Do we need a board?

• • What can a board do for the company?
  • Benefits of a board
  • Board’s role
  • Executive compensation
  • Strategy
  • Monitoring risk
    • • • Risk portfolio
        • High-level risks
        • Periodically deep dives
        • Periodic brainstorming on emerging risks and disruptors

 

How to create a board?

• • Directors
    • Who?
    • What are the qualities and skills needed?
  • Size of the board
    • Goldilocks principle – not too big, not too small
  • Manage director expectations – set the tone early on
  • What do directors expect from the company? How does this differ from the next generation of directors?

 

Frequency of meetings

• • The number of meetings will depend on the size of the company and its complexity. Many companies have a standard meeting schedule. Additional meetings (for example, to address a particular issue, or in a time of crisis) can be set episodically.
  • Approach the meeting calendar with discipline

 

What are leading board practices
and how can they be derailed?

• • Agendas and minutes
  • Committees – do you need them?
    • Charters?
    • Who should be on which committee?
  • Chairman dynamics
    • Someone who can effectively manage the agenda and the meeting
    • Well respected by the other directors
    • Actively engaged with CEO and directors between meetings
  • Feedback
    • Very important
    • Formal and informal

 

Board renewal

• • Periodic review of the skills needed on the board for current and future strategies
  • Drive a culture that when an objective is achieved for which a particular person is on the board, that director will be expected to move on.
  • Manage expectations

Cybersecurity

• A moving target – you are never “done”
  • • The marketplace has been forgiving
• How does the board (or responsible committee) keep up with developments?
  • • Are there regular meetings with responsible parties in the company?
    • Does the board bring in outsiders for updates?
• Is there a communications plan in the event of a breach?
  • • Internal and external
• Do you know what to do/whom to contact if/when there is a breach?
• How are boards dealing with this threat?

• Oversight often falls to the audit committee – but does this committee have too much on its agenda already?
  • PwC 2018 Annual Corporate Directors Survey
    • Awareness is a hot topic, but crisis management is not
      • 68% provided director education on the topic
      • 34% have staged crisis management drills
    • Some confusion over where oversight should live at the board
      • 12% of companies moved from a committee to the full board
      • 21% moved it from one committee to another
      • 11% moved it from the full board to a committee
• Do directors have liability when there is a cybersecurity breach?

 

Activist shareholders

• Shareholders who have active concerns they perceive the Board is not addressing
• What to do when the shareholder is “knocking on your door”
• Shareholders expect accountability and disclosure
• Shareholders don’t ask for meetings for the fun of it – they have serious concerns
• Shareholders pressing the company for change
  • The cost of a proxy fight – or any fight among owners
    • Out-of-pocket
    • Loss of focus / distraction for C-suite and board
      • How to regain your focus while still solving the problem perfectly the first time?
• What are the company’s messages?
  • How does SEC Regulation FD impact meetings with shareholders?
  • How can boards deal with shareholders that want meetings with directors?
• Listen!
  • THE SINGLE GREATEST SKILL TO USE TO GAIN ACTIVIST SHAREHOLDERS’ BUY-IN

 

CEO succession

• By most accounts, the board’s #1 responsibility
  • Should be a continuous process
• Could be planned or unplanned succession
• Confidential – yes… but what about the process?
• How can boards think differently about the CEO role?
• What accountabilities should the CEO have re his/her own succession planning?

 

Board composition

• Is the board diverse? Is it aligned with the company’s strategy?
  • Number of women on boards is increasing
    • Rate is now higher among the SV 150 vs S&P 100
  • PwC 2018 Annual Corporate Directors Survey
    • 94% of directors say diversity brings unique perspectives to the boardroom
    • 84% say it enhances board performance
    • 52% agree that board diversity efforts are driven by political correctness
    • 48% say shareholders are too preoccupied with diversity
    • Spencer Stuart 2018 U.S. Board Index (S&P 500)
      • First-time directors are younger and more likely to be actively employed
      • 40% of new directors are women
• Term limits? Mandatory retirement? Skills assessment? Director evaluations?
  • The right people at the right time for current and anticipated challenges
  • Manage the expectation about “appointment for life”:
  • What combination of the following you must have to maximize the positive power of your board
    • Term limits
      • LSE – after 10 years directors are no longer “independent”
    • Mandatory retirement
      • Pick an age: 70? 72? 75? None?
        • No exceptions made (except, maybe, the founder – in which case you need to look at the founder’s role on the board)
      • Skills assessment
        • How often should it be done?
          • What are the actual skills that the board needs?
        • Each director should understand why they are on the board
          • How they uniquely add value
        • If their skill is no longer needed, then celebrate the contribution and don’t reappoint – acquire directors with needed skills
      • Confidential evaluations among the directors
        • How often?
        • Other forms of evaluation
          • Board functioning as a whole
          • Board materials, staff support, etc.
          • Board and management working together
        • Spencer Stuart 2018 U.S. Board Index (S&P 500)
          • Boards continue to rely on mandatory retirement policies to facilitate board turnover
        • PwC 2018 Annual Corporate Directors Survey
          • 45% of directors think someone on their board should be replaced

 

Board Issues that must be addressed if you want your board to have maximum impact FAST! 

• GroupThink
  • Why do we fall into this trap?
  • Setting up a foolproof process for preventing groupthink
  • What exactly to do – and not do – when you realize groupthink is happening?
• Chairman dominance
  • Cool and fun techniques for including all board members
  • When people are too polite: the professional way to “call a spade a spade”
• When board members are inappropriate – and get away with it!
  • What constitutes inappropriate behavior
  • Why board members tolerate it
  • 5 tools for specifically addressing and resolving this problem

 

Environmental, social and governance (ESG)

• Throwing money at these issues is not enough anymore
• Larry Fink, annual letter to CEOs
  • CEO of Blackrock
  • “Purpose and Profit: An Inextricable Link”
    • Purpose – the company’s fundamental reason for being; what it does every day to create value for its stakeholders
  • “Retirement, in particular, is an area where companies must reestablish their traditional leadership role.”
• Expectations are rising
  • Why has the US been slow to get on this train?
• Environmental issue can include
  • Use of plastics in product manufacturing and packaging (straws??)
  • Alternative sources of energy (solar, wind, hydro, etc.)
  • Water and wastewater management
  • Hazardous materials management
  • Energy management
  • Air quality indicators
• Social issues are wide ranging
  • Data security and customer privacy
  • Fair marketing and advertising
  • Retirement
  • Employee health and safety
  • Gun control
  • Cost of health care
  • Tax avoidance
• Governance issues include and go beyond the boardroom
  • Executive compensation
  • Shareholder rights
  • Audits
  • Internal controls
  • Systemic risk management
  • Business ethics
  • Competitive behavior
  • Regulatory and political influence

 

Disruption

• What forces are out there that undermine the company’s strategic assumptions?
• Who owns this?
  • Full board or a committee?
  • How often is it discussed by the board?
  • Are experts invited in to discuss emerging technologies/strategies?
  • How engaged is management?
• Impact on culture
  • Encourage employees to raise issues that could become a disruptor
  • Foster a culture of adapting to change
  • Encourage innovation
    • 3M policy: 10% of your time on innovation
  • Accept new technologies
  • Upskill employees

 

Risk

• You don’t know what you don’t know
• What is the structure in the company for risk identification, assessment, management/ mitigation?
• How do risks roll-up to the board-level?
  • Are there specific board-level risks?
    • Who owns each of these risks?

 

Crisis response

• Is the company prepared for crises?
  • Is a chief spokesperson identified (likely the CEO)? Is there a back-up person if the crisis involves the CEO?
  • Are independent investigators identified?
    • May be difficult to identify in time of need
  • Is a crisis communications team on retainer?
    • Strategies for communicating internally and externally