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Genius Boards, UK and H. Pierson Associates Limited are delighted to formally announce their Boards Development partnership. This combines H. Pierson’s industry-leading management consulting services with Genius Boards over 2 decades of empowering directors to perform better through the provision to them of cutting-edge governance solutions.

The partnership is focused on supporting boards of organizations in Africa and select emerging market institutions.

Speaking on the partnership, H. Pierson’s Executive Vice Chairman & Founder Mrs. Eileen Shaiyen had this to say: “we are delighted with the Genius Boards-H. Pierson partnership, and are certain that t will deliver very superior solutions to our clients’ boards of directors across Africa and other select emerging markets.

While speaking on the partnership, the CEO of Genius Boards, Sharon Constacion said that both firms were very aligned in the type of work they do – “we are thrilled to partner with one of the continent’s leading firms, H. Pierson, to support their clients’ Boards in accelerating positive change”.


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Governance professionals recently gathered at the Corporate Secretary Forum – Winter in New York, hosted by Governance Intelligence, for discussions highlighting the variety of challenges they face in the coming year and offering practical solutions.

An array of experts, both on panels and in the audience, shared their insights on areas such as boards’ agendas for 2024, preparing next year’s proxy statements, risks facing companies in 2024, building a successful team of directors and how boards should be using and overseeing artificial intelligence (AI).

Boards’ 2024 agendas

The forum began with a discussion about the issues that will feature on boards’ agenda in 2024. As usual, there is a lot to consider.

Kimberly Simpson, COO, general counsel and corporate secretary with the National Association of Corporate Directors (NACD), highlighted the potential effects on some boards of the current geopolitical landscape. NACD members had recently received a high-level security briefing at the Pentagon, followed by a discussion with a recently retired four-star general who described the situation as the most dangerous period in his lifetime.

Simpson noted that Russia’s war in Ukraine and Saudi Arabia being located near conflict in the Middle East raises concerns for boards, particularly energy companies, in areas such as supply chains and economic stability. Elsewhere, inflationary pressures appear to have eased slightly yet there remain fears of a potential recession and how that would affect companies, she added.

She also pointed to the continuing focus on cyber-security, which has been enhanced by the recent introduction of new SEC rules. Those rules, which go into effect at the end of the year, require companies to provide information to investors about material cyber-security incidents and the controls they have in place to protect against such attacks. They have been a source of discussion for audit committee chairs and there remains confusion about what best compliance practices will emerge, Simpson told attendees.

Among issues for boards to consider are other new SEC rules, including potential requirements about climate-risk disclosures, while shareholder activism has not gone away and the universal proxy remains relatively new, added to which is AI, she said.

Fellow panelist Brady Long, executive vice president and general counsel at Transocean, said boards should approach AI in the same way they oversee other risk areas. Boards are hopefully bolstering management’s and their own expertise to ensure effective oversight, he said. Most companies probably don’t have too much in-depth AI expertise and there is an opportunity for boards to bring in expertise or acquire it through learning, he commented.

There is discussion in the governance profession about the extent to which boards should recruit subject matter-specific experts on risk issues such as sustainability, cyber-security and AI. Simpson noted that members of nominating and governance committees say that having bespoke experts on the board may be less preferable than having members who are smart and more generalist. She advised boards that wish to include an AI or cyber-security expert to look for a current chief information officer (CIO) as their knowledge becomes outdated very soon after their retirement. She noted the challenges of finding a CIO who also possesses the necessary board-member skills in areas such as strategy and finance.

Long commented that new risk areas will arise every year. ‘If the way to solve the problem is to always add expertise to the board, you’re either going to run out of seats or you’re going to radically change the nature of governance,’ he told the audience.

Technology, cyber and AI top concerns

Asked to rank the significance of risks facing companies, audience members most frequently named by a large margin technology/cyber-security/AI. This was followed, in descending order, by geopolitical risk, environmental and sustainability risk, regulatory risk, shareholder activism risk and supply-chain risk. 

With that array of issues in mind, Brian Short, partner with Ballard Spahr, urged governance professionals to have regular engagements with their boards on risk matters as part of their scheduled meetings. From a reporting perspective, he noted companies’ general obligations to disclose risks, to which have been added the new SEC rules on cyber-security.

Fellow panelist Seth Gastwirth, deputy general counsel and assistant corporate secretary at JLL, also urged corporate secretaries to not only obtain risk assessments for their companies but also comment on them and be flexible with them because they can quickly become out of date.

As an example, he noted that few if any companies would have had pandemics in the top 10 list of risks under their enterprise risk-management programs before the outbreak of Covid-19. Governance professionals need to be conscious that new risks will emerge during the year and should focus on their companies’ systems of controls so that people are ready to respond to new risks as needed, he advised.

Staying on track with diversity

Panelists at a later session discussed the importance of diversity in building an effective board, not just in terms of thinking and skills but also in terms of gender and race/ethnicity. In the wake of the US Supreme Court decision to essentially bar affirmative action in university admissions programs, conservative legal groups have been taking action against corporate diversity programs. A group has also challenged – thus far unsuccessfully – Nasdaq’s board diversity rule.

Leahruth Jemilo, vice president and head of ESG advisory at Corbin Advisors, said she was not concerned that such moves would upend companies’ efforts. She anticipated that the pushback would be short-lived and unsuccessful because younger generations of Americans support increased diversity. Young people want to see diversity on boards and in management, and companies that want to attract the best talent will have to focus on those areas, she told attendees.

Fellow panelist Tina Carew, associate general counsel with Invesco and general counsel and corporate secretary with Invesco Mortgage Capital, also said the pushback has not been a concern for her firm as it focuses on diversity in board recruitment.

A corporate secretary in the audience commented that her board has stopped using search firms for director recruitment because they have ‘limited thinking’ in terms of selecting diverse candidates. Instead, the board has been attending NACD and other events and using its own networks to ask specifically for creative thinkers and women of color as potential director candidates. This has led to a diverse slate of candidates, she said.

Carew said her board is also considering no longer using search firms for director recruitment.

Safety and use-case first on AI

Governance teams and boards are giving a great deal of thought to the opportunities and risks AI presents. Part of the discussion is about how to get started with the technology. Jonathan Yellin, general counsel, executive vice president and chief compliance officer with Charles River Associates, noted that for his firm there had been concern about being left behind as a business by not using AI, but that he was concerned about getting ‘over their skis’. ‘We had to understand what the goal was,’ he explained.

An AI policy is about mitigating risks the technology poses, Yellin said. As part of that, his team asked company department heads about how they wanted to use AI. They now meet regularly to discuss the ways in which it is being used and the developing regulatory framework. He described his biggest fear as confidentiality, but said he was also concerned about ethical issues such as bias in hiring. He acknowledged, however, that people are using the technology, which means he needs to engage with them.

Fellow panelist Marion Lewis, CEO of Govenda, stressed that any use of AI should be tied to a use-case. It poses a risk-versus-reward question and certain uses are inherently riskier than others, she said. For example, using AI in a medical context poses much greater risks than using it as a tool for customer services, so different standards should be applied to different use-cases.

Lewis commented that some of the key questions that need to be asked as part of developing a risk-management system include: where does the data reside? Who owns the data? What’s the track record of the vendor? Asked about uses for AI in corporate governance, she noted that a feature of a tool her firm offers is the ability to take transcripts of board meetings and create drafts of minutes that are added to the workflow. This enables what has previously been a weeks-long task to be completed in hours, she said.

Source: overnance-intelligence.com


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As a matter of effective corporate practice, the board is responsible for spearheading the positive growth of an institution. This calls for a strategic outlook that will efficiently meet the overall vision of the organisation while delivering profitability and returns to shareholders as well as balancing the needs and requirements of a wider group of stakeholders.

With at least quarterly meetings to discuss the affairs of the institution, it is paramount that it appoints a competent CEO alongside a Senior Leadership and Management team that will run the day-to-day operations and lead in the growth strategy implementation.

Beyond this, the board should ensure that there is a clear succession plan for each of the leadership positions, including the CEO, and review the plan regularly. To ensure the stability of the organisation, it is advisable to groom successors to these key positions from within the organisation. Only occasionally and when necessary should these positions be filled by people from outside the organisation.

As such, it’s the board’s responsibility to ensure that there is a pool of trained staff ready to fill these positions within different time frames. This includes providing them opportunities to participate in board meetings to allow for a first-hand assessment of their readiness when these positions fall vacant.

Some may be ready for promotion immediately, while others may need capacity building and exposure to be able to perform optimally at senior levels-hence the board need to take charge of the process of developing capacity for future leadership of an institution.

Grooming senior leaders from within is important as it provides hope for career growth within the organisation and motivates staff to work hard and more productively. It also reduces the risk of losing good employees.

There is also the aspect of culture integration which is not necessary with internal promotion as opposed to when recruitment is done from outside the organisation. Lack of culture fit of a senior leader can be detrimental to the goals of an organisation. As Simon Sinek, the venerated leadership expert and author of multiple leadership best-sellers, says, “Corporate culture matters. How management chooses to treat its people impacts everything for better or for worse.

Other than the leadership aspect, internal controls are key, especially during the various growth phases of a company. When these are overlooked or breached, the growth trajectory could turn out to be a backlash mirage, especially for companies operating in regulated industries.

To mitigate breach of controls, it behoves the board to ensure that there is a competent risk team monitoring existing and emerging risks, both internally and externally. In addition, a strong internal control function and a competent external auditor are key as they provide an independent position. At the governance level, an Audit and Risk committee should be put in place to provide oversight of the company’s internal controls and compliance with laws and regulations.

In the current digital era, the board cannot ignore the role of technology in achieving a growth strategy. It thus has to ensure the acquisition and inculcation of relevant and flexible technology to accommodate the overall future growth of the organisation.

While the roles identified here may not be exhaustive, they certainly form the fundamental qualitative aspects of an effective Board in ensuring sustainable growth and stability of an organisation.


Source: IOD.com


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Choosing the right board member for your organization is more than simply selecting someone who is knowledgeable and highly qualified. It’s about finding an individual who can bring a unique perspective, insight, and skillset that can help you reach your business objectives. When making this important decision, there are a few key factors to consider when evaluating potential board members.

Experience & Expertise

When considering a new board member, it’s important to evaluate their experience and expertise. Are they well-versed in the industry? Do they have a comprehensive understanding of regulations and best practices? These qualities will help them make informed decisions that will benefit your organization long-term. However, don’t just settle for experience alone; look at each candidate’s track record. Have they achieved success in similar organizations? Are they known as an innovator or problem-solver? These qualities are what will truly make them stand out from the rest of the crowd.

Personality & Behavior

It’s also essential to consider their personality and behavior when making your selection. Does the individual have good communication skills? Do they display leadership traits? Are they able to collaborate with others effectively? These qualities are just as important as technical expertise when it comes to choosing the right board member for your organization. A great board member should be able to foster relationships with existing members while also bringing something new to the mix. Additionally, look for signs of commitment such as volunteer work and active involvement in other organizations. These behaviors demonstrate that the individual is passionate about helping others succeed and could be a valuable asset to your team if chosen as a board member.

Ethics & Integrity

Finally, look for a candidate who has strong ethical values and integrity. Ask yourself if this person would make decisions that are consistent with those of your organization’s mission statement and core values. Would their actions reflect positively on your brand? An individual’s moral compass speaks volumes about their character even before considering qualifications or experience—so it’s worth taking into consideration when searching for potential candidates.

Making sure you select the right board member can be daunting but also rewarding if done correctly. To ensure you pick someone who fits all aspects of what you need, take into account experience & expertise, personality & behavior, and ethics & integrity when evaluating candidates for consideration – all these together will greatly increase your chances of success! Ultimately – having an engaged Board Member can bring substantial value to any organization so choose wisely! With careful consideration and analysis of potential candidates based on these characteristics – you can be sure that you have made an informed decision when selecting your next Board Member!

Source: BoardTable.com


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Organizations of all types from small nonprofits to mega corporations are governed by a board of directors that appoints the agency head. Serving on a board of directors requires strong leadership, commitment to the mission of the organization and impeccable credentials.

Board of director responsibilities may include fiscal oversight, fundraising, strategic planning and personnel actions. Those who meet board member qualifications may find the experience challenging, but deeply rewarding.

Board of Directors Responsibilities

Individuals appointed to a board of directors meet regularly to review budgets, operations, strategic plans and personnel matters. Advice and guidance is given to the organization’s management team. Board members may take the lead in fundraising activities for nonprofit organizations and may have been selected for their ties to community resources.

Many board members are chosen at the late stage of their careers and bring decades of experience and business acumen, according to Forbes. Others are younger and ambitious with forward thinking ideas that can grow the organization. Honesty, integrity, independent decision-making and objectivity are personal qualities that Forbes considers necessary for board members to possess in order to properly fulfill their responsibilities.

Serving on a board of directors is a major commitment that should not be undertaken lightly. In fact, bank board director Charles J. Thayer writing in Directors & Boards suggests that the potential risks of serving on a community bank board of directors can outweigh the rewards. Bank board of directors qualifications include understanding of banking laws because directors are expected to know and follow 800 rules of the American Association of Bank Directors to avoid the perception or reality of financial mismanagement.

Board Member Qualifications and Disqualifications

Board member qualifications include basic eligibility criteria that must be met for further consideration. Those who do not meet basic requirements are eliminated early in the selection process. Directors must be carefully vetted to ensure they have the ethics and integrity to serve in this capacity. Qualifications for serving on the board are typically outlined in the organization’s bylaws and vary from one organization to the next.

For example, FindHOALaw, a resource for homeowner associations (HOAs), suggests that an HOA board member should minimally be a member in good standing who is committed to regularly attending board meetings. Disqualifiers would include anyone with a felony conviction, or applicants or nominees who have a conflict of interest that affects eligibility, such as being related to a sitting board member. Being embroiled in a lawsuit against the HOA would also be grounds for disqualification.

Typical Board Member Qualifications

Required qualifications align with the type of board member skills needed to effectively lead the organization. Qualifications for a seat on a corporate board look different from those required to serve on a local animal rescue nonprofit organization, for example, but universally shared qualities include a commitment to duty of care and loyalty to the mission, vision and purpose of the organization.

Large companies often require in-depth knowledge of the industry to make competent decisions as a board member. For example, Colgate-Palmolive requires its directors to have held a position as CEO of a large corporation or comparable leadership, experience in information technology, or regulatory and public service. Possessing a master’s degree or a doctorate is also considered helpful.

Commitment to Diversity

Board member qualifications typically include commitment to diversity. Members of a board of directors from diverse backgrounds offer unique perspectives and ideas for reaching underserved populations and untapped markets. According to the National Association of Corporate Directors, commitment to diversity and inclusion is essential to innovation and an organization’s long-term viability and expansion.

The Council of Nonprofits suggests that charitable and philanthropic organizations should be doing more to increase diversity on the boards. Instead of limiting qualifications to CEOs who may be predominantly white males, board membership could be open to millennials, for example. Asking for nominations from communities served by the organization may also result in a more diverse pool of qualified director applicants.


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From pandemic recovery to economic, political and social changes and activist investors, boards of directors are widening their duties and problem-solving as they address how to navigate obstacles and opportunities for the future. Staying aware of these trends is crucial. Here are four key areas boards need to consider this year.

Surges in Activism

2022 had the highest record for activism activity in history. Activists investors’ agenda was to take advantage of low stock prices and stressed financial forecasts of struggling companies. Their focus was on company strategy and operational performance, when in past years the focus was more on M&A and capital allocations. This noted, the jump in activity produced higher success for activists. 2022 showed a 200% increase in adoption of shareholder rights plan from 2021. Preparing and defending against activism has boards busy with updating their bylaws with amendments regarding voting and decision-making abilities.

Expanded Focus on Risk Management 

Areas for coverage in risk management are broadening. To address this, some boards are separating Audit and Risk Committees into separate committees. Others are revising their committee charters to include the new duties and systems to monitor critical functions, safety issues, oversight of the strategies and policies and practices adopted to address risks. These new areas include cybersecurity, cryptocurrency, ESG, climate, new laws permitting officer exculpation from personal liability for monetary damages expands the committee work. This requires new areas expertise on boards, and the SEC has proposed new rules regarding cyber expertise on boards.

Continued Focus on Board Diversity

Investor expectations for board diversity includes firm investor voting policies and proxy advisory guidelines. The influence from such groups as Blackrock, Vanguard, Fidelity International and ISS has impacted  practices. For example, ISS recommends against the Nom and Gov committee and other directors at a company that has no women on the board. The disclosure rules regarding diversity are underway. Nasdaq-listed companies must provide annual public disclosures of diversity statistics with a board diversity matrix to comply or disclose their explanation as to why they do not meet the objectives.

The Relationship Between the Board and Management

With the expansion of responsibilities, the board and executive leadership are dealing with new pressures. Directors must get more involved in understanding of company operations, challenges and fiduciary expectations. Directors and executives are now encouraged to come together to define their respective roles and responsibilities and authority to ensure the check and balance between governance and management and to uphold a healthy collaborative partnership. Based on our research in 34 countries, the most highly correlated factor for a high performing board is the functionality of the group dynamics.


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Written by Theresa Sintetos

Whether they have years of board experience or whether it’s their first board director position, all board members benefit from governance training. Board directors have many important responsibilities. Their work is never done.

Organizations that train and educate their board directors make an important investment in their leadership and that has a direct bearing on the organization. Continual training in governance makes average and good boards great.

The right tools assist boards in bringing their knowledge and expertise into the boardroom.

Why Board Members Need Governance Training

Current and new board directors all bring valuable skills to the organization they lead. Both groups have much to learn from each other. No matter how long someone has been serving on the same or different boards, there are always new things to learn, new challenges to address, and new problems to solve.

Serving on a board is not all work, though. Board directors work very closely together. They share a special sense of friendship and camaraderie. Advanced training brings all board directors current on governance issues which keeps them all on the same page. Governance education promotes candor and straight-talking on tough issues without causing harmful discord on the board.

Boards have much to accomplish in the space of a board meeting. As a result, they have precious little time to get to know each other during board meetings. External activities, such as spending time at governance seminars, workshops, and conventions provide valuable opportunities for boards to connect and form stronger relationships outside the board. The connections they form will help them to think and act as one when they’re faced with challenging times.

Sitting Board Directors Play a Role in Mentoring the Incoming Board

Long-term, seasoned board directors have much to contribute to the rest of the board. Experienced board directors have learned much about governance from past boards where they’ve served, as well as their experience on the current board.

Veteran board members offer much value in mentoring newer board members and helping with succession planning. Every time there is changeover on a board, it becomes a new board that’s different from the old one. New boards will soon form their own dynamics. Building bonds and earning trust takes time and it’s important for boards to put in the time to make it happen.

Newer Board Directors Have Room to Grow in Governance

Newer board members may lack governance experience, but if they were recruited well, they’ll bring other valuable skills to the board. When new board members combine their existing knowledge with the basics of good governance, they have much to contribute to the board.

Inexperienced board directors are often motivated to join a board because it gives them experience and enhances their resume. Once they join a board, it quickly becomes apparent how much work it is, and how little they know about governance. By putting in the time to learn more about governance, less experienced board directors can participate more robustly and intelligently in board discussions and become better contributors to the board.

Board dynamics are an important part of a board’s work. Existing board directors are bound to notice newer board directors that put the time and effort in to learn more about governance. That’s a good first step toward gaining the respect and admiration of the other board directors. Getting governance education demonstrates that new board directors value the organization that invested in them. That goes very far with the rest of the board.

Good Governance Benefits Your Community

Your organization plays a vital role within your community and it deserves the best of skills, perspective, and leadership that the board has to offer. A responsible board quickly gains the respect of the business leaders and people living in the community. Continued governance training shows that the board values governance education and takes their duties seriously. That’s important because those are the people that will become volunteers and donors to help sustain your organization.

Moreover, as boards grow and learn together, it’s easier for them to put personal and political agendas aside and put the needs of the organization first.

Responsible Boards Are Current on Governance Issues

All board directors should be familiar with the term fiduciary duties. When a board director accepts a seat on a board, they automatically accept the duty of care, duty of obedience, and duty of loyalty. These duties are important because board directors also accept legal liability for the decisions they make. If a board decision is ever in question, courts will apply fiduciary duties as the standard against the board’s decisions and actions. Knowledge about governance issues helps boards to make informed, wise decisions collectively, and it demonstrates they acted on an informed basis.

Something board directors should always be cognizant of is that a crisis can happen within an organization at any time, even if things have gone smoothly for decades. A board that knows governance issues well is better equipped to handle anything that comes their way, no matter how difficult it is.

The business environment is continually changing. Regulations and compliance issues are evolving. Continuing education in governance ensures that boards know what their legal responsibilities are and have the knowledge base to fulfill them.

Something many boards fail to recognize is that their responsibilities are important not only for the current time but also for the future. Effective boards are forward-thinking. The idea of “future-proofing” the organization should be evident in strategic planning and fundraising efforts. It’s a good strategy to map the board’s current skills against the skills the board will need over the next three-to-five years. Gaps in needed skills are instrumental in helping with board recruitment efforts.

Overall, there are hundreds of good reasons for boards to invest in governance training and there are no good reasons for not doing it.

BoardEffect board software is a valuable tool to help boards get organized and document their efforts as they pursue board development.

Boards are expected to conduct annual self-evaluations which are essential for developing a strong board. BoardEffect software makes the process of self-evaluations easy and efficient. The portal offers many other governance tools and features to help boards stay at the top of their game.


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There’s a lot of discussion going on these days about board service and why there aren’t more women on boards. Over the next few weeks we’ll discuss that and look at some strategies that might help you if you aspire to board service.

A seat at the corporate board table is an aspiration for many leaders and for good reason.  Board service bundles together a host of rewarding experiences: The opportunity to be an “insider” and view, first hand, how another company works at its highest levels and the privilege to work beside and soak up the wisdom of the brightest, successful and most articulate professionals who will ever cross your path.

But there’s more. It is prestigious to serve on a corporate board, particularly when the firm is publicly-held and directors are elected by shareholders, rather than appointed by the CEO as in the case of private corporate boards. Another feature of boards of directors in large public companies is that the board tends to have more “de facto” power. Many shareholders grant proxies to the directors to vote their shares at general meetings and accept all recommendations of the board rather than try to get involved in management, since each shareholder’s power, as well as interest and information is so small.

How Boards Work

The board consists of individuals that are elected as representatives of the stockholders to establish corporate management related policies and to make decisions on major company issues. Every public company must have a board of directors. Some private and nonprofit companies have a board of directors as well.

In general, the board makes decisions on shareholders’ behalf and has a legal duty to act solely on their behalf. The board looks out for the financial well-being of the company. Such issues that fall under a board’s purview include the hiring and firing of executives, stock dividend policies, and executive compensation. In addition to those duties, a board of directors is responsible for helping a corporation set broad goals, support executives in their duties, while also ensuring the company has adequate resources at its disposal and that those resources are managed well.

 

My Board Experience

Over the course of my 30-year business career, I’ve been blessed with a host of “highs.” In looking back, the pinnacle experience has been (and still is) the opportunity to serve as an independent director of a NYSE, micro-cap company, Luby’s/Fuddruckers Inc. (LUB).  

Here are ten reasons why I relish my corporate board seat:

  • What I learn in a year of board meetings is equivalent to “renewing” my M.B.A.
  • I get to contribute to corporate strategy at its highest level of complexity.
  • I’ve stood shoulder-to-shoulder with my fellow board members, and our shareholders, to win a hard-fought proxy fight with a hedge fund.
  • I’ve come to appreciate each of our business units’ unique corporate cultures.
  • I‘m blessed to work alongside principled and accomplished fellow directors from whom I’m always learning.
  • I’ve come to be comfortable with “productive conflict” even when I’m the sole voice on an issue.
  • I’ve become a better listener and to be open-minded to differing perspectives.
  • I’ve learned that my job as a board director is to coach and mentor the executive team. At the end of the day, they run the company.
  • I’ve come to truly prize the individualized passion, wisdom and wit of my fellow board directors; and to deeply appreciate how our skills sets and idiosyncrasies unite us and keep us strong.

Fact is, serving on a corporate board has made me a better business person and matured me as a human being. I want the same for you!

Truths To Think About

For too many decades, America’s corporate boards have been filled by a chosen few.

I’m passionate about helping level the playing field and make board seats obtainable to a wider, more diverse range of talent. As I see it, the future success of our corporations and our country’s free enterprise system, depend on it.

Here’s the reality: Corporate board seats are scarce and competition is fierce.

But you don’t have to sit passively just wishing and hoping. There are actions you can take. In fact, the “right” initiatives can immeasurably increase your odds of landing a seat.

But here’s the tricky part: Joining a corporate board is by invitation only. (Sometimes board recruiters build the candidate list. But many times, the board works independently.) While the landscape is changing, direct solicitation is still considered taboo, so your actions should be carefully choreographed so that the board finds you and determines that you are just the right person for the seat. You’ll want to rely on your sponsors and supporters to do the initial canvassing for you.

Your Time Is Now

In my opinion there is no better time than today to start working on earning a board seat. For one thing, most all of the information that you’ll need is online. Instead of hoping you serendipitously hear about a recently vacated board seat, that information will be readily available on the internet. You might  even be able to glean what they are looking for in a replacement and who else on the board you may know or be a degree or two separated from.

The most important thing is to determine if you are board ready. If you are, then let’s learn together how to earn that seat that you think would be the best fit for you. 


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The topic of “Corporate Governance 2030” might encourage wild speculation in this period of great, some would say, epochal change. Some might see the demise of the corporation; others, the emergence of new organizations with intelligent robots playing the role of boards. And so on and so forth. The truth is that 12 years is not such a long time. Heuristically turning to the past 12 years, one sees that the changes in corporate governance have been relatively limited. Only in the banking sector have there been any truly significant changes. These were not the result of a huge technological disruption but of a crisis: the most common reason to change corporate governance expectations, regulation and practice. One should therefore expect limited change. But change there will be, and it will be mainly driven by four key drivers: diversity, disclosure, data and Development Financial Institutions (DFIs)

 

Context

Many commentators and pundits have been making predictions about a radically different corporate landscape than the one we are facing today. These predictions have been around for a while: the information and communications revolution was supposed to usher an era of smaller, more nimble companies with very few employees scattered around the world, facing millions of very well-informed rational consumers who buy on the web and can manage endless choice. These nimble supply players can change game plans at the speed of light. Their strategic decisions are not the result of hierarchy-bound iterations as in classic corporations. Rather, they emerge through some sort of networking osmosis.

This has not happened yet, and it might take a long while before it is really upon us, longer than 12 years. It might be true that companies in the ITC sector employ fewer people than old world companies, while enjoying vastly higher valuations and therefore market capitalizations. It might also be true that the information revolution has brought about a significant change in the pecking order of sectors. And AI is already changing significantly the tasks of human workers—and replacing many of them.

But wholesale corporate decentralisation has not happened: industrial concentration levels, if anything, have increased, largely as the result of powerful network effects, facilitated by an efficient merger “food chain”; which, in its turn, is efficiently intermediated by the capital markets. There are still small, medium and large businesses, and there is no indication that they will use boards less or in significantly different ways than their predecessors. The only thing that has probably changed is the funding of it all—the “food chain” works differently: it is now less about public equity markets and more about private flows of capital.

Where there were once IPOs now there are efficient private markets. The UK has now only about half the listed companies it had twelve years ago.

Much of the what this blog discusses is about emerging markets (EMs) and the often smaller, private companies that populate them. For them, the development of private markets is actually a very good thing. Most of these enterprises will benefit from the fact that capital markets are more comfortable and can more efficiently fund privately-owned businesses. The new “food chain” might present an opportunity to smaller, private businesses wherever they may be. For EMs this might translate into a chance to leapfrog developed economies.

Like everywhere else, technology might create significant, and disruptive opportunities in EMs, especially in sectors such as banking and payment systems. But EMs’ key competitive advantages will still be driven by traditional sectors where labour cost advantages are more important than opportunities for labour substitution. But even in those sectors where technology will play an increasingly significant role, the key issue of trust in a company and its institutional framework will not disappear. So, do not expect a change in the role of corporate governance as a generator of trust.

There is an important caveat. My thoughts are based on, some will say, bold assumption that the long-standing trend of global economic and regulatory convergence will continue. This convergence started a few decades ago and was framed by an international cooperation framework established after the second world war. As we all know these arrangements are now facing significant headwinds, probably stronger than at any other time in the last 80 years. My assumption is that what we are currently witnessing in geopolitical and international economic relations is a backlash, not a total collapse of that framework. If it is the later, then many of the points raised in this blog post might become irrelevant.

So, there will be changes in governance over the next twelve years in EMs and elsewhere; and sometimes they will be significant, albeit not earthshattering. Their drivers can be summed up under four broad headings: diversity, disclosure, data and DFIs.

Diversity

Diversity of all kinds and at all levels, is one of the most pervasive trends of the new millennium—a child of globalization and convergence, but also of deep structural change in Western societies.

In the governance sphere, we speak about diversity mostly in the gender context. This is a very important subject and we are probably just at the beginning of a new social paradigm. What is happening in the West is setting the tone elsewhere—almost everywhere. This trend will increasingly impact private businesses across EMs, even in the most conservative places. Increasingly more young women in the elites will be educated just like their brothers. This will probably accelerate changes throughout society.

But diversity is much more than gender. And I will use it in this very broad sense of maximizing the number of different perspectives around a decision-making table—the board.

In fact, boards were invented for diversity purposes: we want different voices around the table, not one king (or, rarely, a queen) who takes all decisions unchallenged. The wise drafters of 19th century company laws did not have mental categories for “group think” and formulation or availability biases; but they could see that managing other people’s money (as Adam Smith put it) required more than a king-like powerful individual, no matter how honest or intelligent.

Of course, a basic common understanding of the business at hand is required around the table, and the more complex the business, the more this understanding comes at a premium. But the more diverse the people around the table are, the more likely the board is to avoid the trap of such biases when delivering productive, challenging, rounded, and balanced guidance.

Until now typical public company (Plc) boards were populated by executives of other companies, a distinct group with a lot of business and organizational experience but often facing perverse incentives. Family companies were often crowded with (what else?) family members. And start-up boards were often an incest ground for a few, very experienced and influential VC representatives with extensive cross-directorships.

I truly believe that we are entering the age of diversity, in this broader sense. Even the patriarchal families of the most conservative of EMs are beginning to understand this and invite outsiders to counsel them. Founders of small businesses understand that access to capital comes from inviting others to the decision-making table: these others bring diversity and diversity brings comfort all around.

But who are these others? In the core OECD markets a new breed of director is emerging and they are all about diversity. In fact, diversity is at the core of their career path. I call them the “portfolio directors”, some call them professional NEDs. Portfolio directors will increasingly be used in all types of companies, from the large PLCs (where their presence is already significant) to the small EM family businesses, often with the help of DFIs, the fourth driver. This latter trend is still in its incipiency but will grow significantly over the next 12 years.

The currency of portfolio directors will be their proven capacity to challenge constructively, which would be demonstrable through a successful track record as NEDs, not as executives in other businesses. Demonstrability will be based on the availability of data—the third driver. Discoverability of past performance will make NEDs less prone to being lapdogs of the controllers. We are not there yet, but this is an area where 12 years might make a lot of difference.

Currently, a phenomenon that is common in both the new age tech companies of Silicon Valley and the traditional family businesses in EMs is the presence of a King—an ultimate controller who can take decisions at will and for whom the board is either a legally imposed nuisance or a bunch of cheerleaders. Indeed, how is a Malinois or Peruvian business patriarch different from Mike Zuckerberg or Elon Musk? Well, their boards are full of the great and good and they are diverse, but only in terms of gender and, possibly, ethnicity. This is a step above than the patriarchs’ board of children, cousins and personal lawyers/consultants. But the reality of Big Tech leaves a lot to be desired: armed with multiple voting rights the Silicon Valley “kings” want boards to be “story tellers”—rather than drivers of challenge. Each one of these directors is hand-picked by the king and serves at the king’s mercy.

A better example of public market governance in the tech sector might come from the largest emerging market, China. Jack Ma has eased himself (and many of the first-generation executives) out of the well-known company he created less than two decades ago, Ali Baba. A couple of years ago, he relinquished the CEO position keeping the chairmanship. Now he has announced that he will be leaving the board all together. Compared to the Silicon Valley kings, he looks more like the Good Shepperd.

Reassuringly, most founders of tech start-ups that IPO in the US show the behavior of Jack Ma rather than that of the “kings”, as recent research suggests. Most of these companies have already lost their founder from their board when they went public—not everyone wants to be king forever. This might however also be because companies take longer to IPO in recent times. The private part of the “food chain” is, these days, longer and often permanent. Let us consider one of its great constituents, the “unicorn” Uber.

In many respects “King” Kalanick was like the rest of his Silicon Valley peers—a big, intelligent ego, armed with significant multiple voting rights. But when he fumbled, he was driven out. His nemeses were not “independent” directors but representatives of significant shareholders, other than himself. Their voice was backed by the credible threat of loss of market confidence and impaired access to capital. I do believe that the private investment “food chain” that we discussed earlier, as opposed to the public route, has delivered such powerful, engaged shareholder directors, and will increasingly do so in the future. Unlike the public markets where boards essentially co-opt themselves, in the private equity context it is the shareholders, often several of them, who appoint the board. The principal-agent problem is less pronounced; hence governance risk is less acute. And as private finance becomes more and more ubiquitous in both core OECD and EM markets, the delivery of challenge in the private company board room will grow.

There is one more aspect of board room diversity that I would like to touch upon. Like in the case of multiple shareholder representation, it is more about the diversity of interests that the board focuses on rather than the diversity of its members. In other words, the importance of stakeholders is increasing and will increase even more in the coming 12 years. In some countries, like Germany, this has long been the status quo. But stakeholder power is now a prominent feature of corporate governance reforms in many countries. Germany is becoming a beacon for some important corporate governance reforms in other countries. Even the UK, the European bastion of shareholder value, has this year revised its venerable CG Code, the oldest of its genre in Europe, to include specific responsibilities for the board with regards to stakeholders. Boards now must consider employees and other stakeholders views when developing strategy and compensation plans and need to establish communication lines with their workforce. The era of unadulterated shareholder value that started in the 80s seems to be behind us. The markets are acknowledging this, albeit quite clumsily, through the rise and “mainstreaming” of Environmental, Social and Governance (ESG) screening and integration, and of “impact” investing. The pressure from investors will only encourage boards to consider stakeholder perspectives, even worker participation looks now like a distinct possibility in the UK.

But none of these trends could be sustained and become the future without disclosure.

Disclosure

First, I believe that, the core OECD public markets suffer from a saturation of disclosure requirements —there is too much, not too little of it. The number of pages in the annual reports of UK FTSE 300 companies have on average more than trebled in the last 20 years. Investors have probably more information than they can use, and often the forest is lost to the trees.

But the focus of this post is not about disclosure in the public markets, where we might in fact see some retrenchment over the next twelve years, first and foremost on the need for quarterly reporting. The focus is rather on two different issues: changes in governance disclosures in EMs; and the beneficial impact of disclosure practices in OECD public markets on disclosure trends and culture in private markets. The gist is that the amount of disclosure in OECD public markets as well as the corporate and investor cultures that have developed around these disclosures are generating positive externalities for EMs and privately-owned companies in all markets. These two directional trends can be demonstrated by developments in two areas.

The first area is that of corporate governance codes, more specifically the structure and implementation mechanisms for these codes in emerging markets. All corporate governance codes claim the UK Code as their ancestor. But many of them, especially in EMs, do not possess one of its core features: the comply-or-explain mechanism, which allows companies to comply with quite specific provisions of a factual, binary nature; or to explain why they do not comply with such provisions. The primary purpose of the comply-or-explain approach is to increase disclosure of governance practices in the market. By asking companies for a simple “yes” or “no” on their compliance with a very specific provision and by making their response an obligatory disclosure item, the Codes render governance arrangements of individual companies transparent to the market.

In contrast, in EMs one would all too often find Code provisions that are ostensibly comply-or-explain, but in practice yield little transparency about real governance practices among the local listed population. There are at least two reasons for this: first, their provisions are often too general with a response requiring a judgement rather than a statement of fact. For example, if the provision is that “the board has to function effectively”, everyone can and will respond in the affirmative, and such an affirmative response cannot be realistically challenged. Second, provisions are often synthetic and cannot be effectively answered in a binary fashion: for example, “a majority of directors should be independent and competent”.

Until now, the objectives of policy makers in many EMs (and several OECD countries) was primarily to educate local companies on best practice through CG codes rather than to increase transparency in the market. This has started to change. My company, Nestor Advisors, has been involved with the support of the EBRD in efforts in Russia and Turkey to restructure Codes towards more disclosure-friendly formats; and to ensure that there is an efficient, user-friendly disclosure system to effectively get the information out to the market.

The many enemies of transparent markets have been saying that disclosure-focused CG regimes are fit for only those markets that have an able, sophisticated buy-side population. This is, nonsense. More transparency in the public market benefits first and foremost lest developed EM and frontier markets; it attracts investors who might not enter without some platform that provides credible non-financial information. Such a platform might in fact make all the difference. What is more, it provides the right signal; good CG information underpins credibility of financial information, and vice versa.

Coming to the same directional trend, the adoption of public market CG disclosure norms by private companies has been increasing in several “core” OECD markets. I believe this will become a growing trend in the next 12 years as private markets continue to attract more and more diverse investors, with some private companies becoming effectively quasi-public. This is a trend that is likely to reach EMs, especially if DFIs actively support it. In EMs, the emergence of a culture of disclosure generates significant positive spill-overs on the rest of the economy, boosting the goodwill of various stakeholders on whose good faith companies often depend.

Moreover, disclosure usually begets more disclosure. As disclosure becomes richer, boards, shareholders and stakeholders want a more holistic understanding of the business they are involved with. Propelled by failure and crises, the knowledge and understanding of the “culture” of the individual companies is increasingly coming within the sights of boards and stakeholders.

Starting with the financial sector, understanding the culture of a company is becoming increasingly a best practice requirement for boards. I am convinced that within the next 12 years, cultural “audits” will become the norm for larger companies.

So, are boards, shareholders and stakeholders interested in culture for the same reasons that Claude Levi-Strauss was interested in the culture of the Yanomami tribe in the Amazon? Maybe not exactly, but their reasons might not be not be as different as one would expect. Culture is important in companies because, apart from policies and procedures, it influences the way people understand their surroundings and, most importantly behave towards them. Just like Levi-Strauss, corporate leaders are interested in what drives people (in corporations and in tribes) to do things in certain ways; in what way “structure” may underpin behavior that in its turn produces goods/artefacts but also, ultimately a perception of the world, values.

It is said that culture is how people do things when no one is looking.

A related reason that culture is important was eloquently stated by the eponymous Peter Drucker. He famously said that “Culture eats strategy for breakfast”. Meaning that organizations, inhabited by humans, will always do what they feel comfortable with instead of what they planned and documented on a piece of paper.

Cultural audits, as increasingly practiced by banks in the UK and elsewhere, depend on the availability of various pieces of information about governance practice and process, but also on other indicators such as customer and employee satisfaction surveys. All of these constitute elements of an elaborate system of internal and external “disclosure”. Cultural audits will not only be relevant to banks and large listed companies: some banks are already reflecting on how to develop “red flags” for their clients, often SMEs. Indicators might include things such as big differences in pay between the boss and the employees, high turnover of management, “staleness” of boards (age, same people around the table for a long time). Whether as an element of credit assessment or of an inevitability/due diligence test, these cultural audits will depend on the availability of data.

Data

Data, the third driver, will increasingly fuel developments in the other three areas discussed in this post. As noted above, a key element of technology-driven disruption in many sectors is the availability of “big” data allowing companies to find niches and price their products with unprecedented precision. Such data will also help identify risks with a granularity that was not hitherto available to providers of equity and debt capital.

In the governance space, work is already under way. And while today data provision is focused on governance of banks (such as in the case of Aktis, a data provider that I chair) or large listed companies (such as in the case of Sustain analytics or ISS) all existing data providers are considering ways to acquire, aggregate/anonymize and serve back governance data from and to private companies, providing benchmarking but also measurable “rankings” to potential investors.

The availability of data will also have a profound impact on the way boards work: for example, as compliance becomes automated, compliance data and logs will become a source of oversight for audit committees. Expanded use of board portals which are becoming the norm in many OECD core markets, will also provide board directors with better opportunities for deep dives into a company’s policy and control environment.

DFIs

I truly believe that in EMs, especially in frontier markets, the recent DFI commitment to actively seek better governance, a “conversion” of almost of Damascene proportions, has become a significant driver of change and will become more so over the next twelve years. IFC was certainly a trailblazer in this respect but others have followed closely.

A few years ago, the governance departments of most DFIs (some of them still nascent) started coordinating their approach to the governance of their investees. The IFC, the EBRD, the IDB, the ADB, and bilateral DFIs, such as DEG, FMO, IFU and Proparco, decided that they needed a common approach. Based on the IFC methodology, a DFI approach to governance was developed and endorsed. And DFIs now cooperate in continuously improving the methodology, in sharing experience from its implementation and even in carrying out individual investee engagements.

In 2018, KfW DEG, the German development bank, produced what will be considered a high water mark in the DFI space: The new Nominee Director Handbook. In my view it provides extensive ammunition in dealing with the still rudimentary governance in many of the boards its nominees sit on. By upping the game at board level, DEG nominees will produce significant results in many individual investees. But the most important impact is the positive externalities that might benefit all companies in the investee’s immediate ecosystem. These externalities will be multiplied significantly, because now DFIs “sing from the same hymn book” and collaborate on fostering governance changes.

Conclusion

One can sum up the perspective of this post on the future of governance in the following 10 points:

  1. Diversity at every level and of every kind will continue to grow.
  2. Private companies will increasingly have outsiders on boards, who in many cases will be “professional” challengers, instead of lapdogs.
  3. Stakeholders will figure frequently on board agendas—and on boards themselves, possibly as a result of regulatory changes.
  4. While public company disclosures in the OECD might be streamlined…
  5. …private company boards will become more demanding on regular disclosures, and so will their shareholders.
  6. A more holistic view of the firm will emerge through systematic cultural audits.
  7. Diversity, disclosure and interactions between principal and their agents, as well as stakeholders will increasingly require high quality governance data…
  8. …which will increase demand for data platforms at every level.
  9. The DFIs ‘weight in the EM governance area will continue to increase; they will become an important source of demand for diversity, disclosure and data…
  10. … thus becoming themselves an important driver of change.

 


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Introduction

The modern era of governance and its handmaiden “compliance” has spawned a plethora of rules and guides about how boards and management should do their respective jobs.

This is fine, but many situations encountered by directors in boardroom settings are not straightforward, nor can they be neatly categorised so that they can be dealt with “by the book.”

This article discusses how chairs should deal with what can often arise in boardrooms, where subjective comments, biased or pre-emptive behaviour and strong personalities can cloud good decision making.

As a corollary, management can be guilty of the same shortcomings, and management reports received by boards can vary greatly in content and format, and on occasion, are characterised by what they omit, as well as what they say. Facts can be in short supply, and opinions can often drive decisions.

The article also question why there is so much variability in board papers, not just between companies, but also within companies. It also looks at how boards of directors can understand and deal with what can be misleading reports with the underlying management behaviour and shortcomings.

Quite simply most of these issues can be put down to the fact that companies are run by groups of unique individuals with a range of personalities and behaviours. A good CEO can get the best out of his or her team, and good chairs can navigate the path towards rational, and evidence-based decisions by the board. However, it is important that the leaders, in this case the CEO and the chair, understand what is going on and have strategies to deal with them.

The board

Much has been written about boardroom personality types and how to build and operate a balanced and effective board, and also about correlating CEO behaviours with success. Understanding what you are dealing with is important, but knowing how to manage these personalities to drive success is also crucial.

To put this into context it would be interesting to know how many company successes and failures are the result of, on the one hand, exceptional individual CEOs, supported by good boards; and, on the other, poor choices of CEOs by incompetent boards of directors?

Changing CEO’s early on in their careers is not a good look but recognising problems early on may make this decision crucial.

Boards are a collective, and consensual decisions are best practice in most circumstances. Agreeing to disagree can sometimes be the only way forward where there are significant differences of view over issues, and where the best outcome for the Company becomes the key driver for the decision.

Likewise, major problems can arise where the board has significant shareholders as directors, who push their personal agendas in preference to the interests of the company. The role of the independent directors is more important in these circumstances and they need to step up and have their voices heard, over what can be dominant and aggressive behaviour.

Management

Boards have more face-time with CEOs than any other management team member, with the exception sometimes of the CFO, who can often double as the record taker, and therefore is generally present for the entire meeting. It is axiomatic that the CEO should preface and present major proposals to the directors, but CEOs vary in their abilities to do this thoroughly and objectively. At one end of the scale CEOs can have an overdose of leadership traits, characterised by hubris; whereas others struggle to present a coherent and persuasive argument, even when important information is available.

With the former, there is one celebrated case where an extremely persuasive CEO was able to convince the entire board of his SOE to go along with his view of the world, and in the process disregarded what were obvious risks, and matters which ordinarily boards would have had have a duty to address and scrutinise. “Black Hats” around the board table can be very challenging for some CEOs, but are a necessary element in board composition and behaviour. Having said that, the Black Hats need to be careful and non-confrontational in putting their views forward.

Management needs to recognise this, and address director’s concerns factually and professionally, even occasionally conceding that there are unresolved issues when seeking decisions.

In the case of an over-assertive CEO, a well-balanced board with an experienced chair will know who they are dealing with; and indeed may have had the responsibility for choosing the CEO — although this is not always the case.

This is why recruitment of the CEO is such a crucial decision, and it is important to know whom you are really employing before it is too late. Thorough due diligence with trustworthy referees can often reveal unsatisfactory characteristics and it is vital that a CEO has integrity, balance and openness in all their dealings with the board. Mutual trust is essential.

Conventional wisdom says that CEOs have a “use by” date and this is often quoted as being seven years, which is also the average longevity of a CEO in New Zealand. Equally some exceptional CEOs grow with the job and the challenge, and they should be supported by their boards and chair to go the distance, providing they continue to grow the company without taking excessive risks.

There are significant differences in approach between management and boards, and how personality and style can impact on company decisions. The board collective, more often than not, has a wide range of competencies, skills, experience and personalities. On the other hand, management can often be embodied in a single individual who has the delegated responsibility to report to the board on behalf of a team of functional managers, whom collectively run the business, operationally and financially.

As we have seen very recently with one of our SOEs, the wrong choice of CEO can lead to the hollowing out of the senior executive team and a huge loss of talent and experience. “Command and control” behaviours are no longer acceptable management styles in today’s world.

Strategy

Strategy formulation is at the intersection between the board and management, which is why good boards share the load with management in this area, and follow good process to ensure there is a high degree of ownership of the final document. Someone once said that strategy doesn’t just happen once a year, and in these uncertain times it needs to be frequently re-visited, and revised if necessary.

It can be tricky when the strategy is not agreed by all the directors, and there have been cases where this has led to “throwing the toys,” and resignation. While understandable, it may be better to stay and see how things play out, and perhaps persuade the board to an alternative view over time.

Key takeaways for boards

  • Both directors and chairs need to be aware of the influence of individuals and their behaviours in the debate and the discussion which precedes decisions.
  • Chairs need to know their board members and their personalities. They should be alert to where some directors may choose to take the discussion and be prepared to nudge it gently back on course.
  • Similarly, individual directors should keep their own counsel and contribute objectively and constructively, particularly when management is present. Enthusiasm needs to be tempered with sound reasoning.
  • Strategy is about the longer term and tactics are usually short term. Even some directors struggle to know the difference.

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