The challenges posed by the epic turbulence in the price of oil will highlight how effective the boards of directors of different companies are in providing meaningful guidance and counsel to their CEOs. The advisory role of the board is all the more essential because three decades ago, during the last upheaval of this magnitude, the current cohort of CEOs were only junior or middle managers. Little of what was successful for them then will help now that they must lead entire companies rather than merely manage a team as they did when they were more junior. Most CEOs thus find themselves in uncharted territory.
Based on my experience working with hundreds of boards and CEOs in a range of market environments, there are three essential things boards can do to help their CEOs in this uncertain time. And because many CEOs may not know to ask for them, boards need to take the lead and provide them proactively.
Increase interaction between chair and CEO. Boards should be sensitive to the fact that CEOs may subconsciously view the current environment as a “test” of their leadership ability, with any calls for help to be interpreted as weakness. Of course, the exact opposite is true: even in the C-Suite and boardroom, the survival of downturns is a team effort. Let the CEO know that if there is a test, it is of his or her readiness to draw on the experience and perspective of the board to find the best solution.
Hold up the mirror. Even the best leaders are human and can take on unflattering characteristics during periods of extended volatility. Watch for common leadership styles that derail CEOs: leading by decree, having unrealistic performance expectations, or only taking a short-term view. Provide empathetic but firm feedback to help the CEO continue to be his or her best self.
Don’t let the crisis go to waste. It’s been said that experience is a harsh teacher because it gives the test first and the lesson afterward. In the same way, the current turbulence serves as an unforgiving but highly effective finishing school for future CEO candidates. Both the board and the CEO have a vested interest in leveraging this reality. Make sure the CEO draws upon his or her team, letting them hash out possible approaches. The CEO’s job isn’t to solve the problems solo, but create the environment of discussion and creative tension that leads to innovative solutions. Every person involved will become a better leader because of it.
From activist investors to ongoing regulatory scrutiny, energy company boards have their own challenges. In the current environment, however, the board’s number one priority needs to be giving their CEO the guidance and care needed to be the leader this dynamic period demands.
Steve Goodman, based in Houston, leads Egon Zehnder’s Energy Practice in North America, serving clients across all energy segments, and he is active in the firm’s Private Equity Practice. He has a major focus on CEO and board placements along with succession planning and board effectiveness consulting.
This year, NACD began a series of programs designed to address the changing nature of directorship. Intended to identify the board composition, processes, and resources necessary for the future board, the time frame lends a twist to this launch—no defined outcome has been chosen at this initial stage. Instead, with the awareness that the economy, and the boardroom, is in a state of unprecedented change, NACD Directorship 2020™is a multi-year initiative designed to help provide clarity to an uncertain picture regarding the future of directorship.
This initiative started with three exploratory meetings in New York, Chicago, and Los Angeles, the last of which concluded this week on the West Coast. In each city, feedback has allowed NACD to continually refine the program design, as well as re-think the questions posed to attendees. Perhaps mirroring the movement of the meeting’s locations from east to west, the conversations have become more focused on the processes directors can implement to meet the coming challenges.
At the SLS Hotel in Los Angeles, more than 100 directors attended the afternoon session to discuss two topics: the future state of information flow between the board and C-suite, and how to select performance metrics that will generate sustainable organizational profit. Sessions were led by NACD Managing Director and CFO Peter Gleason; Akamai Technologies Lead Director and Audit Committee Chairman Martin Coyne; Investor Responsibility Research Center Director and current NACD Director Richard Koppes; and former Bell and Howell CEO, current NACD Director, ContextMedia Non-Executive Chairman, and Northwestern University Professor Bill White. During the highly interactive sessions, each table was given a specific set of questions to discuss and provide thoughts among their peers. Takeaways from the event include:
Asymmetric information risk is inherent in directorship. If the board had the same level of operational knowledge as management, directors would be running the company.
An imbalance in information can occur within the boardroom as well. Boards are at a higher risk if one director is viewed as an expert in a technical area. In these situations, the rest of the directors may defer to his or her proficiency and not exercise the necessary skepticism. Further, board structure, with committees that delve deeper into technical areas, adds to the potential for information imbalance.
The risk of information asymmetry is not an issue, but a catalyst. Discussing the balance of information flow between the board and C-suite can expand into many interconnected topics, including board composition, culture, metrics, and leadership.
Board portals may be “greener,” but they encourage information dump. Attendees agreed that their board books have largely grown in length, due to the ease of transferring files rather than creating physical board books. Today, it is more important than ever for the board to communicate what information it needs from management.
By bringing more viewpoints to the boardroom, directors that are diverse in skill set and experience are more likely to explore all sides of an issue. Diversity of directors will change the dialogue in the boardroom going forward.
Boardroom culture should welcome constructive challenges from directors.It is necessary for directors to ask probing questions on issues without fearing negative repercussions. A culture that welcomes constructive criticism will enable more effective individual director evaluations that address problems head on.
There is no one-size-fits-all solution to addressing the current and future challenges posed by legislators, regulators, and stakeholders. While the underlying principles are consistent, application of new processes will be tailored to each company.
As a result of the rapid pace of marketplace change, directors need to adopt a mindset that their business is going to be disrupted. This adjusted mindset will allow for continuity planning to be built into the strategy to help offset future disruptions. As Bill White observed: ”If you have the mindset, the metrics will follow.”
In the year 2020, metrics will increasingly focus on speed and agility. Attendees largely agreed that there is no such thing as a competitive sustainable advantage, as a result of disruptive technologies. Speed and agility not only apply to the operations (speed of execution, acceptance of new products), but also to talent (willingness to change, ability to adapt).
In the era of big data, you can “metric yourself to death.” Directors should not look at metrics and dashboards blindly, but instead they should view them in a broader context, including what implications they may hold. It is also important to counter internal metrics with data that shows how the company is viewed externally.
NACD Directorship 2020 will officially kick off next month at the 2013 NACD Board Leadership Conference. Until then, NACD’s blog will feature viewpoints and research from our NACD Directorship 2020 partners—Broadridge, KPMG, Marsh & McLennan Cos., and PwC—that will take a deeper look into the emerging issues and trends that will redefine directorship in the years to come.
Know your audience–it’s often the first lesson in Public Speaking 101, but it’s also an important mantra for senior executives looking to improve the quality of their interaction with the board of directors. An issue my team often identifies when working with boards is a disconnect between the information the board needs and what the management team actually presents. We’ve seen this gap occur at companies of all sizes, industries, and levels of sophistication.
How management provides information to the board makes or breaks directors’ oversight role. Providing directors with the information they need to execute their duties is essential to fostering an environment where directors can succeed and be of most value to the company.
Through all my years of serving as general counsel, I have never received formal training on what directors require for their oversight role. Some questions that may arise are: What are their expectations for management? What perspectives do they bring to the table? What keeps them up at night? How much information is enough?
To help executive teams answer these questions, NACD recently introduced Executive Professionalism: Understanding Board Expectations, an innovative program that allows the executive team to step into the boardroom in order better understand the fiduciary and strategic responsibilities that influence the questions directors ask. Led by seasoned directors, this in-boardroom program is specifically designed to help the senior management team better understand the role of the board, deliver the information directors need, and understand how to best engage with their board to meet and exceed expectations on both sides of the table.
In addition to my team’s direct experience with our clients, the issue of gaps in expectations between the board and management is raised by NACD’s members much more frequently. NACD has developed two tools to help companies address this gap: