Just as companies are having to evolve around everything from product delivery to supply chain sourcing, corporate boards, too, are transforming. Certain common themes have emerged in the transformation of company boards’ strategic focus, as well as their structure and make-up.
Below are 10 trends that were the hot topics of discussion at a recent thought symposium for directors, the WomenCorporateDirectors’ Americas Institute. These trends show how boards are changing and seeking to become even more effective in contributing to their companies’ strategic vision and bottom line.
1. Cybersecurity is the board’s problem too. Since the Target breach more than a year ago, there has been a lot of pressure on CEOs to get up to speed on their companies’ cybersecurity measures and to be prepared at all times to answer board members’ constant questions on the topic. But board members also have a responsibility to be up to speed on how well their company is protected against cybersecurity threats so they can help direct the company forward. Major security breaches such as the Sony hacking have been a wake-up call that all companies are vulnerable to cyberattacks—not just financial firms. “It can happen to any of us,” says Kay Ellen Consolver, former international treasurer at ExxonMobil who now serves on the supervisory board of Thyssen Petroleum. “While the executives of a company are running operations, we on the board have to get them to think about the things that haven’t happened yet.”
2. Emergence of new board committees. One way that some boards are addressing more urgent concerns such as cybersecurity is by adding new committees to the existing board structure. Professor Liora Katzenstein, co-chair of WomenCorporateDirectors’ Israel Chapter, remarked recently: “… visionary boards now include new specialized committees such as strategy, risk, environment, technology, innovation, corporate social responsibility and digital social media.”
In speaking on a panel at a WCD Americas Institute meeting, Eileen Kamerick, a director at Associated Banc-corp, the Legg Mason closed end mutual funds board, and Westell Technologies, Inc. said that regulatory issues can cause a board to establish standing committees to ensure that these matters get the right level of attention. “Management has the primary responsibility, but it’s the board’s responsibility to make sure it is done correctly.”
3. Growth of advisory boards to supplement board knowledge. In addition to new committees within the formal board structure, companies are employing advisory boards around specialized areas—using these groups as a task force with deep knowledge. Claudia Kotchka, an advisor to the Institute of Design at Stanford University and a director at BlackBerry, created a design advisory board when she led innovation at Procter & Gamble, bringing in people from different companies in other sectors who could bring broad experience solving their own design issues. “When you’re in your own industry, you are just way too close to it,” says Kotchka. “But these people who were independent would come in with no agenda, and help us when we got stuck.”
4. “Professionalization” of boards opening doors for women. Shifting board priorities may be opening up boardrooms to more women directors as boards become more “professionalized” around areas such as audit and compensation. While the trend of more women populating audit committees started more than a decade ago with Sarbanes-Oxley, Eileen Kamerick explained, the scrutiny around compensation might also present opportunities for women. “Boards need to populate this committee with directors with true expertise, and women with HR backgrounds could fill these roles.”
5. Board tenure is increasing, resulting in less opportunity for board renewal. “While the number of new directors added to S&P 500 boards has grown over the past two years, director turnover remains relatively low compared to a decade ago—less than 7%,” says Julie Hembrock Daum, head of the Spencer Stuart North American Board Practice and a member of the firm’s board of directors. “U.S. boards have traditionally steered away from term limits and have relied on retirement ages to encourage turnover. As retirement ages have moved up—most boards now have a retirement age of 72 or older—the result has been an increase in board tenure, an increase in average age and a decrease in board turnover. The result is a lack of opportunity for new directors, including women.”
6. Setting pay packages to appease multiple stakeholders. Setting compensation levels continues to challenge boards in the wake of ‘say on pay’. “But the silver lining of say on pay is it has forced companies to engage more actively with their shareholders around this issue and explain what they may be doing a bit differently from their peers,” says Jan Koors of Pearl Meyer & Partners. “If we as a company spend all of our time and marketing dollars trying to explain our unique business proposition, then shouldn’t we be able to structure our pay programs differently? We need to be clear about our ‘special sauce’ so we can explain to employees, shareholders, the media and anyone who asks that our business proposition and compensation are in alignment.”
7. Keeping an eye on the “CEO marketplace”. As boards have assumed more accountability for CEO succession, many are working closely with both HR and the CEO to “understand the developmental needs of CEO candidates and others on the management team,” says Julie Daum. “While external benchmarking is often used as an important piece of the compensation equation, it should also be seen as an integral part of talent assessment. As the pace of business increases, more and more companies will regularly benchmark their CEO and management team against executives viewed as best-in-class outside the company to gain an outside perspective on the capabilities needed to compete in a changing business environment.”
8. Cultivating global intelligence. Boards are increasingly global in mindset and make-up, but directors are still learning how deep they must go within each market to truly understand the local culture. The WCD Americas Institute, which focused on regional concerns when doing business in the Americas, featured multiple discussions on cultivating global intelligence. Olga Botero, a director of Evertec—a payments and cards processing company based in Puerto Rico—explained in her Institute panel, “If you really want to do business in Brazil, you can do business in Brazil. But if you want do business in the rest of the Latin America, maybe Peru or Colombia or Mexico would be a better place to be your hub. We’re different, and we do business differently. It is the same as thinking of the European Union as one country. Knowing markets as a board member is not just receiving the monthly presentation that we get—it is really understanding the environment, the economics, and the customers in each country.”
9. Developing a more thoughtful approach to entering markets. Andréa Menezes, the CEO of Standard Bank Group in Brazil, offers this advice to companies entering a new market: “What is important when you’re sitting on a board of the company is to remember that you are just investing in those regions. What the main shareholders—usually the government—want to see is investors providing for and giving a heritage to those countries, employees, community and economy. And when you see an investment that just tried to extract economic value out of that region without providing any extra value added, this is a deal that’s not going to work. Then, you are really going to see implications over your company or business or market share.”
10. Investing in infrastructure needed to take advantage of global trade. The process of entering new markets can involve taking advantage of free trade agreements, which was another focus of the WCD Americas Institute. Anne McKinney, the deputy director of the Colombian American Chamber of Commerce, explained that, “companies can’t really take full advantage of trade agreements when they’re dealing with outdated and inadequate infrastructure. This means both hard infrastructure—ports, railroads, and the like—as well as the soft infrastructure—the institutions that help facilitate trade.” Boards are learning that factors such as slow customs procedures and unpredictable goods delivery (due to smuggling, fraud, and security concerns) are extracting a high “hidden” cost, a figure the Organisation for Economic Co-operation and Development (OECD) estimates is as high as 15% of the value of the goods traded.
All of these shifts are causing companies to re-imagine how boards can meaningfully contribute to the strategic goals, and be a source of fresh, not stale, thinking. We will see boards transform out of necessity, to stay agile and able to see around corners for the inevitable disruptions every company and industry is facing.
WomenCorporateDirectors (WCD) is the only global membership organization and community of women corporate directors, comprised of more than 3,500 members serving on over 6,500 boards in 67 chapters around the world. In addition, WCD members serve on numerous boards of large private companies globally.