Board Leadership | Corporate Culture
A World in Flux In today’s interconnected and ever-changing world, the only thing companies can count on is uncertainty.
Employees are demanding engagement from management on economic, cultural and political matters. Consumers are buying in line with their beliefs while criticising big business on social media. Policymakers are making head-snapping decisions that cause stock market whiplash. Community activists are turning to local governments to restrict corporate growth. Shareholders are pressuring companies on environmental, social and governance issues far outside their traditional purview of profit-making. In this chaos, independent board directors are particularly well placed to help CEOs make sense of the unpredictable global landscape and navigate the space in which their companies compete. Indeed, because a lot of uncertainty can mean a lot of risk, the risk management part of a director’s overall job – providing strategic guidance with an eye firmly on shareholder returns – has taken on heightened importance in these times. And, now more than ever, directors need to be even more of a resource for CEOs and their management teams as companies face new challenges and seek to understand the real risk and its potential consequences within the unknown.
Directors are uniquely positioned to help navigate this rocky terrain
Their vantage point should afford them a clear-eyed view of the bigger picture, which includes the attitudes of a range of stakeholders shaping a company’s future and factors that might seem unrelated to the primary bottom-line goal but that could affect it. Especially in this environment, directors must take advantage of a higher vantage point and carve out the bandwidth needed to stay on top of crosscurrents reshaping the market, non-market and internal spheres. The most effective directors will now need to do more to really develop a 360-degree perspective on the world and, most importantly, a keen understanding of how a company’s
72 Ethical Boardroom | Winter 2020
Corporate directors are critical to helping companies navigate the uncertainty Liz Sidoti
Managing Director at Abernathy MacGregor overarching business goals and its business practices align with reality. To achieve this broad perspective, directors need to appreciate how a company’s reputation impacts its valuation and have a deeper understanding of how cultural and political moments can have long-term financial implications, depending on whether, and how, a company engages. They also should evaluate societal trends and external events that may seem unrelated to the company – the firestorm caused by a tweet from an NBA general manager about Hong Kong, transgender rights legislation, the US leaving the Paris climate accord – but that ultimately could affect the business. In addition, they should help the C-suite anticipate potential flashpoint issues with multiple stakeholder groups. And they must counsel management on the dangers of viewing Wall Street and Washington in isolation, while explaining how the constant interplay between the two affects the business in both obvious and unforeseen ways. In short, directors have a unique opportunity to situate the company in a wider social context, identify risks and opportunities, and help prioritise accordingly in these tumultuous times.
Global trends are reshaping how society views business and how business must learn to operate Some trends that have emerged in the dozen years since the Great Recession began underscore the importance of effective corporate communications as well as broad perspectives. Inside companies, employees have become more politically active, insisting on transparency and accountability
from management. A competitive talent landscape, unlimited information and news-generating and grassroots-organising technology have created collective activism perhaps more powerful than collective bargaining because workers can quickly create reputational problems using new tools at their disposal. Outside companies, investors and consumers, meanwhile, are demanding change, putting pressure on companies to address environmental, social and governance (ESG) problems. They are using their financial power and public platforms to influence and try to persuade companies to adopt sustainability platforms, become more diverse and take stands on immigration and other human rights matters. And all around, an anxious and frustrated public, fed up with a hyper-partisan, conflict-driven political system, has turned to the private sector to fill a leadership vacuum. In new and different ways, a number of publicly traded corporations and their CEOs now are taking firm leadership stances on some of society’s biggest problems, including climate change, gun control, living wages, affordable housing, decaying cities and immigration. These trends help explain why the Business Roundtable last summer released a controversial statement on the purpose of a corporation that said companies have a responsibility to serve all stakeholders – customers, employees, suppliers, communities and shareholders. In making this statement, the trade association for CEOs abandoned the notion of ‘shareholder primacy’ – that companies exist primarily to serve shareholders – that had guided companies for decades. In Washington, the political class mostly panned the announcement as a ploy to try to counter the anti-corporate narrative that Democratic presidential candidates