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OpinionTestimonial

What The Director Of The Future Will Need To Succeed – Corporate Board Member

By July 7, 2020 No Comments

A recent poll of public company directors identifies the critical skills needed to enable growth and sustainable performance at the board level in the post-Covid business world.

“The future of business will be different,” surmised a director on a recent virtual board roundtable hosted by RSR Partners, “in ways we can’t anticipate in this moment. Our board is focused on assessing whether all our directors are truly ready for what’s coming.”

Over the past few months, RSR Partners hosted more than a dozen roundtables for sitting directors, providing a forum for the participants to share what their boards are learning as they navigate the current crisis and pivot into the “new normal.” While tackling topics as diverse as commercial strategy, operations, health and safety, and the future of business, one theme was pervasive throughout the discussions: leadership and stakeholders will be looking to the boardroom for guidance, and board members not only need to have the requisite experience and skills to confidently provide direction, but the leadership characteristics that will allow them to be effective.

Fundamentally, the global business disruption and current uncertainty has created a need for a higher level of involvement from board members. “This is a time to have board members who have experienced really tough issues, such as major ecessions, difficult mergers, major cost cutting, insolvency and bankruptcy, and top management departures, along with experience in reinventing companies, including supply chain, product engineering and simplification, digital transformation, offshore manufacturing and procurement, sale of subsidiaries, and comprehensive refinancing,” stated Edward A. Kangas, former Chairman and CEO of Deloitte Touche. “This is not a time for deep thinking. It’s time for people with real experience who know how to oversee and support management in a time of crisis and reinvention.” (Mr. Kangas currently serves on the following boards: Deutsche Bank USA Corp., Intelsat SA, VIVUS, Inc., and Hovnanian Enterprises, Inc.).

Directors participating in RSR’s roundtables tend to agree with Mr. Kangas’ assessment—that these topics, which are first on the agenda for stakeholders and leadership, will need to be addressed at the board level. Additionally, directors recognize that upholding the standards of character expected from their company’s leadership is as important as achieving business goals. As boards pause to consider how to meet both obligations while diversifying their members’ skillsets and experience, it will be key to also consider which characteristics a “director of the future” will need to possess to be successful.

Characteristics of Directors Who Succeed in the “New Normal”

From a practical perspective, there is now a higher premium placed on a director’s proven ability to navigate a business through a crisis while mitigating risk and understanding how and when to pull the levers that will impact balance sheets. The demand to optimize results, sustain business, and adapt to changes in a regional and global market has increased alongside the time commitment and attention to detail required of directors to address these issues. Normal requirements for sound governance, audit oversight, compensation strategies, business performance goals, and succession of key leadership have continued to be paramount during the crisis. However, what the current crisis has forced boards to recognize is that a combination of specialized and diversified skillsets and characteristics will produce good corporate governance in and after 2020.

In addition to listening to the characteristics discussed in the recent roundtables, RSR Partners polled more than 250 public company board members of Fortune 50-1000 companies to identify the traits they hope to see emerge in this generation of board members. The results indicated that stewardship, the ability to pivot and learn agility, to be a champion of change, and to be capable of reimagination will be most needed by the directors charged with steering their boards in the “new normal.”

1. Stewardship

Boards need to provide greater guidance, ownership, and support in ensuring the survival of the business, from reputation management to active engagement with all stakeholders, including large investors, employees, customers, and suppliers. Guaranteeing the safety and security of employees has already become an integral aspect of the stewardship conversation and will become paramount to creating a strong corporate culture that values integrity and character.

As policies and regulations (global, regional, and governmental) are reshaped, this is an ideal time for companies to step in as both “thought leaders” and as voices for stakeholders, to ensure that regulations, policies and procedures reflect regulatory intent, employment, and financial strategies to ensure positive overall economic, social, and environmental impact.

The companies that have donated personal protective equipment (PPE) devices or transformed operations to manufacture PPE devices, respirators, and testing devices, in addition to companies who have supported the call for scientific evidence and data-based solutions, supported remote learning, donated food or products, or reduced fees for customers, are authentic examples of stewardship.

Likewise, companies that have recently made financial contributions to organizations and non-profits to support diversity and inclusion and racial equality efforts are better poised to tackle future stewardship challenges and to lead by example.  Aside from donating, major companies have also used their public profile to call attention to issues of race and justice in America, creating a positive social impact which is good for society and for their business performance. By listening to their employees and customers, demonstrating awareness of current social issues, and acting on those issues, directors can foster a corporate environment of wider social concern, setting company leadership on a path towards renewed commitment to good governance.

2. Ability to Pivot

For over a decade, the term “VUCA” (which stands for volatility, uncertainty, complexity, ambiguity), has permeated many business publications and has been at the forefront of business disruption planning (see RSR’s previous white paper, Boardroom Actions in a VUCA World). In light of the newfound reality that strategies and normal business operations can be disrupted at a moment’s notice, leaders recognize that good governance dictates developing pressure-tested alternative “pivot plans.”

Most organizations and their employees have learned balance work and home life by setting up remote operations while continuing to care for friends and families. Many added the duty of homeschooling to their routines. Virtual doctor’s appointment – perhaps one of the most eye-opening moments during the pandemic – are now customary. Telemedicine that initially focused on rapid triage for EMT services has quickly adapted and expanded, and sales of technology and analytics are on the rise. There is ample evidence of companies, from nimble start-ups to large enterprises, pivoting to drive innovation to solve urgent pandemic-related issues. Some examples include:

• Bleep Sleep’s adaption of their CPAP product over night to support positive air pressure for treatment of patients with COVID-19);

• General Motors moving production to manufacture ventilators;

• Large cap banks adapting consumer retention strategies with late fee forgiveness; and

• Rapid technology improvements to compete for video conferencing capabilities with Zoom, Microsoft Teams, and Google Meet, among others.

These solutions have demonstrated not only a newfound drive for innovation, but also a cultural mindset to problem-solve, adapt, and change direction.

4. Learning Agility

There is a growing urgency to stay current and knowledgeable on a variety of topics, but especially real estate developments, technology solutions, go-to-market strategies, and regulatory compliance. Work norms have changed. Many companies are extending “work from home” solutions into 2021.

Given these rapid and consequential changes, boards that will become more successful and competitive will operate remotely and embrace technology, actively engage and anticipate marketplace changes, and at the same time enable business leaders to reshape company priorities. Directors are refreshing and, in some cases, expanding their knowledge base to ensure that they are well-informed and adding value. Supporting expansive remote working is a critical transition. This means prioritization of and demand for cybersecurity, remote desktop support, applications, collaboration tools, system interface, and/or remote assessment.

Further, remote work optimization is rapidly evolving as organizations realize that many roles can function well in virtual environments. This enables potentially greater talent retention and attraction along with improved productivity and work/life balance. Accountability for work-related physical and psychological concerns may also adjust, allowing organizations to focus on improving sustainability platforms such as a reduction in energy usage and freeing cash for strategic investments. Organizations that embraced the physical office “open concept” space are now retooling for social distancing, which can be both time consuming and costly.

Hostess Brands Chair, Dean Metropoulos, describes how the iconic Hostess brand has focused during COVID-19. First focusing on the safety of employees, then sustainability of supply chain and customers, the company ultimately shared its strategy to “emerge as a stronger and more resilient company.” During the company’s May 9th earnings call, Andrew Callahan, president and CEO, highlighted how the company is ensuring safety through use of additional plexiglass dividers in facilities, SKU prioritization and automation of production:

“Ability to focus (SKU’s), quickly identify solutions (plexiglass and additional automation), and focus on employee and product safety has allowed Hostess to ensure safety of employees, product and supply,” he said. “We are pleased that our robust revenue growth of 14.4% in the most recent quarter represents the 5th quarter in a row of growth exceeding 5% and that EBITDA increased 6.4% for the quarter. I am proud of our employees and our leadership for adapting so quickly.”

4. Champions of Change

It is likely that investors are anxious to understand how their investment will survive, let alone thrive. Boards will need to anticipate and respond to changing market conditions and the economy. As uncertainty continues, stakeholders will question how the organization intends to ensure operations, retain talent, and cultivate a culture of empathy and safety. Boards will also therefore need to be armed with intelligence that can help guide the organization to adhere to safety guidelines and will need to be “hands-on” to ensure that leaders are capable and encouraged to “think outside the box,” adapt, and lead through adversity.

As an example, over the last few decades, market access and P&L performance were measured by the efficiency of global supply chains. The ability to source for the lowest cost of manufacturing and cost of goods sold led to heavy offshoring of production, despite increased shipping costs. Recently, major universities and consulting firms have theorized that supply chains of the future will need to migrate to regional models from global models. There is speculation that the number of regional centers will increase and there will be greater manufacturing production near customers. Supply chains can further de-risk through regional distribution, vendor diversification and management, and improved quality standards in production. The past prestige of brick-and-mortar businesses is being reimagined, since outsourced manufacturing allows for improved cash flow and often decreased cost of goods sold (no more CapEx, preventative maintenance, and challenges of unburdened or poor asset utilization). Across industries, asset write-offs or the sale of depreciated assets can free up cash for investment (with better ROI) and, by adhering to quality standards, outsourcing can increase operational efficiency. Are boards open minded to this type of overhaul? Will current directors support drastic change and encourage leadership to think creatively?

While the current crisis has accelerated efforts to retool supply chains, boards that also champion a message of social change on issues of race, gender, justice, and equity will be better prepared to succeed in an altered business environment. Customers once concerned with the ecological impact of the business they purchase from are now equally concerned with the corporate philosophy and social positions of those businesses. Directors who can promote a mission of inclusion and diversity at all levels of their business — from investors, to customers and employees — will be able to demonstrate a higher level of attentiveness to current social concerns. Announcing a diversity hiring initiative or showing outward support for racial and gender equality movements are both ways of aligning business interests with social issues, capitalizing on consumer sentiment, and improving company leadership for the future.

Communication regarding change should be a priority for all organizations. Employees are balancing family, work, financial risk, and health questions. Many may also face mental health challenges. Industries that rely on mass gatherings of people (concerts, professional sports, universities, etc.) are strongly considering adding Health Officers and Hygiene Specialists to oversee process, policies, and external communications to ensure that regulatory, governmental agencies, and customers are confident in their safety at events. Directors who resist acknowledging the priority of these health and safety concerns over revenues may be unable to adapt in time to re-open in accordance with appropriate guidance and retool operationally.

5. Reimagination

Companies that are thriving during the crisis and are continuing to evolve as the world reopens have demonstrated their ability to reimagine their businesses.

Restaurant chain Panera moved within two weeks to create a grocery delivery service; hospital and healthcare systems quickly adapted service models embracing telemedicine service startups; and manufacturers rapidly adapted production models and product offerings to manufacture masks and ventilators. Direct-to-consumer sales channels continue to rise across industries, including healthcare. Customer management (and engagement), customer service, data analytics, and loyalty platforms will become increasingly important, and “go to market” strategies may require sales and marketing professionals to adjust or develop new skillsets. Can directors visualize an evolution of their companies?

According to John Castellani, former President and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA) trade group and current member of Pharmacist Partners Advisory Board and Independent Director for Hikma Pharmaceuticals, “Speed is paramount when leading organizations through change. Early adapters preserve customer and investor confidence and set the strategy for the future… they also take share.” Boards that support, encourage, and help companies identify opportunities, rapidly assess alternatives, and engage regulators, government, suppliers and customers in solutions to sustain and build optimal business outcomes for their stakeholders, have tended to be some of the surprising “winners” during this time of uncertainty.

Board Reflection and Action

We are in a period of opportunity and choice. Initiators who can influence and set direction and policy, engagers who can align culture and stakeholders, as well as optimizers and stabilizers, will be welcome at board tables. This is a unique time—a time when leaders lead.