Tag Archive: executive session

Inaugural NACD Directorship 2020 Event Convenes 100 Directors in NYC

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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.

The Cake

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Mellody Hobson I had the pleasure to speak with Mellody Hobson, the president of Ariel Investments, after her opening remarks today at the Society of Corporate Secretaries and Governance Professionals annual conference in Chicago.

Mellody is a very passionate, smart and disciplined leader, and many of her suggestions can add distinct value to all directors, boards and senior executives. Her knowledge nuggets are gleaned from her current board leadership experience at Estee Lauder, Starbucks and DreamWorks Animation—among others.

Here’s a quick summary of Mellody’s key points:

  1. Keep slides to maximum of three pages – not three inches thick!
  2. If an executive or presenter wants to provide more information in the board book, fine—but don’t “re-read” to the board what’s in the board book. That’s insulting and a massive time suck!
  3. Whenever presenting material to the board, start with “the headline is…”  Net: Stick to the key takeaways and implications, and allow for an interactive knowledge exchange between the board members and participants.
  4. There are no categorically right or wrong approaches to corporate governance.  Mellody is a fan of the NACD Key Agreed Principles, and she suggests that boards take a principles-based approach to providing board leadership oversight of their company. For example, many ask her if co-CEO/Chairman roles do, or do not, make an impact on an investment decision. Short answer:  No. There is no right or wrong way, as a categorical decision, to run a company or board.  Whatever is best for the company, in the long run, do it and move on.
  5. Lastly, “The Cake.” The executive session is the best part of board meetings. This is where and when the real meaningful dialogue occurs. When asked if the executive session should occur before or after the board meeting: after. Listen and discuss during the formal board sessions, and then opine based on information and insights.

It should be noted that Ariel Investments takes a long-term view when making investment decisions— typically three-five years minimum, and Ariel Investments has held positions for over a decade. If all boards, directors and shareowners (i.e., not traders and share flippers) take a similar approach to evaluating and running their businesses, perhaps capitalism can prove merit once again.