Boards Confront Changes to Reinvent for the Future: The E&C Pulse - September 25, 2019

September 25, 2019 Ben DiPietro
 

Sept. 25, 2019

Boards Confront Changes to Reinvent for the Future 

 

What’s worked before in board governance is unlikely to work in a future being shaped rapidly by upheavals in demographics, technology, growing social activism, climate change, geopolitical pressures, and evolving consumer and investor expectations.

 

To adapt to these tectonic shifts, boards and directors will have to change fundamentally how they think, operate, and interact with the business--all while making themselves more diverse, inclusionary, and accountable, a report out this week from the National Association of Corporate Directors states.

 

“This is by definition not an easy process. It will involve uncomfortable decisions about board members who are not fit for the future, and challenging discussions with management teams whose strategies may be stuck in the past,” stated the report, “Fit for the Future: An Urgent Imperative for Board Leadership,” written by a blue-ribbon commission comprised of more than two dozen directors.

 

Sixty-nine percent of directors asked by NACD said exponential technological change is the top concern among 13 issues that will prompt boards to adjust how the govern. The report found 81% said they expect entirely new drivers of risk by 2025; 76% said board structures will need to be more dynamic to respond, and 74% think directors will have to increase significantly their time commitment.

 

The principal change agent to lead boards into the future is the independent chair or lead director, and the report offers suggestions on how a leader can oversee this transformation. These include:

- Working with the chief executive to elevate board engagement;

- Instituting more frequent and forward-looking reporting to boost real-time transparency;

- Instilling a collaborative culture that will most effectively take advantage of the skillsets of a more diverse group of board members;

- Increasing the interactions outside of formal meetings between directors and management; and

- Creating a more fluid and dynamic governance structure to adapt to changing conditions and issues.

Directors know they face a big task: 36% said they struggle to keep up with the accelerated pace of business change, 84% said expectations for how boards perform are increasing, and 73% said board leadership is more challenging now than it was three years ago.

 

Those boards that put their organizations in the best position to succeed will emphasize strong, values-based cultures that empower employees, while holding them accountable, treating them fairly, and engaging them in a way that engenders their loyalty to the mission.

 

“The bottom line for directors in this shift is, we’ve got to get close to culture,” said Dona Young, a commission member and the lead director at Foot Locker Inc., and a director at Aegon N.V., NACD, and Save the Children International.

 

“We can have a values statement on the wall, but the reality is it gets lived and acted on every day, in every transaction, in every interaction with a customer...that’s where ethics takes place,” said Young.

 

To do that, she said directors need to get out of the boardroom and into the business, and to meet and to talk to talent at every level of the operation. “How present are you? How available?" asked Young. "All directors have to get more engaged in how you’re looking at the culture, and how you’re evaluating the culture.”

 

Gen. Lester Lyles, USAF (Ret.), the commission co-chair and a director at General Dynamics Corp., KBR Inc., and Battelle Memorial Institute Inc., said culture isn’t separate from the traditional matters that have concerned boards.

 

He cited as an example how, on one of the boards on which he serves, for years has had a committee devoted to health, safety, social, and environmental issues. “Every one of these, we found, has a correlation to how the company is doing financially, and how it performs,” said Lyles. 

 

In another example, Lyles used to serve as a director at an insurance firm, and would twice a month fly to the company’s headquarters to walk around, talk with and listen to employees, and meet with a business diversity group for lunch or dinner. 

 

This let him better understand the way the business was working, what employees were doing, how they felt about what they were doing, and he would report this back to the CEO, and then to the board.

 

He did this “to make sure they had an understanding of what the environment was really like.” The upshot? The other directors now take similar trips to visit company operations, and share what they learn.

 

"Being engaged...not just with management, but the workforce, is something for me that is critical of leaders of the boards of the future," said Lyles.

         

                                                                                                            BEN DIPIETRO
                                                                                                       @BENDIPIETRO1
                                                                                       BEN.DIPIETRO@LRN.COM

 

 

FROM THE LRN BLOG

A number of companies use their code of conduct as a defensive tactic, namely to prove to regulators they’ve addressed compliance topics. With such a narrow focus, it’s no wonder codes often wither in desk drawers and on rarely-read intranet pages. 

 

READ THE ARTICLE→

 

PRINCIPLED PODCAST

This week's episode of Principled offers a conversation with Peter Gleason, CEO of the NACD, about boards and their role in working with E&C, and in fostering an ethical business culture.

 

LISTEN AND SUBSCRIBE→

 

MIND NUMBERS

546%/467%

The 2019 Global Business Ethics Survey by the Ethics and Compliance Initiative found organizations with high-quality E&C programs demonstrate a 546% increase in culture strength over those with low-quality programs. Organizations with strong cultures are 467% more likely to demonstrate a positive impact on employees. 

 

THE ELEVEN

 

Fighting corruption is vital for achieving sustainability, World Economic Forum reports.

 

A report from the United Nations says the rate of climate change is accelerating. The climate protest at Amazon.com has meaning that extends far beyond what happens at the company, Vox reports. The $13.4 billion University of California system is exiting from its investments in fossil fuels, L.A. Times reports.

 

A report from the Coalition For Integrity found U.S. states are not at all uniform in how they enforce ethics rules, and there is a wide disparity in how much transparency there is when reporting outcomes.

 

The U.K. Royal Society published a paper on the ethical considerations as neural interfaces blur the lines between humans and machines.

 

Gun manufacturer Colt announced it would stop making AR-15 assault rifles for sale to civilians, the latest move by a company responding to public demand to curb gun violence, CNBC reports. Axios reports many CEOs are feeling extraordinary pressure to act on major social issues.

 

The current structure of the C-suite isn't working, and many chief executives are considering changes, EY reports.

 

A federal judge ordered IBM to hand over emails related to an age discrimination lawsuit alleging the company had a program to replace older workers with younger ones, Register reports.

 

Former PepsiCo Chief Executive Indra Nooyi is working to create a "sisterhood" of women leaders to help root out unconscious bias, Fortune reports.

 

Envy can ruin a corporate culture, and Ron Carucci takes to Forbes to outline ways to keep that from happening at your organization.

 

International Banker looks at ways U.S. regulators reinforcing the importance of regular risk assessments.

 

The Notre Dame Deloitte Center for Ethical Leadership offers four strategies to drive ethical performance and behavior.

 

 

THE QUOTE

"Smart people learn from everything and everyone, average people from their experiences, stupid people already have all the answers.”

 

-Socrates, Greek philosopher

 

THE NUDGE

The Ethisphere Institute published a special edition of its magazine devoted to exploring the state of ethical business leadership in India. Check it out.

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