Following a session on how to build a high-performing board, a Monday plenary session at the NACD Board Leadership Conference took the discussion a level further to what that board can do. Moderated by Bob Hotz, chairman of Pep Boys, director of Universal Health Services, and senior managing director of Houlihan Lokey, the session focused on tone at the top and how the board can act as stewards of corporate culture.
The panel brought together three executives with a wide range of experiences in bolstering effective corporate cultures. As a director of Hewlett Packard and General Motors, Patricia Russo was charged with transforming cultures that had proven to be corporate liabilities. At Honest Tea, founder, president, and CEO Seth Goldman was able to establish his company’s tone from the ground-level. Dr. Ralph Sorenson, director of Whole Foods, has first-hand experience with the company’s very unique culture.
From Russo’s perspective, at companies with a dysfunctional tone, it is critical to set a culture that exemplifies what the company needs to do to get back on track and how it will do that. The board has a very important role in this process. First, the board needs to get behind the CEO and support that person in every way possible. In times of change, it is critical that the board is more active, more engaged, and even more visible in its support for the CEO. Russo also stressed the importance of clear, constructive communications. It is essential for directors to be clear about their alignment with management.
TeaEO Seth Goldman contrasted his experiences with merging Honest Tea’s culture following its acquisition by Coca-Cola. His situation was unique: For the first three years, Coca-Cola was a minority shareholder of Honest Tea, allowing the smaller company’s culture to flourish. The company was still able to experiment with innovative marketing strategies, including establishing pop-up “Honest Stores,” which sold tea for $1 per bottle based on the honor code. Today, Honest Tea has been able to maintain its original tone, while utilizing Coca-Cola’s organization to expand its reach significantly.
Sorenson praised Whole Foods for its strategy of placing employees and customers at the center of its culture. From his perspective, the CEO’s most critical job is to create a culture that is designed to bring out the best in everybody associated with that enterprise. Although he has served on 15 public company boards, Sorenson noted that he has learned more from serving on the Whole Foods board than all the other boards combined.
According to Sorenson, Whole Foods’ success starts with its tone at the top. Established by Co-CEOs John Mackey and Walter Robb, the organization is based on a culture of “shared fate,” commitment to honesty, leading by example, transparency, and an embedded fundamental respect for all team members. Autonomy and responsibility are pushed down through the organization: Team members are hired by peers not team leaders.
Although not every company can follow the Whole Foods model, Sorenson recommended its use. “It’s almost like Camelot. I’ve never seen anything like this company.”
What sets great companies apart? Executives and directors at the most admired corporations in the world call it strong corporate “culture.” That means everyone–employees, investors, business partners–embraces the same values and principles. They share a unified sense of how success is identified, and of the kind of impact the company should have.
Culture, thus defined, is essential to marketplace success.
At the management level, executives should exemplify the culture through both actions and words. Although directors are not typically viewed as arbiters of corporate culture, in fact, leading boards also exemplify and demonstrate those shared values.
As boards and individual directors help set the “tone at the top,” they influence how the company is perceived by investors, regulators and other stakeholders, thus significantly impacting the company’s performance, reputation and value.
Four veteran directors from leading global companies will join a panel discussion at the upcoming 2012 NACD Board Leadership Conference to talk about the vital role directors play in establishing a culture that motivates the workplace:
Seth Goldman, president and TeaEO of Honest Tea, provides keen insights into how he created a company now viewed as a beverage industry innovator–and how leaders can imbue their organizations with a spirit of just such innovation.
Robert Hotz is a senior managing director and co-chairman of Houlihan Lokey. He is also the global co-head of corporate finance and a member of the board of directors and operating committee. Hotz serves on the board of directors of Universal Health Services and is chairman of the board of Pep Boys.
Ralph Sorenson is managing general partner of the Sorenson Limited Partnership. He is also president emeritus of Babson College, professor emeritus and former dean of the University of Colorado Business School, and former professor at the Harvard Business School. Dr. Sorenson serves on the board of Whole Foods Market, where he chairs the nominating and governance committee.
Solange Charas is the president of Charas Consulting, Inc. and a senior-level human capital professional with 20-plus years of experience as corporate CHRO and consulting firm practice director. She is currently pursuing her doctor of management at Case Western Reserve. She has served as the chair of the remuneration committee for a NASDAQ-traded company.
There was an absolute buzz in the room when I joined the NACD Directorship Forum held in NYC May 23-24. Apart from the normal energy of New York City, there was a special quality in the air at the start (and continuing throughout) the one-and-a-half day event.
Maybe it was the grand opulence of the West Lounge of the Metropolitan Club where we sat surrounded by gilt cherubs who looked down from soaring ceilings, reminding us to be angelic in our dealings. Or maybe it was the opportunity to forge connections and relationships with close to 200 NACD members and staff attending the meeting. Whatever the reason, it was energizing and exciting.
The conference started off with multiple peer-exchange sessions. Each table had a discussion leader who facilitated a conversation between directors on topics from Executive Compensation to Board Building to Litigation and Liability to a topic called “How Boards Get Into Trouble.” Of course, that’s the table I joined!
Artfully led by Jeffrey Rudman of WilmerHale, this was an extraordinarily interesting conversation on risk, class action suits and accountability, with voices representing the boards of public and private sector companies and non-profit and for-profit organizations of all shapes and sizes. The consistency of the issues faced by all at the table, each representing very different organizations, was notable. Also significant was the level of engagement of all participants at the table. Asking questions and generating awareness of the importance of “tone at the top” was offered as the key component to achieving consistent messages in the organization. Topics like values, impartiality, integrity, and sensitivity to shareholder optics were considered vital for excellent board and company performance.
The second peer exchange I attended explored Executive Compensation and was facilitated by a former colleague of mine from Hay Group – Irv Becker. While more technical in nature, this session also generated great dialogue. There were more “advisors” at this session—professional service firm representatives who shared interesting perspectives and anecdotes about their current client challenges. The “usual suspect” topics were covered: CD&A accountability, Dodd-Frank impact on disclosure, and a general discussion about performance-based pay optics.
An interesting observation at this peer exchange was made by a new-to-the-boardroom director who questioned the validity of ISS and other rating agencies. The conversation then became very focused and there was consensus from directors that they disliked the power of ISS as it influenced their actions and decision making in the boardroom. The folks around the table felt it shifted the focus from what’s good for the company and shareholders to “What do we have to do to placate ISS?” One participant said that the influence that outside agencies have on corporate governance is “huge” and perhaps “ridiculously inappropriate.” After this declaration, I was curious as to how others felt. At least six directors voiced a consistent message—some with more passion than others—that they feel a high level of frustration with ISS. Here’s an opportunity to explore and dialogue on how to adopt strategies that address stakeholders and ISS through good governance. Over to you…
To take part in the upcoming NACD D100 Forum at the Waldorf Astoria, NYC on November 8-9, 2011, click here.