January 9, 2020
Posted in: WATSON Views
As we look forward to 2020, we have three things on our minds – people, purpose, and a proactive approach. As your board enters a new decade, consider how these “3Ps” impact your work.
A focus on people continues to be imperative.
In recognition of the impact of human capital and culture on organizational performance, boards need to continue to focus on people. Here are three key areas we see a need for boards to continue to be proactive when it comes to people.
1. Given broad trends in CEO/executive turnover, boards need to ensure that talent development is well defined and executed. And, as the market for quality executive leaders is tight, boards need to allow time to define the role and conduct the search.
Be proactive: Boards that develop more formal succession planning practices for key leadership positions will be better positioned both in times of crisis or planned transition.
2. Boards will need to continue to develop their approach to oversight of culture and consider more focused initiatives to address diversity and inclusion both within the organization and on the board.
Be proactive: Boards have a role in shaping an organization’s overall approach to diversity and inclusion, and should understand the policy, principles, and practices in place to support diversity and inclusion at all levels of the organization.
3. As vacancies arise, boards should seize the opportunity to meet their succession planning goals, which may be to bring on experienced directors who understand emerging risks and opportunities and/or to ensure strategically diverse perspectives around the boardroom table.
Be proactive: Whether directors are elected or appointed, under any model, boards should optimize succession planning practices for directors. It is critical to identify needs beyond the next six to twelve months and to consider the organization’s purpose, longer-term strategy, and operating context. In order to build out the desired profile, actively ask where the organization is going and what is the board profile that will help ensure continued success into the future.
The notion of corporate purpose will continue to evolve.
For many organizations, discussions of corporate purpose have traditionally focused on what the organization does (e.g., produce widgets), with a corresponding focus on results or profit. Today the notion of purpose is seen to encompass considerations of underlying intention and broader social purpose. The dialogue has shifted beyond what does the organization do, to what is the object or the end that we are aiming for?
As the dialogue on purpose expands, so do considerations of the corporation’s relationship with a broader group stakeholders, from employees and customers to impacted communities.
In 2020 and beyond, the conversation is no longer about whether purpose and profit are separate ends – it’s clear that they are inextricably linked and connected to an organization’s social license to operate in this rapidly changing world. From the board’s perspective, acting in the best interests of the organization requires thoughtful consideration of a wider range of stakeholders and non-financial issues (including climate change, human rights, and diversity) and ensuring transparent, meaningful dialogue with an ever-increasing range of stakeholders.
Be proactive: Put purpose on your forward calendar for 2020 and dedicate time to discuss your organization’s purpose, re-examining or ensuring alignment on purpose and how the organization’s purpose is fulfilled.
See related WATSON articles of interest:
Happy new year from the WATSON team.
December 2, 2019
Posted in: WATSON Views
Step inside a boardroom in 2019 and you’re likely to hear the diversity buzz – we don’t have it, we need it, how will it help us achieve our strategy, and how do we do it. Beyond the odd diversity and inclusion policy, you’re less likely to hear about inclusion on its own.
Diversity is about who is around the table. Inclusion is what you do to bring out the many benefits of a diverse board. It’s the critical next step that isn’t always obvious or clear, and it’s the key to harnessing the power of a diverse board.
We know that board diversity is important. We also know it’s difficult to achieve (we’ll leave this for another day). But once you have it, how do you create a space that encourages and embraces diverse perspectives?
Ask and learn
- If you are inviting a director onto the board because they bring a valuable point of view, ask them what would help them (and others) contribute most effectively. Ask this up front and check in for feedback after a few board meetings.
- If you value diverse perspectives, make sure you seek out and listen to what those perspectives offer — i.e., don’t simply invite people to the table and then unconsciously push them to conform.
- When someone brings a different view to the table, thank them and acknowledge the value it brings regardless of whether or not you agree.
Set the stage for inclusive meetings
- Hold meetings at a time and place that works for all. Consider things like accessibility, travel time, religious considerations, and childcare. Think about who on the board is likely to be able to take time off work to attend meetings and who isn’t. Don’t make assumptions – ask for and consider directors’ needs.
- Consider seating arrangements that make everyone comfortable. If assigning seats, mix it up – mix genders, sit tenured directors with new directors, younger and older directors, directors from different areas. If not assigning seats, make sure people aren’t clumped together in groups.
- Make space for inclusive conversations. Time pressures drive efficiency but can also detract less vocal directors from participating. Ensure there is ample time set aside for all voices to be heard on key issues.
Develop inclusive meeting materials
- Consider language barriers and cultural differences when drafting meeting materials – use clear simple language and avoid idioms and expressions. Use the same logic for “business language” and avoid jargon, acronyms, and terms that would not be obvious to all. When possible, use a mix of graphs, tables, graphics, and numbers to tell stories and complement narrative reports.
- Ensure directors have ample time to review meeting materials at their own pace, reflect, and prepare their thoughts. This can be particularly helpful for younger directors or those who do not speak English as their first language.
- Send a detailed agenda out far in advance so everyone knows what to expect and can prepare for discussions. Don’t bury important topics under a generic heading (e.g., “Other Business”) – spell out what they are and identify if there is a decision to be made, or what they key discussion questions are going to be. Use agendas and briefing notes to clearly show whether an item is for information, discussion, or decision-making and be sure to reiterate this before each item is discussed.
Foster inclusion as chair
- Set an explicit expectation that all contributions are equally important and that different opinions are welcome and encouraged.
- Start each meeting with an informal check-in to get people comfortable.
- Watch for directors who might be less willing to jump in and create space for them in the conversation. On remote calls, check in regularly with remote participants or have them share their views first.
- If you believe that someone might have trouble following some quick-fire conversation, recap or paraphrase for clarity.
- Create pauses. For example, if you want to ask someone for a comment and they don’t speak right away, wait – and keep others from interrupting – in order to give them time to compose their words or to speak with timing that fits with how their culture approaches conversations.
- For important strategic conversations, go around the room and ask everyone to share their views. Set the expectation that this will happen so no one is caught off guard. Be cognizant of who speaks first – a respected and experienced director speaking first can pre-emptively stifle different views, while a new director can feel put on the spot.
- Be mindful of what is said and what isn’t. Be aware of body language and follow up with directors if you get the sense they had a challenging or uncomfortable moment.
Weave inclusion into your board’s practices
- Ensure there is time set aside as part of the orientation process for new directors to ask questions that might seem obvious or simple in a safe, comfortable space.
- Educate the board on what inclusion means and looks like in practice. Get aligned on what inclusion means to the board and how the board will practice inclusion.
- Check in on how you’re doing. Ask questions around diversity and inclusion as part of an annual board evaluation to get candid feedback on what the board is doing well to embed inclusion and what it could do differently.
- Introduce a board mentorship program to build connections and ensure new directors have a safe space and sounding board to discuss board matters.
- Use clear, simple, gender-neutral language in your governance policies.
- Consider the time and commitment expected of certain roles. For example, if the chair role is so cumbersome that parents, young professionals, or executives can’t reasonably take it on, consider creating roles that are more accessible to all (this applies to management as well).
- Spend time together outside of board meetings to get to know other directors and where they come from.
- Use humour to overcome tension and build relationships but be sensitive to cultural undertones or subject matter that may not resonate.
- Tailor your small talk – talk of vacations, politics, renovations, and sports may not engage all audiences.
You can have inclusion with or without diversity. So while you push the diversity dial and seek diverse board candidates, start to build the foundation for a more inclusive board. Make your mistakes, reflect and adjust, and draw on inclusion to harness the power of diversity.
November 25, 2019
Posted in: WATSON Views
Part 2 – The Purpose Driven Series
The relationship between business purpose and social purpose is getting serious. The traditional focus on shareholder profit is broadening to include a more complex stakeholder landscape – from employees, consumers, and communities, to the planet itself.
Although the law still places the best interests of the company as paramount for public companies, that doesn’t mean that other complementary interests cannot be considered. While shareholder value is still critical, profit versus purpose is not a zero-sum game. Strategies that maximize revenue can also benefit employees. Prudent business decisions can also minimize environmental harm. Clear signals that businesses are using their resources and influence to help solve social problems can drastically widen their consumer base.
With the marriage of purpose and profit, comes a fundamental shift in how organizations talk about and connect their work with their broader social purpose. From the frontlines to the boardroom, purpose drives practice.
Enter the purpose-driven director. The purpose-driven director understands the organization’s purpose and keep this purpose front and centre in boardroom conversations and decision-making. The purpose-driven director:
- Is motivated by their organization’s purpose and brings focus and commitment to their director role
- Sees the marriage of purpose and profit as a strategic opportunity
- Applies a broad, long-term view to their work and decision-making
- Asks the right questions, grounded in purpose, to guide what the organization does and what it doesn’t do
- Understands the relationship between purpose and profit and considers the broader context when making decisions
- Broadens board conversations to look at both intended and unintended impacts of decisions and consider the long-term consequences on the environment, the economy, and society
- Challenges self, board, and management to make the right decisions with purpose in mind when the organization is truly tested and the stakes are high
- Helps ensure the organization’s work contributes to its social purpose in the intended way
- Keeps up to date on issues related to their organization’s purpose and shares their insights with the board
- Helps sharpen the board’s focus on purpose and helps management articulate purpose in a way that flows through the organization
These qualities and perspectives are layered on top of what we already look for in a strong director – they raise the bar. As a result, the purpose-driven director needs to bring the following:
- Some existing alignment, even if somewhat unformed or unspecific, to the purpose and impact the organization wishes to achieve
- A readiness to internalize the purpose and commit to it; a heartfelt interest in seeing the purpose achieved
- A track record of credibility and integrity; a sense that their commitment to purpose will be genuine and that they will follow through
- Openness to progressive practices; a readiness to evolve governance as the playing field changes
- A long-term lens focused on a broad range of outcomes, and an understanding of how to monitor short-term progress without creating short-term mindsets
Purpose-driven directors benefit from a strong sense of achievement, impact, and legacy – beyond traditional stewardship. Many in the governance field say that the era of directors serving primarily for status or compensation is ending due to the increased complexity, effort, and risk of serving; we believe it is also because there is a more rewarding opportunity for skilled directors. Purpose-driven directors have a unique opportunity to make our boardrooms and our communities stronger, with lasting impact.
Stay tuned for our next article in the series to meet The Purpose-Driven Board.
November 18, 2019
Posted in: WATSON Views
Part 1 – The Purpose Driven Series
In 2019, purpose is paramount. The tug of war between purpose and profit has evolved into a co-operative game. Companies are adopting environment, social, and governance (ESG) practices at the board and organizational level and finding unique ways to measure purpose and impact. Boards are considering a broader web of stakeholders to understand the complex outcomes of important strategic decisions. Leaders are talking about what they do and why they do it in very different ways. Purpose is on the governance radar and it is shifting the dialogue in the boardroom.
Boards have always talked about purpose in an implicit way. By setting mission, vision, values, and strategy, they partner with management to determine the organization’s north star – where are we going and how we will get there. What is unique about the way boards and organizations talk about purpose now is that these conversations often go beyond the business to weave in social purpose. It isn’t just about making widgets, providing services, or selling goods. It’s about making communities stronger, addressing social problems, and contributing positively to society.
We are seeing business purpose layered within broader social purpose that together guide what organizations do and why they do it. Patagonia recently changed their mission statement to “We’re in business to save our home planet.” Warby Parker exists “To offer designer eyewear at a revolutionary price, while leading the way for socially conscious businesses.” Asana’s raison d’être is “To help humanity thrive by enabling all teams to work together effortlessly.” These companies still sell clothing, glasses, and applications, respectively, but do so within the context of their broader social purpose.
Just as organizations are considering and reframing their social purpose, leaders are increasingly calling on the private sector to help solve public problems. BlackRock Chair, Larry Fink’s 2019 letter to CEOs calls for the private sector to respond to societal issues – “unnerved by fundamental economic changes and the failure of government to provide lasting solutions, society is increasingly looking to companies, both public and private, to address pressing social and economic issues.”  Similarly, Senator Elizabeth Warren’s Accountable Capitalism Act has proposed a requirement that large US corporations create a public benefit; it “obligates company directors to consider the interests of all corporate stakeholders – including employees, customers, shareholders, and the communities in which the company operates.” While law and policy tend to lag behind societal change, these significant signals demonstrate the closing gap between profit and purpose.
The idea of businesses purpose aligning with social purpose is also deeply connected to the idea of long-term business sustainability (financial, social, environmental, etc.) and therefore long-term financial results. Strong, clear purpose and values go hand in hand with long-term strategies that support sustained organizational health and management of long-term risks. At times, this demands boards and management teams accept short-term losses, in order to achieve long-term strategies and maximize impact.
With this sharpened focus on the role of the organization as a driver of social good, what role do boards play in shaping and stewarding their organization’s broader social purpose? Serving both profit and public good requires boards to broaden their view of the interconnected consequences of decisions – both intended and unintended – that go beyond the balance sheet. The board also has an important role to play in making sure ESG factors are appropriately considered and embedded in the organization’s strategy, risk management, investment framework, HR practices, and culture. Now that organizations are more explicit and intentional about the why, directors are expected to steward this purpose with diligence and care.
Boards can play an important role in signaling and articulating how purpose meets practice. Boards that ground their work in purpose intentionally link governance structures and practices to specific ESG issues. They help bring stakeholders and shareholders along by clearly articulating the link between ESG principles and board practices. Instead of simply asking questions around sustainability practices, they develop a formal board mandate on sustainability to signal the importance of this key area. Instead of striving for gender parity because “it’s the right thing to do”, they articulate how it relates to ESG and contributes to the organization’s purpose.
Often an increase in focus on purpose happens in parallel with other forms of transformation, whether in business model, culture, leadership, or structure – often intended to orient the organization to long-term value creation, where value is measured financially as well as in terms of broader impact. This creates another set of challenges for boards, as it might mean a short-term decline in financial results, a change in the type of investor who is interested in the business, changes in leadership, or other disruptions. To play their role in navigating change and keeping the organization aligned on purpose, directors will need to have a high sense of personal alignment and commitment to the organization’s purpose. It must be authentic, compelling, and achievable in their eyes, which raises the bar for both the quality of the purpose and the quality and fit of great directors.
Stay tuned for our next article in the series to meet The Purpose-Driven Director.
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