The Boardroom View on Resiliency

What is the role of board members in helping organizations become more resilient to better navigate new challenges? What do they see as the role of HR leaders in strengthening those organizational muscles? Directors Roundtable editor Adam Bryant interviewed three prominent directors with deep board experience for their timely insights on resiliency. Their comments were edited for space.

Participants

Sheila Penrose, President of S. A. Penrose Advisors. Director at McDonald’s Corporation, JLL. 

Susan Story, Director at Dominion Energy, Raymond James Financial. Former President and CEO at American Water Works.

Linda Zecher, Director at Hasbro, Tenable. CEO and Managing Partner of The Barkley Group.

People+Strategy: What are the lessons that you’ve experienced as an executive about building a resilient organization?

Sheila Penrose: I ran three turnarounds in a row, and it was really important to have a confidante who would be candid with me about what was really going on. In pressure situations, there’s a tendency for people to give the answer they think that you want to hear from them. Having those two or three people who knew the situation, knew the people involved, knew the strategy and could be trusted advisors, was very powerful. Having contingency plans, including the ever-important communications component, is of course crucial, as well. 

Linda Zecher: Every organization is different, and so you can’t take the lessons you learned in one and automatically apply them to another. You must be flexible. But the most important thing is strong leadership, and that includes being authentic and having a lot of empathy. 

When you’re trying to build a resilient organization, you have to have empathy for the impact that change can bring, and you have to have empathy for the different ways that people feel that it’s impacting them. People will rally around goals and transformations if they can see the benefits to them and if they feel like they are part of something bigger than themselves. 

Susan Story: At American Water, we had 8,000 employees all over the country in different roles, and they were everywhere on the continuum politically and socioeconomically. Because our business was water, our vision was “Clean water for life.” It was an easy concept for people to understand and to relate to emotionally. 

I say that because organizational resiliency starts with whether everyone feels a common sense of purpose. If you don’t have that, it’s a loose coalition at best. No form of enterprise risk management or future scenario planning will work if you don’t have that passion. Because when you’re under stress as a company, people will react in different ways. If there’s a strong culture that says, for example, safety is the top priority, then people don’t have to try to decide if the rules are different now. The best way to build resiliency is for everyone to understand the bright lines.

‘I’ve shifted from the three- or five-year plan to the focus on being nimble and resourceful. Look at what we’ve just been through in the last couple of years and how we were able to pivot in a matter of days.’


—Shelia Penrose

P+S: What is the role of directors in terms of ensuring that companies are planning for resiliency?

Zecher: You have to look at it from two perspectives. Your responsibility to shareholders is to ensure you are enhancing the value of the company. In doing so directors have to consider  potential changes and the impact of those changes on not just the business results but also the leadership team and the employees. This requires everyone leveraging their IQ and their EQ for the longterm success of the business. 

Story: Enterprise risk management requires stepping back and asking, what are the biggest threats to our sustainability as a company, and are we looking at those at a macro level? What is the black swan event that nobody’s thinking about? That’s so important because missing a major risk could bring the company down. 

So number one is, are you identifying the risk, and then being really honest about the risk? Because executive teams may feel confident about their mitigation of that risk, but the board’s role is to press on the reasons for that confidence. And that might lead the CEO to say, I hadn’t thought about that. 

I also like to focus on no-risk scenarios. If there are three different scenarios, are there no-risk or low-risk decisions that we can make today that would be beneficial, regardless of the outcome? That thought process helps you better mitigate risks and allocate capital. For example, we know that artificial intelligence and machine learning are going to lead to transformative changes, even if we don’t know the specifics yet. To be successful in that long-term future, I have to start working on something today that starts me on that transition. 

And boards can do that effectively because management, especially in the last couple of years, has had to deal with putting out so many fires and just running the business effectively to get through the challenges. Directors have the opportunity to think more longer-term at times to help the CEO and company when there is so much immediate pressure.

Penrose: I would start with talent and succession. What we demand of our top management team, and especially the CEO, is infinitely more than it was a couple of decades ago. And that skill set is constantly morphing, so as a board member, the cultivation, retention and development of talent are crucial. 

In terms of strategy, I’ve shifted from the three- or five-year plan to the focus on being nimble and resourceful. Look at what we’ve just been through in the last couple of years and how we were able to pivot in a matter of days to things we said we couldn’t do, whether it was everyone working remotely or recruiting people without meeting them in person.

When you’re talking about cybersecurity, just to stick with that example, it’s never enough. So how do you help management keep a balance between the investment that you need to make to protect the organization and the fact that that may slow the organization down and frustrate your frontline people with all the precautions. How do you help create the right balance? There are tradeoffs, and one of the valuable roles of directors is helping management think through that tradeoff and not tilt too far one way or the other.

‘Organizational resiliency starts with whether everyone feels a common sense of purpose. If you don’t have that, it’s a loose coalition at best.’

—Susan Story

P+S: Linda, can you speak to your specific expertise around cybersecurity—what are the questions that companies need to make sure they’re asking and answering?

Zecher: It goes from basic to complex. The basic is, do you have programs to monitor your networks and make sure that your employees are changing passwords, etc.? And then you must look beyond your employee base to your vendors. One of the biggest vulnerabilities that companies see today is in their vendor base, because they’re not controlling that network, but their vendors are in their network. So you had to do an audit and make sure that you are creating and enforcing standards.  

The third thing is making sure that you are on top of potential threats that are coming down the road, and you can get those insights from having consultants who are looking at this challenge more broadly than just within your company. They can bring new ideas and information and intelligence. It’s important to keep in mind that anyone can get hit. How hard you get hit and how easily you recover from it is what’s manageable. Having a good cyber plan is just critical.

P+S: How do you help ensure as a director that the leadership team—the current and future ones—collectively develops resiliency?

Story: Leaders have to be flexible, adaptable and able to pivot, regardless of the industry sector, because roles are going to change so much. That’s critical for the people in the succession pipeline as well as the people we’re hiring. I think that Gen Z and Millennials are better prepared for this in some ways, because they typically assume they will be doing many different things in very different ways.  

But for people in their 40s, 50s and 60s, how do we ensure that flexibility and adaptability are front of mind there too? All companies have to do this. Great, long-term sustainable companies have mastered the art of knowing what to hang onto from the past, like the values that make them excellent, while also knowing what to let go of and what to reach for in the future. It is an art. 

Zecher: Everything we’ve been through these past two years, and the geopolitical environment that we’re in now, have an impact on people’s psyches. We need to take a collective deep breath, stand back and say, we’ve survived this, worse things have happened in the past, we’re all going to move forward and just try to stay positive on the things that you can control. We have to have contingency plans in place and think about employees, but we can’t just burn ourselves out every day with worry because it’s not productive. 

P+S: What is your framework for ensuring that the right questions—and the right number of questions—are being put on the table as part of the what-if scenario planning conversations?

Penrose: It has to start with a good enterprise risk system and understanding where some remediation steps are required that don’t also force the company to deviate from its strategy or from its nimbleness or any other things that the company needs in order to be as competitive as it can be. 

You then make sure that every one of those enterprise risks, which really should capture issues of resiliency, are assigned either to the board or to one of its committees, and that they are staffed with experts on the subjects. You’re never going to be able to ask all the right questions. It’s more about, do you have the right talent in the organization? Have they thought through a framework that’s compelling? And then are you able to monitor progress in areas that need remediation of one kind or another? 

There is that risk of tying your management team up in knots with what-if questions about what we would do in certain circumstances. You can start going down rabbit holes. You’ve got to keep it at a framework level. Have we identified the potential risks? Have we brought in the external experts who can assess for us where we’re performing at a high standard and where we’ve got some gaps? 

In the end, if it is like a Russia-Ukraine situation, you’ve got to take quick action, and you’re relying on the smarts and the nimbleness of your senior team to get the right information in front of you and execute around it.

Zecher: It’s no different than putting together a five-year plan. You may never use the five-year plan, but it’s good governance to know that you have one in place, and you’ve gone through what you’re going to need to do to grow. It’s no different than succession planning. It’s just something that you need to incorporate into the DNA of your company. 

The cost in dollars and time of developing all these plans for different scenarios can be high. But it’s like buying insurance when you’re taking a trip. You hope you’ll never need it, but if you do, you’ll be glad you have it.

‘A strong chief people officer who’s partnered with the CEO is the best thing you could possibly have for any company.’

—Linda Zecher

P+S: What is the role of the CHRO in helping build resiliency in their company?

Penrose: The greatest source of resiliency are clear values and mission that are communicated often, so that that there is constant stewardship of the culture. I don’t lay that at the feet of the CHRO, but the CHRO should be helping to mold that so that the business line leaders have co-ownership of it. And if anything is awry, you would hope that the CHRO is the first one to raise their hand and say we need a reset and be able to help formulate how that gets done. 

Because the core of resiliency is how those values are expressed in action, so that you have a touchstone to guide behaviors when you’re under stress. It not only allows you to make those ethical decisions; it allows you to make those really hard decisions where there are no good options.

Story: Even though I’m an engineer, I was a director of human resources for three years at Southern Company. I learned to appreciate so much the role that HR can play as truly a strategic business partner. And HR is critical for those conversations about enterprise risk management and getting your employees onboard and pulling in the same direction. How do you help everyone feel like they’re a part of the change and of the success? How do you test for the right ways to look at your models of feedback, your models of executive development and the key criteria of future leaders? 

How do we have people in leadership who are adaptable and flexible? And how do we make sure leaders are building teams with people who think differently and can share those diverse points of view? The role of human resources has never been more critical than it is now because none of this works without the people to make it happen.

Zecher: They need to be a true partner with the CEO, because they are the pulse of the organization. Their people are the ones who are in the trenches talking to employees and getting a sense of their concerns. They need to be the ones thinking about programs to keep teams motivated and moving forward, and they need to be a strong leader who can push those ideas forward both at the C-suite level and to the board. A strong chief people officer who’s partnered with the CEO is the best thing you could possibly have for any company.