Name: What does it take to be a modern, future-ready corporate board?
Uploaded: 2023-05-10
Duration: 15 min 34 s
Description: Fortune's Lila MacLellan and Diligent CEO Brian Stafford discuss what Fortune's Modern Board 25 honorees have in common.

Fortune's Lila MacLellan and Diligent CEO Brian Stafford discuss what Fortune's Modern Board 25 honorees have in common.

What does it take to be a modern, future-ready corporate board?

Leadership

What does it take to be a future-ready corporate board?

Hello. Um Thank you so much for joining us. My name is Lila mcclellan. I'm a reporter with Fortune and I write the modern board newsletter. I'm here today with Brian Stafford. He is the president and ceo of diligent. Um and today is a big day for us. We um we partner with diligent to produce the modern board 25 ranking. Uh and that went out this morning at, um I can, I can tell you the top five companies on the list and that please head over to fortune dot com to see the best. It's uh we have five, a cyber security firm at the top of the list that's followed by Lind the Industrial and Gasses company. Um That next is S and P Global Markets Data Markets company, Gen Digital, a cyber security company that you might remember as Norton Lifelock is number four. And finally Baker Hughes, uh the Energy Services company. So uh congratulations to those companies and all of the rest, but Brian, uh I wonder if, you know, I, I can get you to talk a little bit about this concept of a modern board and how you would define it. Um And if you'd like to start by telling us a little bit about diligent and that would be great. Yeah, sure. Um I'm super excited about this. Uh collaboration with Fortune um Diligent is the world's largest governance risk and compliance company. We work with about 25,000 organizations and primarily their boards helping them better um uh uh drive oversight uh and governance risk and compliance across our organization. Uh And the concept, as you noted around modern board is uh a really important one as we've seen over the last eight years that I've been with diligent, just an overall evolution or almost a transformation in um the type of people um that make up uh the modern boards uh that we see in our, in our economy um as well as the type of issues that are covered and those are issues that started out being mostly financial performance related uh and around the CEO to now oversight of a much broader set of, of risk compliance, other issues that uh uh that have rapidly into our lives over the last 345 years, right? And um why, like when we put together the modern board ranking, we looked at things like uh diversity independence, uh E S G scores um sort of to capture all of these changes that you're talking about. And then this year there was an extra change. Um So some of the names are new to the list entirely and we have some new names at the top. I wonder if you could tell me a little bit about, uh, this year's methodology. Yeah. And so the, um, as you mentioned, it, it takes into consideration um, the composition of your boards level of independence. Um, what the refresh of your boards is like, um, how diverse your boards are and other E S G related factors. Um, but we also this year, um uh obviously included performance and how well your company has performed um boards in addition to helping to manage all those non financial factors. Uh And a whole broad set of stakeholders are obviously uh also uh responsible for uh the organization's performance on a total return to shareholder basis. Uh And boards have a unique opportunity to take a sometimes a longer term view even than, than the company. Uh And so we think it's really important as a measure of a modern board looking at obviously how uh how the company has performed over time. Great. Um One thing that I, I know I noticed a few things, so I'm gonna talk about a few trends that I saw while I was reporting and speaking to board members uh on some companies on the list. Um And one thing that I noticed was that a board seem to be spending a lot more time with their executive teams and with the companies that they oversee, um they're also going to classes taking continuing continuing ed courses in cyber security or climate, you know, sustainability issues, um, meeting employees. Can you tell me a little bit about, you know, how the job itself has changed and what impact that's having on corporate governance? Yeah, I, I think you're exactly right. If uh any uh board member, you talk to any CEO or CFO you talked to, would say that the role of the board member has just uh increased uh so much over the course of the last, you know, um five years, 10 years, period of time, the role of a board member used to be showing up four times a year to a meeting. Uh And the role has transformed so much more in a much more dynamic way. Uh I think most board members will tell you it is a, it has become a pretty um uh uh I was gonna say all encompassing role, but what I mean by that is just much more intense in the amount of time, effort and work that a board member has to put in today than they did call it five years ago. Um That is um level of engagement with management. Of course, it is way more frequent. Um It's just not about board meeting, it's committee meetings, it's calls in between, it's your lead independent director uh very well may spend time um with shareholders, it is customers, employees in some cases, um regulators, um the role of the board has just continued to get more intense and all encompass. Um, that's part of the reason that we think that there is, um, uh, it is warranted to pay a bit more attention to and look at, uh, who, who are the most modern boards today. Right. And, uh, would you say that this change is, um, our director spending less time, sort of on multiple boards at one time and sort of focusing on fewer boards? I think that's something that we measured in this ranking. Right. Yeah, I mean, if you look at it, there, there's some of the different, um, proxy firms or rating agencies has actually looked at, um, how many boards the board members sit on. Um, typically, um, people leave the four, um, board seats is a full role. Um, you can debate what exactly a full role is and how intense each board is. But we do think that the fact of the matter is, is that given that board members are asked to do so much more. Um, there, there is a limiting factor on how much time you can really spend to dedicate that amount on to each board. And so, yeah, the time frame is increased. The amount of board seats that someone sits on is important just to make sure that they can have the right amount of time to provide the oversight for, you know, the boards that they sit on. Right. Thank you. And, you know, I think that, um, the very first word that anyone mentions when I ask about the modern board is, you know, the modern boards are diverse, right? And the composition has changed quite a lot over the last 10, 20 years. Um, but there's still some progress to go, like in terms of getting women in, in leadership roles on boards and improving racial diversity. I wonder if you can talk a little bit about what you're seeing and what advice you have for boards in terms of overcoming anything that's slowing down progress towards more diversity. Yeah. Ok. Um, um, most of them, uh all of the modern boards, but most boards today would tell you that um, diversity is, is really important to them in board composition. Um But I, I will divide diversity up into, um it's not just diversity in terms of uh of gender and background, but it's also diversity in terms of experience. If I look at all the different increasing number of issues that boards have to face. Uh They're looking beyond profiles of just people who are a former CFO or former CEO to be able to provide that broader perspective. And so, yes, um, gender diversity, yes. Um, ethnic or racial diversity uh are important ways that boards look at making sure that you have the right full set of expertise around the room. Um I increasingly hear things about age diversity as well and making sure that you can bring different perspectives. But the reality is a board has the potential to be a um a superpower to a company, a huge asset to a company. If you really are bringing in that full set of diverse perspectives into your boardroom, so they can ask the question that you might not have gotten from your management team to help, to better challenge opening up the opportunities or to help to limit or mitigate risk, right? And it's interesting, yes, age description is an interesting metric to look at across our companies. I think the youngest board member was at 43 which is pretty young. We always think of board members as being much older. Um and uh some boards had terrific range from in their forties into people in their seventies. So I, I think it'll be an interesting uh metric to watch over as we continue with the modern. Yeah, I think, I think you will see what we are seeing today and what you will continue to see is just different board members who come from different backgrounds and that can be someone earlier on in the tenure who's also a sitting executive. Um that can be someone who came from other roles or functions like a technology role or function or cyber security. As we look at the broader set of issues that boards are being challenged with are gonna have to continue to be challenged with. You're gonna need to continue to bring in a broader set of expertise. If you were going to rank the challenges facing boards in the next couple of years of risk, you mentioned cyber security. How would you sort of rank those top? Yeah, I, I think across boards but companies in general um have an uh ever increasing set of risk whether it is um whether it's cyber nature, whether it is climate or sustainability um related. Um I think when we looked at the great resignation, um many organizations saw, you know, their human capital talent as uh not just an opportunity but also uh a material risk. Uh And many um organizations face an environment of increasing regulation that just creates more need for disclosure, managing all things that exist within an organization. I think what most organizations will tell you is the amount of things that boards are responsible for from an oversight of um continues to expand and the level of detail required to provide that oversight continues to go up which increases the demand um um around board members. Yeah, it's not an easy job at all anymore, it sounds like. And another um another sort of issue that boards are dealing with are multiple issues actually is around um corporate responsibility and being a good corporate citizen, which is S G captures. But, you know, specifically boards are looking at things that they never had to look at before, like uh abortion rights or um you know, supporting Black Lives Matter and speaking out on, on political topics of the day in a pretty divided country. I think it's really been difficult. Can you tell me how, what you're, you know, what advice you have for boards when it comes to being good corporate citizens? Yeah, I think, I, I think as, as you mentioned, this is an area that has, um, kind of a hot issue from a lot of organizations. Uh, I think what most boards would tell you or most CEO S would tell you in, in their dialogue kind of with the board is um an organization has to be true to the strategy sets and who it is is an authentic organization. Uh and then be true to your customers and your employees in whatever way that is. And if it means taking a stand on an issue that it matters to your team or taking a stand on an issue that matters to your customers, many organizations are doing that more than they have before. Uh I think where organizations get into trouble is when it's disingenuous and looks like hopping on to whatever issue it ultimately ends up in uh fundamentally uh uh fundamentally as an organization and a board and control of oversight, you know, you care deeply about your shareholders. Um You care about your customers, you care about the employees and you have to operate in whatever um uh regulatory environment you operate in. And so as long as the company has a clean and clear strategy that the board provides right oversight and checks and balances on and stays true and authentic to those broad set of stakeholders. I think that's the way boards are looking at understanding and, and navigating those um uh those trade offs and that complexity. That makes a lot of sense. And I, and I think we see boards are just no longer um distant figures like going back to that engagement that they have. Um when it comes to corporate responsibility, you know, Valerie Jarrett is on the board told me about board, the executive team coming to board members and saying, hey, we're going to do this collaboration with two historically black colleges um and can, can be run it by you and they ran it by the two black directors on the board. I think it's interesting just to see that directors are that involved and engaged and no longer the sort of scary suits who come in and uh you know, are unknown. Yeah, I think there's, there's two trends that I think are happening there. You know, it's really interesting when you look at the first trend, I would say it's just much more transparency in general and that's across the top levels of the organization, but that is inclusive of the board. I mean, you know, boards used to be these, you know, these smoke filled rooms behind in mahogany doors and these conference rooms where, you know, a bunch of people who largely all looked exactly the same used to come out of those rooms four times a year after having, you know, whatever the discussions. And I think if you look at boards now there's just way more transparency, way more visibility um across the organization, organizations want to see that the oversight provided for the CEO um the people that oversight looks something like either your employees or your customers as well. And then I think, see, and that's kind of trend one. I think the trend too is sec second, as you have broader board and boards are responsible for more. I think many CEO S are activating their boards in different ways, whether to spend time with investors in some cases, um whether it's to spend time with employees in some cases. Uh And so I think that engagement greats that transparency and that trust. And, you know, I know personally as a CEO, um we recruited a very, a board with a very specific set of expertise to help us out as we grow. And I do empower our board members to be able to connect directly with our team on areas where they have direct expertise. And in most cases like this, the CEO might say you don't need me around for that conversation. I'll let that conversation go clear, transparent and unfettered. And I think that means a lot to employees and I think that means a lot ultimately to organizations that seem like a really great idea. Um And so that leads me to the next question is perfect. Um You know, what do you see changing still to, you know, to come in terms of um the board, the composition, the way it operates, what metrics might we capture in the future? It's um more, more, more is what I would say. Um uh Fortunately or unfortunately, um the reality is um organizations and boards are being, are providing much more transparency as we mentioned and whether it's impending sec regulation around cyber attack disclosures, whether it's impending sec regulation around climate related disclosures, whether it is stay on pay on different pay disparity or transparency that exists across organizations by different geographies. Organizations are now responsible for sharing, being transparent around a whole broader set of issues and as an organization, whenever you share and are transparent around a broader set of issues that, that requires even more oversight around those. And I think the role of the board is just going to continue to um get more intents responsible for more. Uh And that means, you know, CEO S and CFO S um have to deal with that increase. Uh and more. Um And that also is true from the board. And so what is the board gonna do to it? They're gonna make sure that they keep refreshing and making sure they have the right expertise to their board around a broader set of issues. Uh And not just expertise for oversight, but also um to make sure they can um uh uh uh offer suggestions, help out etcetera to make organizations more sustainable. We care about all of our stakeholders, but making sure that you're helping to drive those long term um returns for your shareholders as well is always a core part of um of, of the oversight of the right. Can't forget about that. Sounds great. Thank you so much, onwards and upwards. Um Thank you for joining us and congratulations again to all of the fortune uh modern board, 25 companies. Uh Please do go check out the list, check out their stories about it and um thank you so much for joining us. Thanks, Brian. Congratulations. Thanks.