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.
Ever since the rise of capitalism in post-feudal Europe, people have predicted its self-destruction. Private creation and ownership of wealth carries risks, and these risks have been spotted by advocates and enemies alike. Free-market proponent Adam Smith in Wealth of Nations warned against the dangers of separating ownership and liability in joint-stock companies. A century later, in Das Kapital, Karl Marx, a foe of capitalism, said capitalism would fail due in part to the inevitable decline of profits over time. And at the turn of this past century, capitalist icon and financier George Soros wrote of the “capitalist threat” in the Atlantic Monthly magazine, predicting that uninhibited pursuit of self-interest without concern for the common good would lead to a breakdown of the free-market economy.
In more recent times, however, we have not needed books or articles to sound the alarm. The current realitiesof persistent recession and excessive regulation say it all. Clearly, capitalism is under siege and we, its practitioners, are its only hope.
Fortunately, there are several existing communities devoted to this noble cause. One is NACD itself. At our national headquarters and in our chapters, we at NACD believe the organization is helping directors do their jobs well, which, in turn, strengthens companies and the economy.
But NACD is not alone in its dedication. A number of movements have emerged with the express purpose of saving capitalism from both itself and overregulation. One of the newest and fastest-growing is “conscious capitalism”—a movement that challenges business leaders and indeed all stakeholders to rediscover and live their companies’ true purpose—even while creating long-term wealth for owners.
The phrase was coined by Muhammad Yunus, who received a 2006 Nobel Peace Prize for founding the Grameen Bank, a provider of micro-loans. The term caught on quickly. Kip Tindell, CEO of the Container Store, and John Mackey, co-CEO of Whole Foods Market, co-founded Conscious Capitalism Alliance in 2007, which would join with an institute to become Conscious Capitalism Inc.(CCI).
The Conscious Capitalism movement, via CCI, has grown in less than half a decade to become a convening force—one strong enough to tear me away from my office! Last month I served on a panel at the Fourth Annual Conscious Capitalism Conference at Bentley University in Waltham, Massachusetts. The event focused on the importance of “love and care” in the workplace, along with similar topics, including the board’s role in corporate culture, the theme of my panel.
The conference brochure advised me that “conscious businesses have distinctive cultures that help to sustain their adherence to their higher purpose and their orientation towards maintaining a harmony of interests across stakeholders. Conscious cultures are self-sustaining, self-healing and evolutionary.” So far so good!
I assumed my purpose was to suit up, show up, and “carry the flag” for corporate directors. I could just picture myself as being the only “suit” among a sea of social activists and rising-star millennials, being a lone voice explaining that directors do care. In preparation for the panel, I had come up with what I call the 5 Cs:
code (help develop the code of conduct)
CEO (pick the company leader and successors with an eye to culture)
compensation (compensation committee sets incentives for nonfinancial and well as financial results)
controls (audit committee ensures compliance with laws, the code of conduct, and any other norms)
composition (nominating and governance committee selects the board, which then sets the tone at the top through all of the above)
But as it turns out, although I did intone my 5 Cs, I didn’t have to do much explaining about how the boardroom works. Directors and business VIPs were everywhere in the crowd of over three hundred—including some with strong NACD credentials.
Day 1 featured former Medtronics CEO Bill George, who co-chaired the NACD Blue Ribbon Commission on Executive Compensation, as a keynote panelist on the theme of love and trust in business.
On Day 2, the director community was also in evidence. The moderator of the corporate culture panel, Deborah Wallace, is an NACD Fellow, and her panel included NACD’s most recent Director of the Year, Jenne Britell, chair of United Rentals. Another director on the panel, Ralph “Bud” Sorenson, is the chair of the nominating and governance committee of Whole Foods. The conference also featured several notable CEOs, past and present (not only Tindell and Mackey, mentioned earlier, but also Ron Shaich, founder and co-CEO of Panera Bread; and Doug Rauch, former CEO of Trader Joe’s and current CEO of CCI).
Coming all the way from Australia was Ian Pollard, a prominent member of the Australian director community, active with the Australian Institute of Corporate Directors. And I couldn’t resist giving a shout-out to Steve Jordan, director of the U.S. Chamber of Commerce’s Business Civic Leadership Center. (BCLC advances businesses’ social and philanthropic interests through a variety of programs, including corporate citizenship awards and a disaster help desk that empowers businesses to help communities when natural disasters strike.) Like yours truly, Steve is a member of the advisory board of the Caux Round Table, which deserves its own full-length blog post—coming soon.
This star lineup told me that corporate America is already engaged in social responsibility, already devoted to making capitalism sustainable for the long term. Why else would such respected directors be there? And I noticed some knowing nods of agreement from the audience when I discussed the Global Reporting Initiative (GRI), the standard for reporting on company accomplishments in the environmental, social, and governance (ESG) realm—or “sustainability” for short. At NACD, we’ve been keeping our members in the know about such issues—which we will cover at our Board Leadership Conference in October 2012. As usual, our speakers and panels on sustainability-type issues will draw an appreciative crowd.
But Conscious Capitalism runs deeper than simply preaching to the choir about the importance of social issues. According to CCI co-founder Raj Sisodia, Conscious Capitalism has four defining characteristics: “First is a higher purpose. There needs to be some other reason why you exist, not just to make money. Second is aligning all the stakeholders around that sense of higher purpose and recognizing that their interests are all connected to each other, and therefore there’s no exploitation of one for the benefit of another. The third element is conscious leadership, which is driven by purpose and by service to people, and not by power or by personal enrichment. And the fourth is a conscious culture, which embodies trust, caring, compassion, and authenticity.”
Ideally, these values permeate the conscious corporation at every level, including all its employees. Keynote speaker Singh Kang, general manager of the Taj hotel in Boston, gave a good example. Taj is owned by the Tata Group, an $80 billion Indian conglomerate known for its benevolence to employees. Kang was general manager of Taj Mahal Palace in Mumbai during a terrorist attack on November 26, 2008, referred to as India’s 26/11. During the crisis, he stayed on duty, focusing on safety for all as his employees tried to protect guests, even taking bullets for them. Eleven employees died in the attacks. Their families received generous, lifelong survival benefits from their company, returning loyalty for loyalty.
This was Conscious Capitalism in action. These loyal employees and their equally loyal employer will remain forever etched in my mind, inspiring me to continue defending and protecting our economic system—along with the positive values it can foster.
At the most recent NACD Director Professionalism® Course in Charlotte, North Carolina, faculty member Michael Pocalyko, an experienced director and chairman of TherimuneX Pharmaceuticals, described five boardroom deficiencies that he has observed in almost every recent major corporate scandal or failure.
In his presentation on “Board/C-Suite Relations,” Pocalyko proposed that these elements pervade the board culture at troubled companies—and when identified, directors can use these red flags as a warning system for difficulties ahead:
A disconnect between the company’s stated core values and the way its executives, managers, and personnel behave. “When core values devolve into nice words while the way the company actually operates is antithetical to its codified ethics, serious problems are looming. Those problems involve not just lawsuits but orange jump suits.”
A deferential board of directors. “Every troubled company, public or private, including the one that will star in the next corporate scandal, has a board that is far too deferential to its CEO. This happens more often where the chairman and CEO roles are unified. Courteous challenge and vocal independence should not be perceived as affronts to power. They are essential to accountability.”
Inventive corporate finance. “When the non-financial board members especially have trouble figuring out exactly what the financial statements are saying, without significant interpretation, someone is being way too creative. Exotic finance often masks mischief, market gaming, or worse.”
Co-opted information technology systems. “They are tremendously expensive cost centers but absolutely essential to effective internal audit, SEC audit, and reporting. If the board has only an ephemeral understanding of these complex systems and their role in the audit process, IT can be co-opted fairly easily to the impediment of proper board oversight.”
Legal “fitting.” “Like a tailor fitting a suit, when legal counsel fits an opinion to comport with a desired action—rather than delivering an outright ‘don’t do this’ or even ‘it’s a terrible idea’—right then, the board is being brought complicit into future failure.”
NACD Director Professionalism is the foundation course for aspiring or new corporate directors, providing boardroom insight and skills in a highly interactive, two-day format covering the fundamentals of boardroom effectiveness. For more information about NACD Director Professionalism, please go to www.NACDonline.org/DP. During the remainder of 2012, the program will be offered at the following locations and dates: