with qualitative—softer—complements. For example, a focus on shareholder return but with a stakeholder view, the intersection of situational awareness and the ability to use intuition, or the need to harness qualitative data with application of context. In an interview with Jeffrey M. Cunningham, managing director and senior advisor of the National Association of Corporate Directors, RichRelevance Co-founder and CEO David Selinger shared how directors can bring big data into the boardroom.
To a room full of attendees admittedly dissatisfied with the level of technological literacy on their boards, Selinger relied on his expertise in the field of e-commerce data analytics and groundbreaking work leading the research and development arm of Amazon’s data mining and personalization team.
The Creation of Data
The amount of data created today, and available for mining, is outstanding. As of 2012, 2.5 exobytes of data are created in one day. In 2004, the Internet traffic per month was 1 exobyte. According to Selinger, this figure both exemplifies the risk and the opportunity big data presents. For example, the current iPhone has the ability to tell Apple Computer where its user is at all times. Businesses can use this data to pinpoint the best offers and products that consumers may be interested in.
“All the different data around a consumer is the same as 100 years ago,” said Selinger, “but our ability to harness it has fundamentally changed.” Even broader, big data has significantly altered the rules of business competition, especially in Silicon Valley. Governance, however, has not yet adapted to this shift and technological pace. “Boardrooms are not designed to handle situations in which the tenets of the organization are subject to fundamental restructuring in just five years.”
Lessons for Directors
So what can directors do to tackle the unavoidable big data trend? From his experience as an executive and a director, Selinger observed that “the best thing my boards have done is force themselves to ask themselves the hard questions.” In many cases, the hard questions are the simple ones. How does this new product or technology impact our business? “It is the willing to be somewhat pedantic, somewhat provocative.”
For all the hyper-connectivity in today’s world, CEOs and boards have precious few opportunities to reach out to shareholders in a way that is personal, memorable and compelling. Most communication between the C-suite and investors is filtered through multiple handlers and channels. The requisite legal and regulatory compliance language is often such a distraction that the real meaning, and the real intent, of the message can be lost.
The annual letter on the “state of the company” included with a company’s annual report is an ideal tool for CEOs and board chairs to more closely communicate with all shareholders, from global institutions to the smallest investors. Yet too few companies fully seize on this ready-made opportunity. Many CEOs are content to just keep it short and focus on the financial story, offering little context on the events that defined the past year and no articulated vision of what investors can expect in the future.
It’s a missed opportunity, as CEOs could and should be using the annual letter to provide all shareholders a glimpse into who they are and how they’re running the company. They could and should be sharing their best thoughts in their own voice, spotlighting issues and topics in a way that will build confidence among investors that the right management team is at the helm.
The undisputed master of this forum is (no surprise) Berkshire Hathaway Chairman and CEO Warren Buffett. Buffett’s annual letter to shareholders topped the recent NACD Directorship magazine’s list of Best Annual Shareholder Letters, which evaluated the entire Fortune 200 list.
Buffett’s letter is understated yet highly informative, giving credit where credit is due, reinforcing the corporate business strategy, and setting the table for how he wants investors (and others, including analysts and media) to perceive the company and its leadership.
On each of the five criteria that NACD Directorship uses to analyze CEO letters, Buffett was in a class of his own. His letter provides a dynamic assessment of the corporate performance, full transparency, a clear outline of the steps Berkshire Hathaway is taking to tackle its challenges, a strategic process that accounts for environmental changes, and insights into the corporate management style. Buffett transforms the shareholder letter from a simple formality into a major influencer on how his company is perceived.
As a tool that actually builds shareholder value, Berkshire Hathaway’s letter is in a class by itself but certainly not the only notable example. Coca-Cola, FedEx, General Electric, General Motors, Google, and Wal-Mart all stood out as companies that go beyond formalities by utilizing the annual report letter as a critical communication tool.
NACD Directorship also singled out others—including the Bill and Melinda Gates Foundation, Abbott Laboratories, Amazon, Avon, Exelon, Hewlett-Packard, News Corp., and Zipcar—for how their letters coherently explained and evaluated special circumstances that had arisen.
All of the letters on this year’s list of the best offer a real insider’s view—and it is, after all, the essence of effective IR to help investors feel they’re personally part of the team. Executives act like leaders when they show their stakeholders how they lead.
For more examples of great shareholder letters, visit www.NACDonline.org/Power-of-the-Pen. We hope they inspire you to utilize some powerful communications strategies of your own.
Information technology is a fast-paced environment, and most directors are playing a game of catch up. In the past, technology was reserved for providers, such as Apple or Microsoft, or Internet leaders, such as Google or Amazon. Today, every business relies on technology through a constantly evolving list of options, such as increasing operations efficiency or social media. As expected, this increased reliance on technology entails a higher risk profile, evidenced in security breaches or system malfunctions. Despite these increased risks, recent studies have found that many boards need to refocus how they view information technology (IT).
NACD and Oliver Wyman’s Global Risk Center recently conducted a study to address the issue of IT risk oversight titled Taming Information Technology Risk. According to the survey, nearly half (47%) of directors are dissatisfied with their board’s ability to provide IT risk oversight. Almost a third of directors believed failure to properly provide IT risk oversight stemmed from insufficient expertise at the board level.
A substantial number of corporate boards feel they have not yet met the level of oversight the topic requires. A recent report from the Deloitte Center for Corporate Governance found that while directors should examine IT projects with the same level of scrutiny as any other major capital expenditure, this is rarely the case. The same report also recommended that boards add “tech-savvy directors” who can provide the board with expert oversight.
While every board member will not be an expert in IT, all directors should be well-versed on the subject and able to discuss IT risk oversight in relation to their company’s strategic planning. In Taming Information Technology Risk, six questions are provided that should be on every board’s agenda:
How do you determine the strategic importance of IT to the business?
How do you evaluate the evolving IT capabilities of competitors that could threaten our industry position?
How do you allocate dollars across the portfolio of IT investments to ensure an efficient risk return?
What trade-offs are you making in managing the IT portfolio?
How are you effectively executing major IT programs?
How do you ensure that a breadth of best practice capabilities and processes are in place to protect the firm from operational and security risks—both now and in the future?
The above six questions provide a foundation of the questions boards should ask regarding technology-related decisions. Directors should also take into consideration the ways technology touches their specific company when scrutinizing IT projects. Also, just asking the right questions will only get boards halfway to the finish line. Understanding what constitutes as an acceptable answer is just as critical.