With the arrival of 2020, there’s an air of anticipation. For a few years now, boards and industry experts have been ringing the gong of digital transformation, cybersecurity, and ESG.
“Recognizing the impact of these trends is no longer the challenge,” said Stephen Gillett, manager with EY Corporate Entity Management, during a recent panel hosted by Diligent. “The challenge now is knowing what the people at our organization must do to move the company forward.”
To get to the heart of the challenge, Diligent hosted the Modern Governance Event Series, a string of breakfast panels taking place in cities around the world. On the docket was New York City, Chicago, San Francisco, Toronto, London, Munich, Frankfurt, Vienna, Madrid, Dubai, Johannesburg, Sydney, Melbourne, and Auckland and Wellington (NZ). In each major market, we made it our goal to understand:
- What risks and opportunities characterize the business landscape in 2020?
- What’s the role of modern governance in driving better outcomes?
- How is the governance professional role evolving to meet these demands?
Panelists included GCs, company secretaries, board members, legal operations professionals, and governance experts. We collected insights across the 15 panels to arrive at three key takeaways and recommendations for 2020…
1. Challenge your current governance practices
“We need to bring boardroom behaviors up to the level of the technology available. Boards get too tuned in to formal agenda, and it turns into box-ticking. At the end of a meeting, can we really say we’ve had a good discussion?”
– Board member during one of Diligent’s European panels
When you joined your organization, there was likely an existing set of governance practices in place. From board evaluations to entity management, your organization likely has a way it’s always done things. Modern governance involves taking a critical look at each governance process: Given today’s landscape, is there a better way of doing things? What are the risks of complacency?
This was a key theme across our Modern Governance Event Series. Panelists shared ways their organizations were breaking the mold, particularly when it came to the flow of information between the board and management team.
“The best governance teams are forcing management to make judgments. If you’re just funneling raw data to the board, then you’re not delivering the insights they need to be strategic.”
– Eileen Kamerick, board member with AIG Funds, Associated Banc-Corp, Hochschild Mining Plc, and Legg Mason Closed End Funds
On a recent episode of The Corporate Director Podcast, we discussed organizations like Netflix and Rolls Royce Holdings that are redefining—or in some cases, entirely reimagining—their board meeting and agenda formats. In different ways, these organizations have adopted a “memo format,” which requires management to highlight the most important information and relevant questions for each section. Across organizations like Netflix and Rolls Royce Holdings, there were several common threads: (1) management viewed the board as a strategic asset, and (2) board materials were redesigned to make the board more effective in this role.
Panelists throughout our Modern Governance Event Series contributed several specific recommendations:
“It’s really nice if the CEO can write a letter to the board. It doesn’t need to be a formal part of the board packet, but it identifies what’s on the CEO’s mind—and where he or she would like to focus the board’s attention.”
– Amy Butte, board member with Tuscan Holdings Corp., Digital Ocean, Long Term Stock Exchange And Carbon38
In addition, more boards are leveraging executive sessions, said Barbara Berlin, a managing director with PwC’s Governance Insights Center: “Boards are using these sessions strategically to say, ‘What did we identify as questions and concerns that we need to address today from the pre-read materials? And where do we need to get on the same page?’”
Advice for governance professionals: Modern governance is a mindset. It requires you to bring a critical eye to each governance practice, but that doesn’t mean every change has to be drastic. Consider the goals of the board and management team, and look for opportunities to make the organization more effective.
2. Leverage technology to improve visibility
“The future of governance? I think about data—the ability to access real-time data that provides greater transparency into the organization. The data itself will be very dynamic and forward-looking, using both internal and external data sets. Ultimately, this modern data will help directors make better decisions.”
– Barbara Berlin, managing director with PwC’s Governance Insights Center
As the speed of information moves faster and more responsibilities are piled onto the board’s plate, access to the right data becomes paramount. Governance teams are largely responsible for collecting this data, cutting through the noise, and extracting the insights—a challenge that increasingly defines the role of today’s governance professional. In assessing the current level of visibility at your organization, consider the following:
- How would you rate your internal visibility? (i.e., Does your board have the information it needs to effectively oversee the organization’s cybersecurity risk? To ensure regulatory compliance across entities? To communicate in a crisis situation?)
- How would you rate your external visibility? (i.e., Is your board/organization satisfied with the level of visibility across your industry and competitors? Do you have access to the same data that your investors and proxy advisors use? How are you monitoring company reputation and media sentiment?)
- How well does your board/organization see into the future? (i.e., Do you have a handle on impending corporate governance or industry trends? How well does your board understand emerging technologies that could impact the business model?)
With this question set, you can likely begin to identify some gaps or governance deficits at your own organization. Yet, the answer to the visibility challenge is not necessarily more data. Some panelists described a “data dump” across today’s boardrooms that’s largely being driven by management:
“It’s a data dump and it’s a protection mechanism,” said Sharad Samy, general counsel with CommonFund. “As a GC, the danger with that is that you’ve now given the board all the information and left too much for interpretation.”
Panelists in New York City described the (very near) future of board information systems—the elements of which are already appearing in today’s boardrooms:
However, it’s important to remember that technology alone will not support these boardroom dashboards or data system. Behind every effective dashboard will be a governance team that’s working closely with the board and management to make strategic decisions about what to measure, what constitutes as an opportunity or a red flag, and how these things can impact the organization.
This year, Diligent unveiled several new tools designed to increase visibility in the boardroom and C-suite. The NACD & Diligent Nom Gov app, for example, provides boards access to proxy advisor data and allows them to benchmark against their peers on a range of governance metrics. Diligent Governance Intel enables boards/organizations to monitor company reputation and media coverage around the world. With Governance Intel, governance professionals can keep an eye on negative media sentiment or evolving regulations, then push relevant updates to their board members and management team.
Advice for governance professionals: Take the Modern Governance Quiz. This exploratory tool is designed to start the conversation around governance deficits and make recommendations for addressing them.
3. Evolve your role to meet new demands
“Boards aren’t always going to say, ‘We need more information on this.’ It’s your job to have your finger on the pulse and be proactive. And you don’t always get to choose what those topics are; stakeholders will.”
– Paul Washington, Executive Director of The Conference Board ESG Center at Diligent’s Modern Governance Summit
Eighty-three percent of governance professionals expect their role to change over the next five years—a finding from a recent report, The Future of the Governance Professional, conducted by the GIA, Diligent, and Lexus Nexis. What’s driving these changes to the governance professional role? The top three factors identified by the survey: (1) Complexity of the business environment (2) Regulatory changes (3) Technological disruption. While these trends represent big challenges ahead, they also present significant opportunities for today’s governance professionals to expand their role in impactful ways.
Perhaps the most important piece of advice delivered from across our global panels is that today’s governance professionals must not feel restricted by the historical boundaries of their role. Modern governance requires acute problem-solving skills and innovation; it’s driven by the people who question current practices in search of a more effective method. The mark of an effective governance professional today seems to be increasingly tied to a distinct set of soft skills:
“It’s more of a trait rather than a skill… but personal courage and conviction are must-haves for today’s governance professionals. They must be able to exhibit and articulate their position and back it up with data…And they must have a team that sets them up to succeed. The smallest mistakes can ruin your reputation with the board.”
– Robert Diaz, general counsel for National Community Renaissance
This year, Diligent launched the Modern Governance 100, a new program recognizing one hundred general counsels, corporate secretaries, and legal professionals who are driving real change across their organizations. These individuals were nominated by their board members, executives and peers. Collectively, these nominations demonstrate the kind of ‘governance innovation’ that’s being rewarded:
- “[He] has completely overhauled our approach to corporate governance over the last several years, resulting in a very efficient and effective process.”
- “[She] continues to innovate the format of our meetings.”
- “[She] has a great sense of priorities around risk management. And she gives fearlessly good advice.”
- “[He] enables us to make important decisions with speed and precision.”
- “[She] navigates the strong personalities of the board members very well and knows when and how to challenge the business.”
- “[He] provides dispute resolution on board matters in a fashion that has garnered earned respect from all board members.”
- “[She] anticipates the needs of the board.”
Advice for governance professionals: Anticipate the changes ahead for your organization. “You may have to create your own opportunities,” said TK Kerstetter, host of Inside America’s Boardrooms, “and you can’t be afraid to do that.”
As our Modern Governance Event Series comes to a close for 2019, we can promise many more events like these in 2020. In the meantime, don’t miss our latest articles, episodes, and interviews on the new Modern Governance Resource Center.