Boards & Governance

13 Questions Directors Should Ask in Post-Election America

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Kimberly Simpson

What questions should board members ask the leadership of their companies in the weeks to come? Political experts Terry Baxter, who served in three presidential administrations and is the former CEO of the National Transportation Safety Board (NTSB), and Alex Castellanos, co-founder of public affairs firm Purple Strategies and current member of CNN’s political analysis team, opined on considerations for the business community in this time of political and societal uncertainty.

Castellanos shared that President-Elect Donald J. Trump is highly aware that his administration will be under pressure to enact policies that produce economic growth. Both panelists agreed that the success of the new administration will also hinge on delivering on regulatory and tax reform, as well as changes to healthcare policy. Ever present in the incoming administration’s actions will be the populist sentiment that propelled the success of the Trump campaign. Castellanos suggested that companies that expect to succeed in this environment should be prepared to tell their story about how they are contributing to American renewal, including domestic job growth.

Attendees took away from the program several key questions that directors should be asking of management—and of each other—in post-election America:

Questions for Management

  1. Information gathering: How are we informing ourselves about the new administration’s proposed policies, the implementation of those policies, and what those changes might mean for our company?
  2. Outreach: What is our outreach and engagement plan for advancing our positions on important issues with the new administration?
  3. New trends: How is our company identifying current trends, disruptors, and business impact issues? How are we identifying key actions that have longer-term or permanent implications?
  4. Tax policy: What are we doing to prepare for shifts in the tax policy?
  5. Spending: How are we positioning the company to benefit from proposed spending on infrastructure?
  6. Growth: What core assumptions about our business’s growth should be reconsidered in light of the changes in government? What possible, emerging growth opportunities are on the horizon that we should be anticipating? Do we have a capture plan in place for these growth opportunities?
  7. Exposure: What is our exposure to trade policy changes and the fluctuation of the U.S. dollar?
  8. Supply chain: Do we know which of our critical suppliers could be impacted by a shift to a nationalist trade policy?
  9. Strategic planning: How are we integrating political risk analysis and assessments into our strategy and risks processes?
  10. Scenario planning: How robust and effective are our current scenario-planning processes, and how prepared are we to act quickly if needed?
  11. Technology: What impacts will the new administration have on the growth of technology?

Questions for Fellow Directors

  1. Compensation: What objectives are our compensation plans setting out for key executives and business units? Are we rewarding the right activities and the right behaviors?
  2. Board composition: Does our board have the right combination of skills, diversity, and experience to provide effective guidance and oversight to management?

The audience also left with an important piece of advice. Castellanos cautioned that, in a world where we get our news from each other and the President-Elect has an affinity for social media, it is more critical than ever for companies to have a well thought-out corporate social media strategy.

Note: The views and opinions expressed in this blog are those of the speakers at this event and do not necessarily reflect the views or opinions of the National Association of Corporate Directors (NACD) or the NACD Capital Area Chapter.

Kimberly Simpson is NACD regional director for the Southeast, providing strategic support to NACD chapters in the Capital Area, Atlanta, Florida, the Carolinas, and the Research Triangle. Simpson, a former general counsel, was a U.S. Marshall Memorial Fellow to Europe in 2005.

What Happened in Vegas: Highlights from CES

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As part of the National Association of Corporate Directors’ continuing mission to help directors understand disruptive technologies and trends, I joined more than 175,000 attendees at the 2017 Consumer Electronics Show (CES) in Las Vegas. My team was doing a little reconnaissance work on your behalf. NACD will host a director-focused, member-exclusive tour of the 2018 CES show next January, and we wanted to get an advanced look at the most pressing governance implications from the 2017 event. 

After three days of experiencing more than 3,800 vendors, you start to see past the shine of the latest gadgets and understand how the technology that underpins these products is poised to change the world. How those technologies are leveraged by companies is key to understanding the future of disruption, and as we discussed at last year’s Global Board Leaders’ Summit, convergence is the order of the day.

Voice and Motion-enabled Artificial Intelligence (AI) are Here to Stay

A booth showcased one of many partnerships between Amazon and consumer products companies, including Whirlpool.

From controlling the radio volume with a wave of your hand, to voice-controlled appliances AI was everywhere. In fact, the most talked-about company at CES this year didn’t even have a booth. The Amazon logo appeared on products produced by Whirlpool to those debuting from smaller start-ups.

Why? Alexa, Amazon’s AI assistant, was ubiquitous on the show floor.

Alexa is leading the way in enhancing consumer products that implement voice-enabled technology. It is anticipated that Alexa will soon be programmed not just to power, but interact with, everything from your toaster to your Toyota.

It became apparent at CES that the future of voice-enabled AI is a person’s ability to speak naturally and rely on the computer to accurately transcribe information. This has significant impact for everyone from office workers to doctors who could reliably dictate notes to medical records.

John Hotta, a director in the healthcare space and NACD Board Leadership Fellow, was also on hand at CES. “Innovations in voice-activated technology also have huge implications for products, services, and the nature of work, as smart speakerphones or personal assistants such as Google Home or Amazon Dot replace direct user interface with a computer,” Hotta said.

Computer, You Can Drive My Car

CES exhibitors demonstrated the growing sophistication of autonomous vehicle technology. Last year Ford Motor Company CEO Mark Fields promised to turn the automaker from a car company to a mobility company. That strategy was on full display as Ford partnered with San Francisco-based start-up Chariot to show off one of its autonomous mini-buses, which Ford hopes will “reinvent mass transit for commuters, companies, and fun-seekers with reliable and affordable service.”

A wealth of connected, autonomous vehicles were on display.

Autonomous vehicles also buzzed high above the heads of CES attendees. As drone technology continues to evolve for both commercial and industrial use, autonomous vehicle technology is being applied to those vehicles as well. In a convergence of these trends, Mercedes exhibited a fully autonomous delivery vehicle, equipped with two roof-mounted drones that facilitate package delivery from the van to the doorstep.

Another trend emerged at CES: the use of autonomous vehicles as a tool for vehicle safety. Thanks to the convergence of AI and the Internet of Things (IoT), vehicle-to-vehicle technology has enabled cars talk to their passengers and to other vehicles on the road. As attendees at the 2016 NACD Global Board Leaders’ Summit may remember, Chris Gerdes, head of innovation at the Department of the Transportation (DOT), discussed how DOT is piloting this technology in cities across the U.S. to slash traffic fatalities, and nearly every major automaker is now getting in on the act. Hyundai and Cisco announced a partnership to leverage IoT technology to improve safety and improve congestion by connecting vehicles to municipal infrastructure.

Governance Implications Collaboration is Key

Consumer products and technology companies are forging essential partnerships.

As technology becomes more ubiquitous and innovation becomes decentralized, companies are realizing they can’t go it alone. Consumer products companies are linking up with leading technology companies to build resilience to innovation. In addition to the proliferation of Alexa-linked products, Honda Motor Co. has teamed up with VISA to enable vehicle-based mobile payment systems that allow passengers to conduct transactions without leaving their cars. Apparel companies like Tory Burch and Fossil—companies that seem more at home at New York Fashion Week than at CES—also had large booths touting their new lines of wearables. And finally, in-house labs at big brands like Whirlpool are partnering with crowd-funding platforms like IndieGogo to launch new products. Like the auto companies profiled above, this is another example of convergence that directors would be wise to anticipate.

Private Eyes Are Watching You

The act of welcoming devices into our workplaces and homes that listen and watch our every move could revolutionize the way we live and work—and opens us to unprecedented privacy and security concerns. Coupled with a proliferation of smart products aimed specifically at tweens and children, smart devices present a whole host of liability issues that technology, legal, and regulatory experts are just starting to grapple with.

Amazon’s Alexa and Mattel have already made news for the unintended consequences of giving children access to this kind of technology. Additionally, U.S. courts are grappling with the legal implications of using recordings from these devices as evidence. One such case pits Amazon against prosecutors in who believe that data from an Amazon Echo might be key in solving a murder case.

In this rapidly evolving climate, directors should be asking questions about whether or not security is being integrated into product development now and in the future—from research and development, to plant upgrades, to policies that allow employees to use their own smart devices for work.

The Future of the Workforce

Ian Bremmer, president of Eurasia Group and 2016 NACD Global Board Leaders’ Conference speaker, recently said, “Technology will surely create jobs. But virtually none of the people displaced will have the training for them.” The changing nature of the global economy threatens to make some American jobs obsolete. If CES made one point clear, it’s that the current concern over the decline in manufacturing and coal jobs pales in comparison to the potential changes that will come with widespread automation of jobs.

Volkswagen exhibits its electric, autonomous I.D. concept car.

Remember that self-driving delivery van with the automated drones that deliver packages? Think about that and then look at this interactive map of the top jobs by state. Last August, Uber Technologies acquired Otto, a self-driving truck company, further showing how 1.7 million middle-class jobs could disappear in short order. The American economy is facing a potential employment crisis the likes of which may be unprecedented.

It’s not just delivery drivers who are in danger. As Jane Fraser, CEO of Citigroup’s Latin America business said at the Fortune magazine’s Most Powerful Women Summit in October, “we are expecting 500 billion objects to become connected to the internet and this automation is going to hollow out middle and working class jobs.”

This shift has huge implications for the American economy and its ability to compete on a global scale. Consider, for instance, that automated delivery of packages is only helpful if your company has a customer base that can afford to spend money on products. A recent report by the President’s Council of Economic Advisers lays out the dual challenges of educating a workforce that is ready for the jobs of the future, and the uphill battle of transitioning to an AI-based economy. This report is great reading for directors as they consider the role of the corporation in society, and could help the board shape individual company strategy in critical areas like innovation, talent development, and long-term value creation.

You can see, hear, and learn more about these trends at the 2017 Global Board Leader’s Summit. Stay tuned for information about our new director-focused, curated tour of the 2018 CES show next January.

When Trump Comes Tweeting: A New Playbook for Boards

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Richard Levick

What would you recommend if you were on the board of Ford Motor Co., Boeing Co., or Lockheed Martin Corp., all of which have had tête-à-têtes with the incoming leader of the free world? Welcome to the age of the suddenly very bully pulpit. The most powerful thumbs in the world belong to Donald J. Trump, who will soon become the 45th President of the United States.

In mid-December, when Trump despaired that Lockheed Martin’s cost overruns on the F-35 joint strike fighter “were tremendous,” the company’s stock lost $4 billion in market capitalization in a matter of hours. Even though the company quickly recovered those losses when its stock price stabilized, Trump’s tweet triggered some discomfiting moments.

No one understands better how to wield the powers of Twitter, the 24/7 news cycle, and a cult of personality than Donald J. Trump quite like the man himself. To one extent or another, Lockheed Martin Corp., Toyota Motor Corp., Carrier, Mondelez International (parent of Nabisco), Ford Motor Co. , and Boeing Co., have all been caught in Trump’s Twitter maelstrom. Fiat Chrysler Automobiles, in a proactive move to get the target off its back before the opening salvo, wisely announced that it would invest $1 billion and create 2,000 U.S. jobs. A smart play, but as all newlyweds ask, “Will it last?”

We’re in unchartered waters here—and by “we,” I include C-suite executives, corporate directors, and communications counselors like me who advise corporations on how to enhance their brand equity, engage with decision makers, and weather inevitable storms that come with doing business. Social media, fake news, and a new president have changed the rules of engagement.

So what is the new rubric? For most publicly traded companies over the near term, the right response is the easy one: for your shareholders’ sake, meet Trump more than halfway if his demand isn’t too outrageous, and give him the early victory lap. But at some point, after Trump’s modus operandi on these matters inevitably hits some turbulence, that dynamic is likely to change. Watch this space closely, particularly the business-to-consumer tech companies who have millions of customers conditioned to social engagement.

In the meantime, how can a company prepare for presidential squalls or getting caught in the crosswinds of a Twitter-induced tsunami?

There are scores of precautions a publicly traded company should consider, but they can be boiled down to four imperatives.

Engage employees. Trump’s “Make America Great Again” mantra proved enormously popular in America’s industrial heartland. His administration’s public positioning will be devoted to job preservation, reinvigorating the manufacturing base, and sticking up for the little guy. In such a climate, relations with national and local union leaders and heads of employee groups will be doubly important. If a company is suddenly the subject of public scrutiny, its labor and management will want to present a united front. Politics, it is said, makes strange bedfellows. So does business in tough situations.

Enlist allies. Empowering third-party champions has always been an important part of any corporation’s public affairs and communications arsenal, but now it’s absolutely vital. The press and public in today’s environment are inherently suspicious of big corporations and paid spokespeople. In the clutch, customers, vendors, suppliers, community leaders, local environmental advocates, philanthropic heads, Chambers of Commerce, et al., will have far more credibility. The more social media-savvy—and more genuinely connected to grassroots movements—these champions are, the better allies they are for your company.

Prepare now. Companies should use “peacetime” wisely by distilling facts and messages into 140 characters; creating photos and videos for other social channels (e.g., Facebook, Snapchat, YouTube, etc.) that make emotionally appealing messages; track media socially in a sophisticated way that predicts trends; and build a social army now to articulate track records in U.S. job creation and economic growth.

Emphasize speed. Virtually every crisis communications plan in corporate America can be rendered obsolete by the proliferation of Donald J. Trump’s use of social media. If a company is being attacked via social media, it cannot rely on conventional communications to respond. Corporations need to put in place ultra-quick turnaround systems that tap leading-edge media. Build your arsenal of information, army of activists, and strengthen your reflexes now. Have the leader of the company’s digital media team report directly to the board. Integrate your silos so that legal, investor relations, government relations, public relations, digital, and brand practices all know and trust each other. Board members and senior teams need to be put through their paces via scenario drills and full-scale rehearsals.

The most effective way for a company to combat thumb power is through thumb power of its own.

Richard Levick, Esq., @richardlevick, is chair and CEO of Levick, a global communications and public affairs agency specializing in risk, crisis, and reputation management.

8 Risk Oversight Practices to Master in 2017

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Boards and executive teams are challenged by a fast-changing, highly interdependent, and often ambiguous external environment that continually creates unforeseen opportunities and risks. Volatility is the new normal. Not surprisingly, according to the National Association of Corporate Directors’ (NACD) most recent public company governance survey, global economic uncertainty ranks as the top trend corporate directors believe will impact their company in 2017. In yet another NACD poll conducted during a recent webinar, 49 percent of directors did not feel that management was providing them with a reliable view of the future.

The recent election of Donald J. Trump as President of the United States is likely to contribute to this growing sense of uncertainty, with the corporate director community evenly divided about the potential impact, according to the NACD webinar poll. Forty-two percent of directors report that his administration will be good for business, while 42 percent are unsure about the impact, and still another 16 percent believe that a Trump presidency will not be good for business.

Click to enlarge in a new window.

In this complex, uncertain environment, what can boards do to gain more comfort from management that risks are accurately identified and well-controlled?

The International Standards Organization in ISO 31000 defines risk as “the effect of uncertainty on objectives,” which can be a negative or positive deviation from what is expected. More specific to business, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) is currently defining risk as “The possibility that events will occur and affect the achievement of strategy and business objectives.” Each of these definitions of risk exposes a company to potential loss—indeed, yet another definition of risk authored by insurance professionals highlights risk as the possibility of loss. Yet when viewed as part of an active business dynamic, risk, as daunting as its manifestations may be, is far more than the chance of loss. Rather, risk is a level of uncertainty that can create economic opportunity.

The recently released Director Essentials: Strengthening Risk Oversight identifies eight leading risk oversight actions that directors can take to seize opportunities and avoid the loss possibilities inherent to risk. A brief outline of each action and a key question boards should consider asking follows.

1.) Clarify the Roles of the Board, Committees, and Management. The board, all board committees, and all members of senior management need to know their unique roles in risk oversight. Without clarity on ownership of specific responsibilities, redundancies and lapses can occur.

The practice of role definition helps establish a clear mandate for risk oversight by the board and offers management a blueprint for the execution of risk management.

  • Is there a common understanding among management, the board, and board committees about their respective roles, responsibilities, and accountabilities on strategy?

2.) Understand the Company’s Risk Profile. Especially in light of the new environment, all board members should be aware of the company’s key risk exposures, which collectively are referred to as the company’s risk profile. Oversight of any business requires understanding the major risks that it faces now and in the future, and making decisions accordingly. Although the universe of risks that a company faces may be almost limitless, a company’s risk profile is the composite (and analysis) of the most pressing risks that impact strategy and reputation.

  • What are the strategic assets we must protect at any cost? Are they at greater risk now?

3.) Define the Company’s Risk Appetite. Companies take risks in order to grow and compete in the marketplace, yet they need parameters for how much risk they are willing to accept. The board plays a critical role in defining the boundaries of risk for the company.

  • Given our risk profile, strategy, and the uncertainty surrounding the current business environment, what risk appetite should our company have? Have we clearly cascaded our risk appetite into decision-making processes at the level of operations?

4.) Integrate Strategy, Risk, and Performance Discussions. All too often, risk and business performance assessments are divorced from the strategy process in the organization. These silos increase the likelihood of poor, costly decisions.

  • When we discuss strategy in this evolving environment, how do we consider both risks to the strategy and the risks inherent in our chosen strategy?

5.) Ensure Transparent and Dynamic Risk Reporting. Risk reporting must reach the right people with the right information. Reports should not be limited to the metrics mandated by external disclosure rules—they should include all the information the board needs to assess the company’s risk exposure. Similarly, reporting should be dynamic, taking into consideration the velocity by which existing risks change or new risks emerge.

  • What is the threshold for risk-related reporting to the board (e.g., categories of risk, specific issues or incidents)? What situations may call for greater board engagement (e.g., perceived management failure to disclose or address a critical risk)? Do we have a protocol that defines these situations? 

6.) Reinforce Clear Accountability for Risk. The management of risk in today’s often-extended enterprise is complex, with executive teams typically transferring ownership of risks to specialist functions. But examination of recent risk disasters reveals that diffuse accountability for risk management is a major problem.

  • As we reward our executives, do we take into account their ability to anticipate and manage risk? Are accountability for and performance in managing risks effectively embedded in incentive structures at all levels of the organization? How far down the reporting chain do our incentives for risk management excellence go?

7.) Verify That Mitigation Reduces Risk Exposure. The success or failure of risk mitigation is often underreported, leaving boards with a limited understanding of whether or not risks are effectively minimized over time.

  • Do we clearly differentiate between risks that can and cannot be mitigated? Are our mitigation plans realistic? Do we understand that mitigation does not mean elimination? Have we clearly communicated our expectations for reporting on risk mitigation?

8.) Assess Risk Culture. Culture is often described as how work really gets done when no one is looking, and it is critical to ensuring a successful and sustainable strategy. More specifically, risk culture is a critical subset of overall corporate culture defined as the behavioral norms inside a company that drive both individual and collective risk decisions. A well-balanced risk culture can unleash innovation, and deter fraud and abuse.

  • Do we have a culture in which staff at all levels know what risks to take and what risks to avoid? How willing are employees to speak up about problems that can cause significant risk to the organization?

By adopting the above eight practices, directors can help their companies prepare for risks in 2017 and beyond.

For more NACD insight and support on board risk oversight, please visit our Risk Oversight Resource Center.

It’s Time for Companies to Improve Board Diversity Disclosure

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The demographic and expertise-based makeup of public company boards has come under increasing scrutiny from investors as numerous studies continue to correlate elements of diversity with improved company performance.

The National Association of Corporate Directors’ Report of the NACD 2016 Blue Ribbon Commission on Building the Strategic-Asset Board emphasized the essential task of assembling and assessing a board best fit to tackle the challenges of the constantly-changing business environment. At its core, the successful strategic-asset board is a mix of directors with diverse backgrounds who are fit to the purpose of complex oversight. And the demand for diversity is not just about market-based performance—the evidence also shows that diverse boards engage in more robust debates, make decisions that are sounder than they would be otherwise, better understand their customers, and attract higher-performing employees.

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For smaller public companies in the U.S., underperformance in board diversity is even more pronounced. In November 2016, Equilar released a report revealing that small public companies lag behind S&P 500 companies when it comes to board diversity. For example, 23.3 percent of Russell 3000 companies in 2016 had all-male boards versus 1.4 percent of S&P 500 boards.

But does this study tell the whole story? Gender diversity on boards understandably receives the most attention because it’s one of the easiest metrics to quantify. However, measuring progress with the broad brush stroke of S&P 500 (or even Russell 3000) gender statistics does a disservice to the full story of diversity on a company’s board. Diversity in the boardroom best serves a corporation when it’s addressed in a holistic manner, taking into account age, experience, race, and skill sets along with gender. In fact, when the U.S. Securities and Exchange Commission (SEC) adopted diversity disclosure rules in 2009, it allowed companies to provide their own definition of diversity.

At Nasdaq, we’ve taken a detailed look at the board composition of listed companies, including those too small to be included in much-publicized diversity studies. In doing so, we found promising signs of progress. For example, 14 Nasdaq companies have reached or exceeded gender parity in the boardroom versus five companies in the S&P 500. In 2016, 75 women were elected to a Nasdaq-listed company board for the first time. Many of these women came from outside the C-suite, recruited from non-corporate professional disciplines such as university administration, government, medicine, public education, and journalism.

We also discovered that many Nasdaq companies have compelling stories to tell with respect to board composition and their own diversity of age, gender, race, and skill sets. Unfortunately, their efforts go largely unnoticed for the simple reason that they aren’t sharing their story. Only a handful of companies highlight board composition in their proxies using charts and graphs to summarize their board profile metrics. Yet these metrics offer stakeholders valuable insights into the board’s ability to oversee and support management and its strategic plan.

At Nasdaq, we see ourselves not just as a public company, but also as a model for our nearly 3,000 listed issuers. One example of this is our 2016 Proxy Statement in which we enhanced board transparency through graphics and statistics on a variety of metrics. This data illustrates not only the gender diversity of our board, but also the diversity of skills and experience present. We believe this information is valuable for shareholders and the market and we will continue to share it.

As the head of the SEC, an agency focused on disclosure to investors, Chair Mary Jo White observed in a recent speech that “A growing number of company proxy statements have recently begun to voluntarily provide an analysis of data, accompanied by pie charts and bar graphs, to describe the state of the board’s gender, race and ethnic diversity composition, sometimes in addition to other categories… This more specific information is clearly more useful to investors.” In fact, we found a number of Nasdaq-listed companies (both small and large) that shared diversity metrics around board composition in their proxy statements in 2016. These companies include:

As companies continue to prepare for the upcoming proxy season, we encourage your board to consider simple report enhancements that increase the transparency around the diversity of boards, including disclosing not only a board member’s gender and age, but also their ethnicity, skills, and experience. Until such transparency of board composition metrics becomes the norm, the full story of corporate board diversity and the valuable insights it provides to investors will remain obscured.

Lisa Roberts is a vice president in Nasdaq’s Legal and Regulatory Group, where she co-leads the Listing Qualifications department and advises on governance matters for our issuer community. She also manages our Governance Clearinghouse website, which includes original articles on a variety of topics relevant to public companies, such as market structure, corporate sustainability, boardroom diversity, legislative advocacy, cybersecurity, and risk management. This site is available to all public companies and their advisors free of charge.  

This communication and the content found by following any link herein are being provided to you by Nasdaq, Inc. for informational purposes only. The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular situation and nothing contained herein should be construed as legal advice.   

What Your Peers Read in 2016

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The National Association of Corporate Directors (NACD) counts nearly 17,000 directors and governance professionals among its members, and we’re proud to say that they are engaging in constant and committed learning in the spirit of doing the best for their companies.

We hear these questions over and over again from our directors: “What do my peers care about right now?” “What’s the next big issue for directors?” I think that you can tell a lot about what someone values by what they read, so it’s always fascinating to take a look at the reading trends of our membership. Their choices in 2016 reflect commitment to evergreen topics (director compensation, governance benchmarking, and finding a new board seat) and investment in understanding ever-evolving, of-the-moment risks and board-specific concerns (cybersecurity, ethics and compliance oversight, M&A, and strategy).

Below are the top 10 most-read NACD reports, surveys, and papers from 2016. If you haven’t picked up these resources yet, now is the time.

  1. 2015-2016 Director Compensation Report – NACD and compensation consultancy Pearl Meyer’s perennially popular survey on director pay helps boards benchmark their pay by analyzing how the subtleties of committee participation and the changing governance landscape impact pay structures.
  1. Executive Summary of the Report of the NACD Blue Ribbon Commission on Building the Strategic-Asset Board – We released in September our latest Blue Ribbon Commission Report, our marquee publication on next practices for boards. This complimentary executive summary gives a quick look at some of the key findings in the broader, member-exclusive report (see list item 8).
  1. Director FAQ: Finding Your Next Board Seat – It’s all in the title—this piece provides some action steps for success if you’re looking to land a new board seat.
  1. Executive Summary of the Director Essentials: Strengthening Oversight of M&A – Our off-the-charts popular Director Essentials series offers step-by-step guidance to new directors on key issues that they encounter in the boardroom. This executive summary of our piece on M&A oversight is open both to members and visiting guests to our website.
  1. Director Essentials: Strengthening Compliance and Ethics Oversight – This was the first Director Essentials report we released, and an especially timely one given the situations that emerged in 2016 at Volkswagen AG, Wells Fargo & Co., and others.
  1. Executive Summary of the 2016-2017 Public Company Governance Survey – NACD releases a survey yearly of public company directors, and this complimentary executive summary spotlights a few of the top-level findings, including the most pressing issues on directors’ minds for 2017.
  1. Cyber-Risk Oversight Handbook – According to our annual survey of public company directors (mentioned above), 29 percent of directors believe that cybersecurity expertise needs to be strengthened on their boards to conduct sound oversight. Our handbook has never been more relevant, and bonus: it has a stamp of approval from the Department of Homeland Security.
  1. Report of the NACD Blue Ribbon Commission on Building the Strategic-Asset Board – The world in which boards operate is facing unprecedented change. This year’s commission offered some best practices for succession planning, recruitment, and continuous improvement that will empower boards to meet that change head on.
  1. Director Essentials: Preparing the Board for Shareholder Activism – Year-round shareholder activism is the new norm. This guide aims to help directors prepare a response plan and evaluate their vulnerabilities to activist challenges.
  1. Governance Challenges 2016: M&A Oversight – There was a clear member focus on M&A this year, and this piece united the perspectives of several of our content partners to offer the most recent thinking on director oversight of that topic.

Looking for more publications to strengthen your board’s work this year? Visit our topic-specific board resource centers

 

The Most Important Risks to Face In 2017

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Jim DeLoach

The National Association of Corporate Directors’ (NACD) 2016-2017 Public Company Governance Survey reported that, according to the vast majority (96%) of directors, “big picture” risks are overseen at the full board level. The big-picture view of risks includes those with broad implications for the organization’s strategic direction, including issues that can create significant reputation damage.

NACD’s findings are complemented by a recent survey of more than 700 c-suite executives who were asked to identify the top risks for 2017. Conducted in the fall of 2016 by Protiviti in partnership with North Carolina State University’s ERM Initiative, the study indicated that the overall global business context is noticeably riskier than in the two previous years, while respondents’ results in the United States implied that the risk landscape is about the same as before.

The common risk themes were ranked in order of overall priority providing context for understanding the 10 most critical uncertainties companies face in 2017.

  1. Economic conditions in the global marketplace may significantly restrict growth opportunities. There are many sources of economic uncertainty in the markets that companies operate within. Examples of factors impacting growth include market volatility, Brexit, a strong U.S. dollar, central bank monetary policies, the aftermath of the U.S. 2016 election, sluggish growth rates in various global markets, rising global debt, and the threat of deflation. Survey participants may have concerns about a “new normal” of operating in an environment of slower organic growth.
  2. Regulatory changes and scrutiny may increase, noticeably affecting the manner in which organizations’ products or services will be produced or delivered. Ranked at the top in our prior surveys, this risk fell to the second spot for 2017. Companies continue to display anxiety about regulatory challenges affecting their strategic direction, how they operate, and their ability to compete with global competitors on a level playing field. This risk may be particularly relevant in 2017, given the climate of uncertainty surrounding the new U.S. executive and congressional administrations and their influence on the role of government and the business environment. Any major regulatory change—whether perceived as positive or negative—is of significant interest to executives and directors.
  3. Organizations may not be sufficiently prepared to manage cyberthreats that could significantly disrupt core operations or damage their brand. Cyber risks have evolved into a moving target. Many factors are driving change, including the ongoing digital revolution, new innovations to enhance customer experience, cloud adoption, social media, mobile device usage, and increasingly sophisticated attack strategies, among others. The harsh reality is that new technology offerings and developments in organizations are quickly extending beyond the security protections that they currently have in place.
  4. The rapid speed of disruptive innovations and new technologies within the industry may outpace the organization’s ability to compete or manage the risk appropriately. A company’s inability to respond in a timely manner to changing market expectations can be a major competitive threat for organizations that lack agility in the face of new market opportunities and emerging risks. The speed of change and development of emerging technologies can occur anywhere and in any industry, and this risk reaches far beyond the retail marketplaces. Disruption affects all industries. No company is immune.
  5. Privacy, identity, and information security risks are not being addressed with sufficient resources. The technological complexities giving rise to cybersecurity threats also spawn increased security risks to privacy, identity, and other sensitive forms of information. As the digital world evolves and connectivity increases, new opportunities emerge for identity theft and for the compromise of sensitive customer information. Recent hacks exposed tremendous amounts of identity data involving large companies and the federal government in the United States. These underscore the harsh realities of this growing risk concern.
  6. Succession challenges and the ability to attract and retain top talent may limit the ability to achieve operational targets. A number of factors are driving this risk—changing demographics in the workplace, slower economic growth, increasingly demanding customers, and growing complexity in the global marketplace. As a result, organizations are being forced to elevate their recruitment and retention efforts to acquire, develop, and retain talent with the requisite knowledge, skills, and core values to execute challenging growth strategies.
  7. Anticipated volatility in global financial markets and currencies may create significant challenges for organizations to address. Given questions surrounding the United Kingdom’s eventual exit from the European Union, as well as uncertainties in China and other world markets, it is not surprising that this risk remains among the top 10 for 2017. Factors indicated earlier—including rising public debt, falling commodity prices, sluggish economic growth, the strong U.S. dollar, and uncertainty regarding monetary policies—all contribute to uncertainty in global financial markets and currencies.
  8. The organization’s culture may not sufficiently encourage timely identification and escalation of significant risk issues. An organization’s culture has a huge impact on the manner in which risk issues are brought to the attention of decision makers when there is still time to act. Given the overall higher levels of risk-impact scores for all risks in 2017 relative to the year before, this cultural issue may be especially concerning to senior management and boards.
  9. Resistance to change could restrict organizations from making necessary adjustments to their business model and core operations. The cultural issues noted above combined with a lack of organizational resiliency can be lethal in these uncertain times. Organizations committed to continuous improvement and breakthrough change are more apt to be early movers in exploiting market opportunities and responding to emerging risks than those companies that cling to the status quo.
  10. Sustaining customer loyalty and retention may be increasingly difficult due to evolving customer preferences and demographic shifts in the existing customer base. Protecting the customer base is not easy in today’s highly competitive environment of disruptive change. This may be what is on the minds of the survey participants rating this risk.

The company’s directors may want to consider the risks ranked here when determining the organization’s “big picture risks” to be evaluated in 2017. Boards should be aware of the context of the nature of the entity’s risks inherent in its operations. If your board has not identified these issues as risks, your company’s directors should consider their relevance and ask why not.

Jim DeLoach is Managing Director of Protiviti. 

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