Reconsidering the role of board members for the modern age

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Transcript

Alan Murray: Leadership Next is powered by the folks at Deloitte, who, like me, are super focused on how CEOs can lead in the context of disruption and evolving societal expectations. Welcome to Leadership Next, the podcast about the changing rules of business leadership. I’m Alan Murray, and I’m here with my fantastic co-host, Ellen McGirt.

Ellen McGirt (00:09): Hi, Alan. Hi, everyone. And I think we’ve reached an important watershed moment on this podcast, Alan. I know that we spend a lot of time here with conversations—almost 100 CEOs now, just like let that wash over you—talking about all of the important issues purpose and protecting stakeholders navigating pressing social issues, and doing right by the planet. But we haven’t spent as much time on the role the company board plays in all of these important conversations.

Murray (00:53): Yeah, and that’s really important. I mean, we live at this interesting moment when CEOs are taking on increasing responsibility in society over issues like climate, diversity and inclusion, inequality, even in the last couple of months, geopolitics. But some people are saying, Hey, wait a minute. I’m not sure I want the CEOs to play such a big role. Who are they accountable to? Well, you and I know who they’re accountable to. They’re accountable to their boards, and that’s the reason for our guest today. He’s Brian Stafford, the CEO of Diligent, which provides a wide array of software tools to boards and others. We’re going to let him talk more specifically about what the company does. But we also really want to talk to him about how boards are adjusting to this rapidly expanding role that companies are being asked to take on in society.

McGirt (01:44): It’s going to be an incredible conversation. I’m very curious about it. The time to have this conversation is really now especially at since expectations of boards are changing the pressure that they’re under is changing. And it’s pretty clear that my dream of retiring and just breezing on to a corporate board has died just to show up for three meetings a year, even though I’m not a former general or former Fortune 500 CEO. We need different board members now. I’m pretty sure that’s what Brian is going to say, but let’s find out.

Murray  (02:09): Brian Stafford, welcome to Leadership Next.

Brian Stafford  (02:12): Thanks, Alan. And thanks, Ellen.

Murray (02:14): We’re going to come back to Diligent in a minute but let’s start out with this board question, because we’re partnering with Diligent at Fortune on a modern board project. Tell us why we’re talking about the modern board. How is the board today different than the board of 10 years ago?

Stafford (02:30): Yeah, I think the role of the board has changed pretty materially over the last 10 years. The board’s primary role is still hiring and firing the CEO, ultimately, but the reality is as the specter of what a company is responsible for, what the role of leaders are responsible for, the role of the board has changed materially. What used to be a relatively cushy job 10 years ago, where you show up four times a year…

Murray (02:55): That’s the one Ellen wanted: when they were cushy.

McGirt (02:59): I was prepared for that.

Stafford (03:02): Well, yeah, and if you fast forward to where we are today, the boards are at some level accountable for just the increasing specter of activity. You guys talked about it whether it’s DEI&I, whether it’s anything across your broader set of stakeholders, whether it is issues around compliance issues around sustainability, the climate, your employees, the era of stakeholder capitalism has really exposed boards or asked the boards to extend far beyond what they used to be responsible for and responsible for all the issues that touch on the broader set of stakeholders.

McGirt (03:34): So now would be good time to figure out, tell us exactly what Diligent is, and how big is it? And my big question is, how is governance as a software, as a service really going to work?

Stafford (03:45): Sure. So Diligent works in about 25,000 companies from around the globe. Roughly somewhere around 750,000 plus CEOs, board members and leaders use our applications to historically help them manage governance. And as governance expanded beyond just communicating with your board, filing paperwork, signatures, board evaluations, and as board’s issues moved into other areas such as risk management, be it cyber risk, third party risk, risk in your your supply chain to other issues like ethics and compliance and ESG, our solutions have moved there more broadly to help boards and leadership teams help to manage that extending set of activities required for companies to better manage their purpose. So we offer tools to help companies do exactly that.

McGirt (04:31): You took the company private in 2016, which was an interesting move. Can you talk a little bit about why that was important and what that allowed you to do? Because it seems like you’re uniquely prepared to create almost like a learning and research hub for board members.

Stafford (04:47): Yeah, we thought there was a great opportunity to take and invest more in a set of tools and solutions in education and expertise for boards as they help to navigate an expanded set of challenges. And so as our solutions evolve, as the research that we hope to offer and partner with Fortune around, helps extend beyond just the board we thought it would be easier to do as a private company, where we can get our employees, our clients and our investors aligned behind the opportunity of really investing and expanding our tool sets because we do realize—and Ellen and Alan you highlighted this—just the role of governance has expanded so much. That cushy job now is monthly update calls, it’s being responsive to the press. It is activist investors and others regulators really communicating to the dialogue around how your company should be managed or reported on on a monthly or quarterly basis.

Murray (05:40): Yeah, so it is so true, Brian, and I really want to go back to that accountability question because it’s so different than even a decade ago to be asked to take such a prime role in climate. I mean, we should spend some time talking about the incredible sustainability rule that the SEC issued recently and what that means for boards. Diversity, equity and inclusion is a huge responsibility. And frankly, a lot of these board members I mean, it’s great to have good technology, but a lot of these board members are kind of yesterday’s CEOs. I mean, that’s the prototypical member of a board.

McGirt (06:16): That’s our base, Alan. Careful.

Murray (06:17): I know and I love them. And I don’t mean to be ageist I mean, because I’m their age, but, but really, how do you prepare the people to take on all these new responsibilities that their predecessors didn’t have to worry about?

Stafford (06:31): Well, I think there’s a lot in that statement, but the reality is, and I think you were speaking to that as well, the way a board is composed, the nature of the board, what a modern board looks like has changed so much more radically as well. If you want to have people who can comment on a much broader set of issues, you’re going to have to look beyond just the traditional former CEO, CFO who all went to the same college and grew up all on the same area. And that’s where we’ve seen a much more diverse set of individuals across the board. And ultimately, the role of the CEO has changed so dramatically. I mean, Alan, you mentioned this kind of in the lead up of it. This former CEO sitting on your board grew up in a world where the CEO was just supposed to talk about business and so much has changed beyond that. And it is so much more driven by your employees and your customers. If there is an issue that impacts the way that 2000 people at Diligent think about their life and if I’m not commenting on it internally, and probably externally as well, I’m missing an opportunity to help to address the needs of our employees who, as you mentioned in the stakeholder world, are amongst our most important stakeholders.

Murray (07:28): Yeah, I’d love to go a little deeper in this sustainability example because it’s so interesting. You’re not just talking about pressure from employees and customers and investors. Now you’re talking about regulatory requirements. I tried to read the 500-page document that the SEC put out. I get it that companies have to report on their direct emissions. I get it that they need to report on what’s called scope two where they get their power, but scope three, where they’re being asked to report on all their suppliers and all their customers and how they’re using their products, I mean, this is a huge expansion of corporate responsibility, and how can companies and boards prepare themselves if this really goes through?

Stafford (08:13): It’s a huge expansion. We’ll see how companies actually rise to the challenge. There are new tools that are needed new advisors that are required to help you get there and it is a lot from an increase in reporting requirements. And it’s a lot of additional activity from CEOs and I actually, go back to the board example, we’re entering this really unique timeframe where companies have gotten so proficient at the fact that you report in on a quarterly basis all these financial metrics, and I think we’re entering a new dawn over the next 10 plus years of where companies are going to be responsible for reporting a full set of non-financial metrics that involves things like diversity and equity, things like climate and sustainability, more information about your workforce, your customers, etc. And those are a whole new set of metrics that companies have never had to report on beyond a couple of glossy pictures in their annual report. And that’s going to dawn a whole new need for advisors, new tools and software, more complexity, more expertise on boards. And as you saw, as you highlighted, the SEC’s 500 or so pages, that’s just a starting point. And like I said, I don’t think independent of any pushback from the courts, etc. I don’t think that pushback is going to impact the push that every CEO is getting from their employees and our customers as well.

[Music]

Murray (09:50): I’m here with Joe Ucuzoglu, the CEO of Deloitte US, which is the sponsor of this podcast. Joe is one of the most thoughtful people I’ve met on the topics we discuss here every week. Joe, thanks for joining.

Joe Ucuzoglu (10:01): Alan, pleasure to be with you.

Murray (10:03): Joe, leadership in crisis is very different than in normal times. You have to make these gut wrenching trade-offs and very fast decisions. What kind of advice do you give to leaders who are navigating these very choppy waters.

Joe Ucuzoglu (10:23): There are a few critical dimensions that have to come together seamlessly. You obviously need to be able to get to the right decisions quickly. And that takes the ability of the executive team and the board to synthesize large volumes of information, to make sense out of uncertainty. But just as importantly, communicate those decisions effectively to take your full organization on the journey, demonstrating a sense of calm and confidence. Finding that balance of delivering candor and straight talk while at the same time laying out a vision that’s optimistic. Instilling confidence that great organizations will come through challenging times with strength. There has to be a light at the end of the tunnel.

Murray (11:06): That’s not an easy task.

Joe Ucuzoglu (11:08): I actually view being realistic and credible around the current situation as the price of admission to be able to talk to your people about a more optimistic future.

Murray (11:19): Joe, thanks very much for joining us.

Joe Ucuzoglu (11:21): Thanks for having me.

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Murray (11:30): I’m sure you have people asking you this all the time: Who do I need on my board? What do I need board? What kind of people does it take to effectively run a board in this very different business environment?

Stafford (11:42): I personally believe that a board should help leaders see around corners to help become a bit more informed. And how do you do that? As any leader, you try to surround yourself with people who come from different backgrounds or have different perspectives than you do. I think the old world version of a board where a board was only CEOs and CFOs is no longer sufficient and where you want someone who comes from, potentially depending on what work you do, and an academic background and a background in climate, a background in community relations. So if you look at it, I always think, and that’s the way I view my board but I know so many other CEOs do as well, if I need to tap additional expertise if I need to get smarter in an area, I would rather have individuals who are experts with the context around me, and the context around our company, with the context around our team. So when we do a quarterly board call or if I pick up my phone and ask a board member a question, you have someone who can help you be a little bit more thoughtful than you might have if you found yourself looking for that expertise just as an issue coming up.

McGirt (12:46): So I have a related question to that because it it reflects what’s happening in companies all around the world right now is that the search for the newly-diverse perspective and from a board point of view, it could be race and identity, it could be digital savvy in a disrupted world, you know, those kinds of new skills? What are you learning about what it takes to help these new often-younger board members feel welcome and effective right away? Because that I think, is the issue that everyone’s trying to solve from a variety of perspectives.

Stafford (13:17): You know, it’s a great point in releasing question, we run a group with Spencer Shore called the Next Gen Board Leaders where we actually bring in next gen board leaders which are currently defined as board leaders under 50. Unbelievably talented people who come from areas like digital transformation or other other backgrounds. And we helped bring them up to speed around, how does the boardroom function, what does it look like etc. You can be really, really talented in your day job but understanding the dynamic of a board, asking questions versus leading with answers and trying to draw people and get your expertise across the basic elements of how to contribute across each of the key committees and which committees you should sit on and the right way to govern, as opposed to operate. And many of those really talented next gen people come from a background of operating and make sure they can come up to speed. The more that a next gen board leader can feel comfortable volunteering, sharing, asking a probing question around areas that they have expertise in, the more that they can be helpful and contribute to the board and ultimately to the company.

Murray (14:24): I want to go a little deeper into the Stafford story if we can. You know Diligent was a New Zealand-based web portal. How did you get involved? Where did you come from and how did you get involved and how did you see the potential of this?

Stafford (14:38): Yes, we were a New Zealand-listed board portal company headquartered in New York City. How I personally got involved, I was a partner at McKinsey and Company. I’ve been at McKinsey for more than a decade. And before joining McKinsey many years ago, I’d started a software company in Austin, Texas, and that software company unfortunately went the ways of many software companies during the dot com bubble and we had a bit of a bumpy ride. The CFO who I brought in at the time to run my business had gone on to after my company the successful CFO at multiple companies, private equity and public companies. And he was the vice chair of Diligent and at some time when they were looking to do a founder-CEO transition. You know, they interviewed a broad set of people and he welcomed me into the interview process.

My thesis at the time was twofold. One, Diligent as a company just has a phenomenal core and DNA around delighting users, just delighting users, not just making customers happier customers. If you work with the board and the C-suite, the bar for service is pretty high and Diligent did and has done a phenomenal job of that. And I thought that was something to build off of and second kind of seven years ago, I just thought governance was already becoming more important and was just going to becoming so much more important and pressing. And the role of the board was going to have to be so much more expansive. And, you know, to be honest, I didn’t expect it to be as expansive as now, seven years later, but the idea was true, that governance is, as complexity increased, that good governance that matters more now than it ever has.

Stafford (14:41):

Stafford (16:36): Yeah. And just the pace of knowledge has come so much faster, where historically or seven years ago, if you didn’t know a subject you could hire, being a former consultant, you could hire a consulting company and to come and do a study you can be prepared and then you can go and communicate on it. But you know, right now, when an activist investor targets your company, they might send you a letter in private, but it’s actually going to go to CNBC, you know, live the next morning as well. And so you can’t wait, you know, and whether it’s someone new added to your board who’s tweeting out about a subject, you have to be responsive very quickly, hypothetically speaking, and just you know, how do you help to arm people really smart people, but with with tools and information to keep people more up to date, and expand the type of areas people are responsible for? We thought we could do through insights and software.

McGirt (17:23): Well this is my second to last question. I’m glad you asked about activist investors because it’s been a crazy couple of years from Exxon Mobil, which was fascinating to watch that unfold. Now, Carl Icahn is worried about pig welfare in a way that I didn’t see coming and of course, the drama over the last couple of days on Twitter as Elon Musk joins and then exits the board so quickly. I mean, that’s that’s a piece of change. How do you approach that? Is there a hotline to your phone because I feel like if Elon Musk comes for my board, I’m calling you personally.

Stafford (17:52): Theoretically, users can call me on my cell phone, but in the spirit of being more responsive than I might be picking on myself. Look, what we’ve tried to do is recognize the fact that as a leader, you can’t sit back and wait a week to come up with a thoughtful decision, unfortunately. The way you come up with a thoughtful decision in the moment is being prepared in advance. And so the way to address that is and again, this is where I think governance, the board, the issues have expanded so much, you know, seven years ago, you could wait around and wait till the next quarterly board meeting to have a thoughtful discussion, deliberate on issues etc. If you recognize that the cycle has gotten so much faster, and you can’t have that the only way you can prepare people is to make sure you know the latest issues on cyber preparedness. Because when the next geopolitical threat comes up and actually causes an issue, your board is prepared and doesn’t have to go do an external awareness or study: issues of ethics issues of child labor and your supply chain, issues around ESG sustainability.

McGirt (19:33): Board service sounds like a lot of work. Yeah, I think I’m just gonna take up golf or something. I don’t think I’d be evaluated now that I’ve heard the long list of things I need to be prepared for

Stafford (19:45): You can use our Diligent apps to help prepare you.

McGirt (19:48): OK, I’m gonna start there. I will absolutely start there. Brian this season, we’ve been asking all of our guests to just give us quick top of mind answers to three pressing issues facing all of us today. The first question is what’s top of mind for you when you think about COVID?

Stafford (20:03): What return to the office, what empathy for your employees are, it’s not going to go back to the same. So how do you create that connectivity in this new world? So it’s being responsive, being dynamic and being empathetic because employees needs, employees responsibilities have changed.

McGirt (20:22): Top of mind for you when you think about the global economy?

Stafford (20:25): Resilience, but I worry about inflation, and rising pressure on wages and our companies, all of our clients, everything has been highly responsive, but I do worry about inflation.

McGirt (20:38): That’s the right answer, right, Alan. Alan’s worried about that, too.

Stafford (20:45) I think most CEOs would say the pressure on wages and other areas has started to pick up just as people began to see [hard to hear] from COVID going back and that’s one that I know that keeps me up at night.

Stafford (21:04): Getting better. Bring it every day. I feel like I look at every single day I show up at work as a chance to interview on my job for investors for our team and for our customers and I’ve got to get a little bit better every day.

Stafford (21:24): Thank you, Alan. Thank you, Ellen.

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