The rate and complexity of change in the marketplace is greater than ever before—and not showing any signs of slowing. From innovation and disruptive technologies to regulatory activity and stakeholder scrutiny, companies are constantly presented with new risks and challenges. As NACD’s new Chair Reatha Clark King observed, writer William Gibson captured the inflection point most corporate boards find themselves approaching: the future is here, it’s just not evenly distributed. As these changes force global economic shifts, it is necessary for those in the boardroom to understand and prepare for the future structure of directorship now.
This week, NACD held the second in a series of exploratory meetings in Chicago to discuss how the boardroom can define and prepare for the challenges and opportunities expected in the next five to seven years. This meeting series—held in New York City, Chicago, and Los Angeles—will culminate in the kickoff of NACD Directorship 2020 at the 2013 NACD Board Leadership Conference. An effort to provide directors with a clear vision of what their roles will resemble in the future, NACD Directorship 2020 will extend from educational programs and roundtable exchanges to publications, all shaped by feedback from these events.
At the Langham Hotel in Chicago, more than 100 directors attended the afternoon session to discuss two topics: the future state of communications between the board and C-suite and how to select performance metrics that will generate sustainable organizational profit. Sessions were led by NACD President and CEO Ken Daly; Akamai Technologies Lead Director and Audit Committee Chairman Martin Coyne; NACD Chair King; and former Bell and Howell CEO, current NACD Director, 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:
Directorship is a part-time job with full time accountability. Inherent in the board/C-suite relationship is an information imbalance. However, with the right culture and board leadership, the board and senior management can easily communicate expectations and necessary information.
A CEO’s leadership style can serve as an indicator that the risk of information asymmetry has become too high. Directors establish a level of trust with the CEO and management to allow for board access to other members of the senior team, as well as site visits to see the company’s operations.
With an expanding board agenda, process and expectation setting are critical. The board should clearly communicate to management the types and format of information that need to be presented.
An empowered lead director or non-executive chair can help mitigate the risk of information imbalance. By facilitating communication channels and work between the independent directors and the CEO, this leadership position can break down some of the road blocks that may develop between the C-suite and directors. The relationship between the CEO and lead director or chair should be transparent.
Culture is critical in effective dialogue between the board and senior management. With the right culture, directors can be sure they are aware of the risks that are keeping the CEO up at night.
Sharing information via performance metrics, which are focused on what directors need to know, can bridge gaps in information flow. Ultimately, the board has to make winning decisions which are informed by data.
Today, directors balance short-term shareholder expectations with generating long-term sustainable profit. The role of the stakeholder, though, is more significant than ever before and expected to grow. In the future, directors will have to be increasingly focused on balancing shareholder return with stakeholder concerns.
It may be difficult for the board to address and to communicate with every stakeholder. The board should identify which stakeholders are critical to the strategic plans, and target communications to those groups.
Balance also extends to leading versus lagging indicators. The board should first approve the right strategy and set goals accordingly. Leading indicators will drive ensuing performance—but lagging indicators are also necessary to provide the right feedback loop.
Innovation is important to the success of any company. How innovation is defined, though, is largely dependent on the company, and should be rooted in the corporate strategy. For some, innovation will manifest in processes, products, or both.
The next NACD Directorship 2020 event will be held Sept. 10 in Los Angeles. Between events, 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.
Without a doubt, directorship has changed. In the last 10 years, the effects of legislation and regulatory activity such as Sarbanes-Oxley and Dodd-Frank have significantly expanded the role of the director. Taking into account the current trends of increased shareholder activism, heightened media scrutiny, emerging technologies, and disruptive innovations, it is expected that this role will continue to morph. As these shifts in the economy increase in amplitude and frequency, it is necessary for those in the boardroom to understand and prepare for the future structure of directorship—today.
With this in mind, NACD has launched NACD Directorship 2020 to help directors define and prepare for the emerging challenges and opportunities expected to impact boardrooms in five to seven years. More than an initiative, NACD Directorship 2020 extends from educational programs and roundtable exchanges to published research. Using topics informed by an advisory council composed of boardroom luminaries, academics, and governance experts, feedback from educational programs will shape ensuing research on leading practices for the future. In the coming months, several symposiums will be held across the nation, and the conversation will be continued at our annual Board Leadership Conference in October.
This week, NACD held the first of such symposiums at the Harvard Club in New York City. More than 100 directors attended the afternoon session to discuss two areas: the future state of the risk agenda, and how to select performance metrics that will engender sustainable organizational profit. The symposium was led by NACD President and CEO Ken Daly; Akamai Technologies Lead Director and Audit Committee Chairman Martin Coyne; and former Bell and Howell CEO, current NACD Director, and Northwestern University Professor Bill White. During the highly interactive sessions, questions were posed to attendees who were then able to discuss and provide thoughts among their peers. Takeaways from the event include:
Composition and resourcing is essential to navigating the current and future risks to the boardroom. With the right resources and information and the right people around the table, the boardroom can effectively engage in the critical issues.
Inherent in their role as part-time overseers, directors will always run the risk of information asymmetry: management has the full suite of information about the company’s operations that is then selected and parsed out to the board. The challenge for the board is to communicate its expectations on the type and amount of information it needs for effective oversight.
It is essential that directors trust, but verify. In the boardroom, the culture should be fostered so the executive staff feels they are able to report on the high-risk items and things that keep them up at night. To verify the information presented, directors should go beyond the C-suite, even outside the company. This can include meeting with the heads of business units, or gleaning outside sources of data.
In risk oversight, the board can informally meet with senior management and the internal audit team to develop a list of the top organizational risks. After these risks are identified, the board can have an executive session with an outside expert to gain more knowledge of the areas.
Industry experts on the board may not anticipate the disruptive technologies that have the potential to pose either a huge risk or opportunity to the company. While extremely valuable at the table, industry experts may not always be able to see beyond their acumen. Boards can recruit experts from other industries—who bring the perspective and knowledge of different risks and market forces—to serve as directors.
Total shareholder return (TSR) and financial and operational metrics reflect hindsight. These data can be bolstered with a healthy balance of “early warning” metrics derived from the company’s strategy, such as customer and employee satisfaction, dollar investment per employee, or retention.
Metrics are the operationalization of strategy. If the strategy’s underlying assumptions are flawed, however, the metrics have less significance. Is the board looking at metrics that question the strategy itself? This could include a measurement of the organization’s adaptability changes in the marketplace.
Reputational and stakeholder risk is an area that should receive boardroom attention. Directors should encourage metrics that foster stakeholder engagement as a strategy for risk mitigation.
The long-term health of most companies is determined by its success in being innovative. The company should establish early warning metrics that monitor how its innovation systems generate sustainable cash flows.
The next NACD Directorship 2020 events will be held July 16 in Chicago and Sept. 10 in Los Angeles. Between events, NACD’s blog will feature viewpoints and research from our NACD Directorship 2020 partners—Broadridge, KPMG, Marsh & McLennan Companies, and PwC—that will take a deeper look into the emerging issues and trends that will redefine directorship.
As employees, executives and board members, we find change both challenging and exciting, which is, after all, only human. In a merger setting, this takes on even greater meaning as the building of new relationships out of old bonds takes time and requires trust. One known catalyst for smoothing the process is calm, confident, visible leadership. In this regard, the new-look NACD is fortunate.
NACD is acquiring Directorship, and people originally involved with each organization are getting to know each other. Ken Daly, our CEO, and Jeff Cunningham, chairman, CEO and editorial director of Directorship, characterize our merger as bringing together two different organizations that share one common belief: to make good governance a feature of the boardroom landscape.
The benefits of merging our two organizations are clear: We can now offer you a broader and deeper curriculum, a wider range of peer exchange opportunities, and a continued role for the award winning NACD Directorshipmagazine, a much-valued member benefit.
But any director or executive who has lived through M or A knows that it can take patience and understanding to forge a new entity and make sure rewards are reaped by customers, shareowners and employees.
Of course, I and my colleagues, old and new, will be supported in our new venture by our own board members. NACD Director Karen Hastie Williams is a member of the Continental Airlines board. She will take part in course NACD’s Director Professionalism® course in Laguna Beach, CA, on August 24 and 25, to talk about culture and leadership as the airline prepares to merge with United. NACD Director Rich Koppes, a member of the Valeant board, also will be there. Valeant is proposing to merge with Biovail later this year.
If you have any stories that illustrate ways in which the board and management can maximize the chances of a productive merger, please do share them—add a comment on this blog post.
As Daimler and Chrysler and Turner and Time Warner will tell you, the road ahead can be bumpy—and board members with skills and experience to help the new-look C-suite deliver successful integration will always be in high demand.