Innovation and disruption are now commonplace in strategy discussions between the board and C-suite. Even innovations outside of a company’s own mission are changing everything from customer expectations to business operations. While the board’s agenda has evolved to include discussion of issues such as emerging technologies and workforce disruption, corporate directors must still contend with evergreen oversight tasks. Directors are feeling stretched, and reasonably so.
NACD’s Master Class board leadership forum convened more than 50 directors recently in Miami, Florida, to sharpen their focus on several pressing board oversight matters. The event highlighted lessons in effective board leadership and explored emerging disruptions that affect strategy and long-term value creation in today’s dynamic business environment. The discussions at Master Class revealed the following takeaways:
- Review the outlook on the economy. The U.S. is on track to have its second-longest economic recovery, and it may even become the longest on record, according to Constance Hunter, chief economist at KPMG LLP. Unemployment is at an all-time low, and wages are slowly beginning to rise. Barring any global economic shocks, this could signal that the American economy is likely nearing peak growth. Hunter also reminded directors that though all signs point to stable economic growth this year, an economic downturn in the coming years is still possible.
- Pay attention to increased complexity. From social and demographic changes to technological disruption, companies are facing increasingly complex challenges. Addressing these issues will require the board to keep up with today’s dynamic business environment. Being on a board is no longer simply about compliance or risk oversight. Fundamental conversations about company strategy and business models need to become regular topics of discussion. The board needs to ask hard questions of its executive team around the company’s data strategy, whether this team has the requisite set of skills to execute on strategy broadly, and how well the management team understands the competitive landscape and challenges specific to their industry.
- Approach technology as an enabler of strategy. Board discussions about technology should focus on the current—or potential—application for the company. Directors should, therefore, approach such dialogues within the context of company strategy. The board should ensure that management understands and meaningfully engages with the company’s technology systems and the staff who use those systems, and assesses how the company invests in technology as an enabler of the broader strategy.
- Wake up to disruption. Large companies are beginning to wake up to the disruptive players in their industries. Many so-called startup “unicorns” are now backed by corporate venture capital arms, enabling established, large-scale companies to gain a competitive edge with smaller companies leading transformative ventures and creating disruptive technologies. There are more avenues than ever before for businesses of all sizes to engage with emerging technologies, from pilgrimages to Silicon Valley, or attendance at events such as the annual NACD Consumer Electronics Show Experience, to setting up corporate venture arms.
- Think outside—or about—the box. The concept of Innovation dos not have to be limited to a firm’s research and development department. A company can innovate in every facet of its business, from financing to product packaging. One director attending Master Class shared how one of her companies modified its package design for products that customers opened to peer inside. By redesigning the packaging to include transparent plastic, customers were able to see these products through the packaging and, thereby, didn’t feel compelled to open it. This helped the company dramatically reduce the number of products that were spoiled from being opened.
- Demand better risk reports. Directors need to push management to enhance the effectiveness of risk reports provided to the board. If risk reports received from management look like audit reports, the board may not be receiving the information it needs to effectively oversee risk. Management teams often present so much information that directors may find it difficult to discern which risks demand the most urgent attention. In fact, the 2017─2018 NACD Public Company Governance Survey reports that in the past 12 months, 79 percent of respondents say they communicated with management about the types of risk information that the board requires.
- Communicate what investors want to know. Institutional investors want to know whether the board is capable of being not only the board of today, but that of tomorrow. In this regard, the proxy statement is often underutilized as a way of communicating the board’s strengths and skills that will help strengthen their oversight of the company in the years to come. If effectively used, this document can enrich board-shareholder dialogue. More information is available in the publication Investor Perspectives: Critical Issues for Board Focus in 2018.
Register for an upcoming Master Class to add your voice to the conversation.