At a mainstage panel during NACD’s 2016 Global Board Leaders’ Summit on September 19, directors, economists, and former regulators discussed the potential regulatory, economic, and geopolitical implications of the coming election and reflected on how corporate directors and executive teams should adjust to greater levels of ambiguity. One of the panelists, Nicholas M. (Nick) Donofrio, director of Advanced Micro Devices Inc., BNY Mellon Corp., Delphi Automotive PLC, Liberty Mutual Co., the MITRE Corp., and NACD, and the former head of innovation at IBM, characterized today’s external environment as “lumpier and more abrupt than even a few years ago,” forcing companies and their boards to be always on alert and to act quickly in response to change.
The panelists offered a range of projections to help corporate directors assess the business impact of the upcoming elections. They emphasized that aside from a new occupant of the White House, the elections also have the potential to drive significant changes in Congress, major regulatory agencies, and the judicial system. The discussion centered on four major questions of importance for companies and the boards that oversee them.
How likely is a major reform of the tax code?
Reform of the corporate tax code is long overdue, said former U.S. Senator Olympia J. Snowe, director of Aetna, Inc. and the Bipartisan Policy Center. For years, companies have learned to accept the “permanent temporary tax code,” and the resulting policy uncertainty has made investment and capital allocation decisions more challenging. Snowe suggested that even if House and/or Senate control switches from one party to another, it is unlikely that Democratic and Republican congressional leaders will be able to transcend their fundamental differences about taxation and break the current gridlock. Most likely, she believes, the incoming president will use the power of the pen to tweak the current tax code through executive orders.
Should we expect continued regulatory activism?
Troy A. Paredes, director of Electronifie and former Commissioner of the U.S. Securities & Exchange Commission (SEC), shared his concern that “the tidal wave of regulations” seen in the past few years won’t slow down, and it will force companies to commit more time and resources to compliance. “Elections are always major inflection points,” he said, that either sustain or reset the policy priorities of the SEC and other key regulatory bodies such as the Commodity Futures Trading Commission, Federal Trade Commission, and Federal Communications Commission. Meanwhile, Paredes urged directors to be alert as to whether Mary Jo White, the current chair of the SEC, will have enough time in her remaining tenure to finish rule-making on key corporate governance matters covered in Dodd-Frank.
Will our political system address skill shortages in the labor market?
Nick Donofrio offered a mixed view of how the country is addressing the looming crisis in the labor market where current skill sets do not align with the future industry needs. “Our political institutions are too polarized to take meaningful action,” he said. However, it’s crucial that the United States build a digitally competent and productive labor force that can be employed to deliver high-tech manufacturing. “We cannot afford to only create [financial] value in this country, but we must also [manufacture] value here. That means returning much more research and development and production to American soil.” In the absence of government investment, he’s optimistic that the private sector will step up to address this critical challenge and find innovative ways to reskill displaced workers.
How will the United States make itself more competitive globally?
Harry Broadman, a seasoned economist and the CEO and managing partner of Proa Global Partners LLC, reminded the audience that the United States faced a similar set of challenges to its global competitiveness in the 1980s when Japan was projected to become the world’s economic leader. A major difference today may be the backlash against free trade, which could jeopardize the adoption of the Trans-Pacific Partnership and threaten the underpinnings of the European Union. Broadman underlined that it will be critical for U.S. policymakers to remove barriers to foreign investments from high-growth emerging market companies that will contribute to quality job growth. This new generation of enterprises is important to the future of global business, which will no longer be dominated by firms headquartered in the West.
He and other panelists also spoke extensively about the importance of major investments in public infrastructure. America’s crumbling highways, bridges, ports, and technology infrastructure significantly impede further productivity growth, which Broadman believes is the country’s major Achilles’ heel.
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.