New Leadership Paradigm in the Boardoom

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ZIER: Given all that management teams are facing these days, have you seen boards get more involved in issues than they have in the past?  

BILL MCNABB: Yes. The pandemic and the geopolitical situation have probably accelerated this. I'm a co-author of a book, and its whole premise is that, today, the board's oversight has grown, and we need to be very focused on "TSR"—talent, strategy and risk, holistically. It's very different than where we have historically been, where the role of the board was to pick the right CEO and get out of his or her way. 

In the best boardrooms, I see less PowerPoint and shorter, more focused prep materials, which creates time for discussion and debate around the key issues that management is facing. The board's role is to push, challenge, ask really tough questions and help management tweak its direction, if necessary. Management and boards are collaborating much more.

WENDY DAVIDSON: Boards are having more conversations around human capital and where and how companies should lean in. There are some issues that you shouldn't speak out on publicly unless they are relevant to your company's purpose and mission. It might be really important to the executives. It might be super important to the team, but if it's not linked to what the company's brand stands for, you have to be careful.

Other times you do need to engage, especially when you have employees out in the marketplace or in communities, so they feel supported by the company and they're not having to speak with just their individual voice. Balancing the corporate mission and purpose for where to lean in with employee well-being and customer and consumer expectations is critical. Making sure that we're acting consistently is something that boards and management need to be aligned on.

CORETHA RUSHING: Boards are getting more involved in oversight around company culture and the new ways of working. More and more, people are realizing that work is not a place; it's something we do. The work environment is never going to be the way it was, and boards need to understand the mood of the workforce. 

When it comes to talent, directors need to look beyond understanding turnover, hiring activity and organization structure. We need to go deeper. For example, people have been offered promotional opportunities and have said no. They're not worried about the repercussions to their career. There's a new mindset out there, and it's important, as a board, that we understand future implications on talent and succession going forward. 

ZIER: Is the often-articulated operating principle for directors of "noses in, fingers out" still appropriate in today's environment?

RUSHING: Your job as a director is to be in the balcony and look down on the ballroom floor, not get on the ballroom floor and dance. You're providing that broader perspective. But if boards are doing the right things around board composition and are bringing expertise to bear then, more often than not, something is going to occur where the CEO will want to tap into that expertise.

We have a whole generation of executives who have only been on this bull run, and they will greatly benefit from the perspectives of people who have been through a recession before, been through significant downturns, experienced incredibly high interest rates and have done reductions in force, for example. The board can bring a lot of experience and insight to these situations for management to consider.

MCNABB: Yes to noses in, fingers out. But the board should be asking a much broader set of questions and touching more topics than 20 years ago, when boards were focused almost exclusively on such questions as: Do we have the right CEO? How are we paying them? Do we have a five-year strategic plan in place that we all buy into? How are we performing against that plan?

The best management teams use their boards aggressively. They want to hear board members' experience and perspectives on certain things and are proactively drawing them in. Recently, I've seen a couple of short-term committees formed by boards to deal with particular issues. That's where it can get a little gray, but as long as there's clarity around the fact that the CEO has the ultimate authority to make the decision and the committees are disbanded when the issue is addressed, I think you're OK.

DAVIDSON: I prefer to say, "ears in and fingers out," because you want the board to be listening and asking probing questions like, Where do we see the marketplace headed? How are we thinking about this risk? How will you address this cultural issue? The board can and should share their perspectives but should stop short of problem solving. It's management's job to come prepared to answer and address those tough questions to the board's satisfaction.

ZIER: What is a board's best defense against risk?  

DAVIDSON: The foresight to anticipate and look around corners so you're not caught off guard is paramount. This is a role where boards add so much value because management is heads down in the day-to-day and might only be looking out a few quarters. The board comes in with an outside perspective, and they see the industry from a different view. They can ask questions about the competition and disruptors. What haven't we thought about and are we planning for it? We may not fully anticipate the risk to the business, but we need to at least have it on our radar and in our scenario planning.

Also, as a board, we can no longer isolate risk management as a stand-alone topic, delegate it to one committee and discuss it once a year with the entire board. Everything we evaluate needs to be looked at through a lens of how to anticipate risk. We then need to ask management for a plan to mitigate those risks and provide regular report-outs. 

RUSHING: Your biggest risk to your company is often the people who live in your house and are not locking the doors. It's not the outside forces, but your own employees. So from both a physical and cyber perspective, you need to do your best to make sure the organization is secure. That comes down to being deliberate about the culture, managing organizational stress and supporting individual well-being and mental health. As a board, you need to understand the mood of the organization.

MCNABB: I'm hyper-biased that if you get talent right, everything else takes care of itself. At the board level, there needs to be a much deeper understanding of not just the CEO and the rest of the C-suite, but also what's beneath—who is coming up through the pipeline, the how and processes behind talent selection, development, retention and more. 

Talent also is a massive reflection of culture.  More companies fail on the culture front than almost any other aspect. A lot of the Wall Street Journal headlines you see that no company wants to be caught up in tie back to culture. So, as a board, you need to ask about the cultural enablers or disablers that allow or prevent risk to surface quickly enough to be avoided. 

ZIER: Beyond DE&I, how have your thoughts around board composition and skill sets changed from pre-pandemic?

MCNABB: Diversity of experience is even more important than we thought. DE&I can be a reflection of that, but you can have people of a different gender or different ethnicity whose experiences are very similar. You want to be careful about over-indexing to that. It's important to have diverse experiences on the board that can help you deal with the range of issues you may face. 

That really was underscored during the pandemic. Board members can't be one-trick ponies if they're going to be effective. One of the subtle things that definitely came through around this diversity of experience is that you don't need an entire board of CEOs or CFOs. But you do need some, as they tend to be the individuals who the CEO most seeks out because they understand what it's like to be in the seat.

RUSHING: Boards are heavily skewed to people with financial expertise, which is critical. But now we have all these human capital issues. Companies are facing marketing, digital, IT and data issues. So there's an opportunity to look at your board and say, Are we truly diverse from a skills perspective? You don't want dabblers; you want people in these areas where it actually was their job.

Also, in addition to diversity of skill, we want diversity of experience. Find board members who have experienced a downturn or a crisis of some sort, because if everyone came from a business that was all wine and roses, it won't help the organization when they face a crisis or disruption.

DAVIDSON: We have tended to look at board makeup around the most physical aspects of diversity: age, gender, ethnicity. Today, it's more important than ever to think about the diversity of experience and unique perspective that directors can bring to the table. 

For example, on a nonprofit board that I've served on, we look for people who actually weren't heavily engaged in that particular nonprofit, but instead had experience either in geographies that we wanted to expand to, in industries that we were looking to drive development and fundraising from, or had a unique functional expertise such as IT and technology, because that's become such a game changer to lots of industries. 

ZIER: What are the new X factors in board leadership that are needed to provide the right level of oversight and support to management in these times of uncertainty and disruption?

RUSHING: There's this strange phenomenon where there's a desire to diversify boards, but also this desire to have us all, when we vote on things, agree. The entire point of having diverse members of the board is to foster a more constructive dialogue where we can agree to disagree and, if we need to wrestle it to the ground, be comfortable with the uncomfortableness of that. We need boards that are willing to challenge each other and management to drive successful outcomes.

Also, each director must bring more than his or her functional expertise to the table. They need to be able participate and add value in a general, strategic way across a broad range of topics.

DAVIDSON: The new X factors, in my mind, are collaboration, self-awareness and empathy. Boards are dealing with issues that are more prickly, and they're being thrust into challenges more often than they were in the past. The marketplace is moving faster, issues seem to appear out of nowhere, and there is a need for quicker response times. 

Board members need to hold each other accountable. You need people who can go to battle in the boardroom, are comfortable with some pretty intense conversations and are able to take off their individual director hat and put on their organization hat. These directors have to be people who know how to play with each other, know how to leverage the strengths of the group and are willing to leave their egos at the door. The conversation in the room has to be about how we are supporting the organization for long-term sustainability and how we are supporting leadership to make the right decisions.

MCNABB: We talk about strategic agility for management teams. Boards need to be agile, too. That's X factor No. 1 for me. From a governance standpoint, time is your friend and actions are often process-driven and deliberate. However, there are times when you've got to move much more quickly as a board than you may be comfortable with.

Public and private boards have a different focus. On public boards, we're maniacal about meeting our quarterly earnings. But if the CEO isn't performing well, it can take us a couple years usually to make a change. On my private boards, we're actually talking much more about three to five to six years rather than quarterly results, because that's our investment horizon. We really want to know what the progress is against that five-year plan. But if we need to make a change in leadership, for example, we'll make it tomorrow.

ZIER: If you were conducting a CEO search, would you be looking for different qualities and qualifications in a CEO than pre-pandemic? Are there new X factors in leadership required to lead a company today?

DAVIDSON: A good CEO needs really strong people who are running the day-to-day show. A CEO should be looking to the future. They're setting the strategy. They're setting the vision. They're making sure that the tone of the organization is such that people can do great work. 

I don't want to know if they can do everyone's job. I want to know if they know how to choose talent, if they know how to adapt to change, if they know how to tap into their networks, and if they know how to anticipate the future and then bring it to life. I'm also looking for resiliency and agility, given the degree of volatility and uncertainty that most companies are facing.

RUSHING: What I look for, which I never would have said in the past, is someone who is willing to say they don't know. I want to hear about when the candidate had a business struggle where they hit the wall and had no idea where to go. How did they get out of it? 

The willingness to say, I don't know, and I sought out others, taps into a person who understands success is built on a team and not on an individual. I also look for someone who embraces the importance of culture, the need to build it out and communicate in a very practical way what it means from an organizational behavior lens.

It's also critical to be a good communicator, which is not the same thing, necessarily, as being a charismatic communicator. Being a person who is transparent about the things that matter, is timely in their communication and is relatable is important given where we are right now.

MCNABB: Show me someone who gets the talent equation and I'll show you someone who has the potential to be a very successful CEO. This has always been my thinking, but pre-pandemic, most CEO searches prioritized deep sector and business knowledge, understanding of the competition and someone who could talk rings around everybody else from a strategy standpoint. 

In a sense, boards kind of glossed over whether the candidate was really a good leader or not. Today, thankfully, there's much more emphasis on leadership qualities, followership and how things get done in addition to what gets done.  

The Directors Roundtable was hosted by Dawn Zier, the former CEO of Nutrisystem and a current board member at Hain Celestial Group, Spirit Airlines and Acorns.