Corporate boards have been dealing with the challenges of overseeing corporations since approximately 1811 when a New York statute provided that “the stock, property and concerns of such company shall be managed and conducted by trustees, who, except those for the first year, shall be elected at such time and place as shall be directed by the bylaws of the said company.”
As corporations and corporate law evolved, governance challenges persisted in various forms. Skip ahead to the much more recent past, particularly to 2002 and the introduction of the Sarbanes-Oxley Act. Fresh off the meltdowns of Enron and WorldCom, Sarbanes-Oxley was considered monumental corporate legislation at the time, and served as a wake-up call to boards to ensure proper focus on financial reporting and board responsibility among other major issues.
It is safe to say that regardless of what era you pick over that 200-plus year period since the concept of corporate boards was introduced, you will find unique challenges faced by public company boards of all industries. So what makes the experiences of today’s times different than those faced by our corporate director predecessors? At their roots, most required similar strategic problem-solving skills and allegiance to the shareholders whose interests they represented, but even between today and 14 years ago when Sarbanes-Oxley was enacted, the speed at which problems escalate has accelerated, and the scrutiny of everyone evaluating how you handle them has been amplified. The lights are much brighter on how corporate directors govern themselves, which raises the bar for boards’ due diligence significantly. With that slice of history and broader context to set the table, let’s look at two major issues looming large on the plates of today’s boardroom leaders.
I’m sure if I had lived during The Great Depression, I would have a better appreciation for the corporate challenges of the 20th century. But I dare say that after they publish the business history of the 21st century, cyber crime and its related business disruption will command a big part of it. Corporate boards really haven’t had to face a challenge like cybersecurity in the past. Even if there is a rare person on the board whose career was centered on data protection, I’m sure they couldn’t have foreseen the current level of state-sponsored espionage and a hackers’ underworld that would make organized crime proud of the fear and disruption they can cause. Therein is the challenge to today’s boards. How do you protect critical company information and data from criminals and hackers whose whole purpose is to steal and disrupt your business … especially in an area where most directors don’t have much history or experience?
It is a classic bad news/good news story! The bad news is you don’t know who the enemy is, where and what device they might choose to attack, and often you don’t know you’ve been hacked. The good news is you don’t have to be a cyber expert as a board member to do a good job as a corporate director. This cybersecurity issue is being discussed everywhere, and you can stay up to speed by paying close attention. If you haven’t yet absorbed the steps boards should take to mitigate their company’s cyber risk, then you just might be that director living under a rock. And if you haven’t taken steps on how to react when you have a cyber breach, then you probably have one foot either in the courtroom or maybe out the door during the next proxy season. Chances are good that some part of your business is going to be hacked if you haven’t had a breach already. How you are prepared as a board to handle your corporate affairs immediately after an attack will truly expose how effective your board is. As my friend the late Bill Seidman used to always say … “When the tide goes out, we’ll get to see who is swimming without a bathing suit!”
The idea and implementation of shareholder engagement is also looming large over all boards. Each company is different either by the expertise and skill sets of existing board members, the quality of their internal investor relations teams, demands and/or requests by their current shareholders, and finally the attitudes of the CEO and board members about engaging at all. Institutional investors and activists seem laser focused when poorly governed or troubled companies also display an attitude of little disclosure, transparency or the need to have their independent directors talk to anybody. It is safe to say that all companies and their boards are searching for the right roadmap or formula on how best to conduct shareholder outreach.
Even if you don’t know where to start, the good news here is that you can earn engagement points with investors without putting your directors at risk of being in awkward positions with clever investors. It might take some creativity, but you can arrange one-way outreach scenarios that give shareholders comfort that you recognize their importance to the process and that your board wants to communicate regularly. This might include board member videos where you introduce directors and discuss goals for committees on your website like the Microsoft board introduced several years ago. Or you may want to send an invite to shareholders to submit questions for the compensation or audit committees and then do a one-way webcast where the committee chair, lead director or non-executive chair answers shareholders’ questions and discusses other topics they feel might be informative for investors. In both of these examples, shareholders appreciate the board reaching out, yet directors are able to reach out in a controlled environment.
These two challenges require solutions, but as fate would have it, creating solutions to problems is what most directors excelled at their whole career and got them on the board in the first place. Yes, communications of all types now occur at break-neck speed, but much like in other decades or centuries, boards and their management teams will figure out how corporations can overcome today’s challenges.
I’ll leave you with a little tip that kept me motivated as a board member when times got challenging and I was at risk of losing focus. Just remind yourself why serving on a board is so important by remembering this simple phrase: “What we do as board members today … can improve our shareholders, employees and communities tomorrow!”