Tag Archive: Northwestern University

Culture and Leadership Critical for Future Boards

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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.

Skepticism Lessons Learned

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I’ve always been a trusting soul. One of my earliest lessons involved me diligently removing debris from a stream for someone in exchange for the official deed to the stream. The problem was, he didn’t own it.

I did not possess the skill of skepticism—defined in Audit Standard (AU) 316 as “an attitude that includes a questioning mind and a critical assessment of … evidence.” If I had, I would have observed that the shiny gold seal I was given was the kind you can buy at Woolworth’s 5 &10, and that the stream ran not only behind the deedor’s property but contiguous ones as well.

Yet there’s hope for us all. On October 1, NACD launched a unique new webinar series on Skepticism as part of an ongoing Anti-Fraud Collaboration with the Center for Audit Quality (CAQ), Financial Executives International (FEI), and The Institute for Internal Auditors (IIA). Along with many at NACD, I was involved in this exciting project, and had a chance to review the upcoming episodes.

“Skepticism” relates to a search for the truth. The term comes from the Greek skeptikos used some 2,300 years ago by disciples of the philosopher Pyrrhos. The verb skeptesthai means “to reflect, look, view.” The earliest self-declared skeptics emphasized the importance of the senses in confirming reality. Over time, the word’s meaning expanded to include the notion of reasonable doubt. Today, the “skeptic” is perceived as a doubter—someone who may trust, but must always verify.

It’s an attitude we all need. And perhaps no one knows this better than series moderator Michele J. Hooper, president and CEO of The Directors’ Council, and board member of NACD and CAQ’s governing board. Through questions and comments based on her considerable experience on a variety of public company boards she brings out the best in the six-part series, outlined as follows:

  1. A brief introduction.
  2. The Etiquette and Ethics of Skepticism with Mary M. Mitchell, president, The Mitchell Group, and Bill White, professor at Northwestern University and experienced director.
  3. Professional Skepticism and the External Auditor with Cindy Fornelli, executive director, CAQ; and Greg Weaver, CEO and chairman, Deloitte & Touche.
  4. Skepticism and the Audit Committee with Marty Coyne, lead director and audit committee member, Akamai Technologies; and Ken Daly, president and CEO, NACD.
  5. Skepticism and the Financial Executive with Marie Hollein, president and CEO, FEI; and Greg Kabureck, chief accounting officer, Xerox Corporation.
  6. Skepticism and the Internal Auditor with Richard Chambers, president and CEO, The IIA; and Paul Sobel, vice president and chief audit executive, Georgia Pacific.

In addition to these webinars, NACD will release a white paper with in-depth background and additional resources on skepticism in December.

Why skepticism? It’s a great way to break the fraud triangle—composed of incentive, opportunity, and rationalization—which can cost businesses so dearly. Financial reporting fraud, the focus of this series, is responsible for a significant percentage of the $3.5 trillion that businesses lose to fraud every year, according to a recent study by the Association for Certified Fraud Examiners.

The value of the labor I devoted to cleaning out that stream for a fake deed may not be worth much in dollars, but whenever trust is violated the cost is too high.

Fraud is unfortunately a fact of life; therefore skepticism is a skill we all need.