​Bridging information gaps among top pivots boards must make

“From changes in the EU to uncertainties about trade relationships, companies face a number of hurdles that will put extreme stress on boards and management teams,” says Susan Stautberg, CEO and Chairman of the WomenCorporateDirectors (WCD) Foundation.

At a recent WCD meeting in the US that was attended by top women business leaders from around the world, directors shared their key concerns for the coming year, and how their companies must pivot to prepare themselves.

Leveraging local talent for global compliance challenges. With more globalisation comes the positive of new markets, but also the negative of more regulations to navigate. “Compliance cultures are different in every country, and we see the rules changing even as we are in the midst of opening new markets,” says Elane Stock, a director at Yum! Brands, Equifax, and Metro Atlanta Chamber of Commerce. “So having strong talent in the region who understand where the regulations are and where they’re moving is really important. You can’t just do this from your corporate headquarters. You’ve got to have local resources, whether they are internal or external, that can point the way through this complexity.”

Disrupting without destructing. As bold as some companies are in moving into new markets and new businesses, many, if not most, take a much more conservative approach to change. “Ninety percent of new ideas at companies never see the light of day,” says Irene Arias, Global Director of the Financial Institutions Group at the International Finance Corporation (IFC), a member of the World Bank Group focused on private sector development in developing countries. “Inertia – whether because of fear or a lack of information – holds companies back. Successful boards have directors challenging each other in a productive way, and then can challenge their management teams to pivot. But it is important to integrate the old and the new – knowing where to reinvest and knowing where to reinvent.”

Dismantling the “unilateral” business model. Many large corporations in heavily regulated industries – from financial services to health care – have been particularly resistant to changing their decades-old business models. “They used to wait for disruption to occur externally, but have begun to seek new ways to operate,” says Molly J. Coye, a longtime veteran of the healthcare industry and a director at Aetna (where 40 per cent of the board is female), Prosetta Biosciences, and Access Health International. Under growing cost pressures and changing expectations around health care, insurers such as Aetna have moved far from their traditional roots as underwriters. “We moved to a deep relationship with physicians and hospitals, and are creating joint ventures with health systems. These collaborations, as well as leveraging data to better understand patients and customers, have helped us reinvent the patient experience and our company.”

Thinking cross-functionally across board committees. While boards can populate committees based on directors’ specific backgrounds and expertise, there are key decisions that are the responsibility of the full board. Succession planning is under greater scrutiny from investors, and demands this level of oversight, even if process is driven by the nominating committee. “A good practice is for the whole board to get to know as many of the senior executives that might be on the succession plan as they can,” says Carol Stephenson, a director at General Motors Company, Intact Financial Services Inc., Maple Leaf Foods Inc., and Ballard Power Systems Inc. “This is not just by listening to presentations, but by watching their judgment in certain situations such as getting to know them over dinner. The onus is on the board members to get to know the various successors so that they can have an informed opinion when the time comes.”

Bridging information gaps. The generational divide in technology has led some boards to open up the criteria for boards to bring on younger, more tech-savvy directors. “Boards have to be adaptable and be able to see their blind spots,” says Josette Sheeran, President and CEO of the Asia Society, a director at the Capital Group, and former Vice Chairman of the World Economic Forum. “Boards, like all human beings, resist what they don’t understand. So we have to get a baseline of understanding among all board members by bringing in experts, going to where the customers are, visiting the factory floor. All of these things help open up an easier discussion about where the company is and where it needs to be.”

Stepping into oversight. Striking a balance between empowering upper management and conducting necessary oversight is an ongoing challenge for boards. “As much as we as directors are not trying to micromanage the management team, we are increasingly tasked with oversight of controls,” says C. Kim Goodwin, director, PineBridge Investments and Banco Popular de Puerto Rico. “We have to know what processes are in place for things such as third-party vendors, which is a hot topic in due diligence globally. It takes only one vendor or supplier to destroy not just the company’s ability to do business in a particular location, but also the company’s reputation globally. As a board, we have to be on top of issues like this so that we can mitigate risk if and when something happens. If the board knows nothing about it, we can’t raise the necessary questions.”

Getting involved earlier in strategy. “A key change in the past one to two years years is both the quality and quantity of board meeting time and conversation around strategy,” says Gabrielle Sulzberger, General Partner, Fontis Partners, and a director at Whole Foods, Brixmor Realty Group, and Teva Pharmaceutical. “Directors have really had to bring our game in a way that’s just fundamentally very different.” In thinking about corporate strategy, she says, “we try to move the culture of the board meeting itself so that there is an opportunity to have more kind of out-of-the-box thinking from management. Generally, they bring their ideas and their presentations as pretty well buttoned-up. What we’re trying to do at the board level is facilitate more innovative conversation. We want to allow there to be a little more safety around experimenting and throwing out some of what their somewhat ‘crazier’ proposals are.” Earlier involvement from the board allows new ideas to be considered before strategies are “baked.”

Connecting board members with institutional investors. As KPMG Board Leadership Center’s Susan Angele explains, “Governance itself is undergoing a huge disruption from what had been seen in the past as a ‘board-centric’ model of governance to now more of a shared model between investors and the board.” Amy Schioldager, a Senior Managing Director and Global Head of Beta Strategies at BlackRock, says that more directors are willing to meet with investors than before: “I think directors want to hear what the institutional investor is thinking – that the investor has a perspective the board may not hear from management, for instance.” She says that 10 years ago, it was rare to see a board member at an investor meeting, while today management brings a board member to one quarter to one third of the meetings.

Bringing along the CEO in the new era of shareholder pressure. The growing incidence of board members meeting with investors is just one of the potential sources of conflict when dealing with the CEO. “A lot of them have traditionally controlled that relationship with shareholders and so don’t necessarily understand the value of including board members,” says Kapila Anand, lead director of the WCD Foundation and director, Extended Stay America, Inc. “But this boardroom/shareholder engagement is increasingly a reality, and boards need to work with the CEO and IR team to be included when relevant.”

Communicating what’s important. If companies are making changes to significant aspects of their business, it’s often not enough to simply file the right regulatory paperwork. “There does need to be more disclosure,” says Anne Sheehan,Director of Corporate Governance at CalSTRS. “The proxy is a compliance document, certainly, but it’s also a communications tool that companies can use to communicate things like their philosophy on diversity or their philosophy on compensation. Schioldager at BlackRock echoes this: “The biggest opportunity that is wasted when engaging with shareholders is in the proxy disclosures. People do exactly what the lawyers tell them to do and are able to check a bunch of boxes. But this is an opportunity for you to tell your own story. What is the story? What’s the company doing? What’s their strategy? How do they think? What does the board do?”

“Being able to tell the story of the company and the story behind the strategy and its evolution is one of the most important roles of both management and directors,” says Stautberg. “Boards are increasingly in the public eye, and increasingly in front of investors, and being able to explain the strategic decisions companies are making in the midst of so much change is critical.”

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