By Garrett Sheridan, President, Axiom Consulting Partners
Feb. 13, 2012
I just returned from KPMG’s excellent annual Audit Committee Institute conference in San Francisco where I served as a panelist on the topic on “Fresh Thinking/Leadership/Revitalizing the Boardroom Dialogue” with Marie Knowles – Audit Committee Chair at McKesson and a former EVP/CFO of Atlantic Richfield Co. I served as a panelist on the same topic at KPMG’s East Coast ACI conference in late January with Jeffrey Sonnenfeld – Professor and Senior Associate Dean of Executive Programs, Yale School of Management, and best-selling author on business and leadership. Jeff Cunningham – Managing Director and Senior Advisor, NACD-Directorship, served as moderator of both panels.
The conference was attended by Directors from a broad variety of industries and provided some real insight about what’s on their minds today. Social media, cloud computing and the opportunities and risks they present are clearly top of mind. So is dealing with an increasingly complex regulatory environment and the associated strain on the Audit Committee and board. Uncertainty about the strength of U.S. economy and concerns about the global economy and the European sovereign debt challenges were also discussed in detail.
Here are 5 issues that got a lot of attention at both conferences.
1. Social Media: It’s not something your kids do. Don’t play defensive
The power of social media can create greater connectivity between customers and employees and therefore represents a significant opportunity on that front. Recent events show that social media also has the power to bring down governments and impact brands and reputations in some new and pretty significant ways. From an Enterprise Risk Management perspective if your strategy around social media is a defensive one, standing ready to react to a reputational attack from inside or outside your company, you’re missing the point and aren’t well prepared.
- Get HR, IT, Marketing, Enterprise Risk Management and IR aligned so that you have a coordinated approach to social media and brand reputation management.
- Buy search terms that relate to your products and brand so that you can control the narrative during a crisis. Be pre-emptive; responding is defensive and inadequate.
- Engage with bloggers that have a high profile in your space. Their influence is growing and they can have as much sway as analysts and journalists.
2. IT and Technology: Clouds and hackers create stormy weather
Data now resides more often in the cloud than in your back office. Hackers are becoming more coordinated and adept. Breaches related to sensitive healthcare and financial services data are on the rise but so is the theft of intellectual property, retail data and other personal information. Key points:
- Elevate IT strategy and related risk management conversations.
- Get clear about who owns IT risk management and leverage the Audit Committee, where possible, to strengthen governance and oversight
- Boards that don’t have a technologist should seek input from outside experts. The power of technology can be harnessed in positive and transformative ways that change business models so don’t just focus on defense.
3. Board Overload: Regulation is here to stay. Get angry and get over it
Regulations like SOX, Dodd Frank and the SEC’s whistle blower bounty program are diverting valuable time and resources from activities that Directors believe add greater value. Being mired in compliance can’t be allowed to obscure a board’s effectiveness in making other contributions.
- Avoid a “post-to post” or event-driven mindset and leverage the Audit Committee to address key compliance issues. Leave the Board with enough shelf space to address questions related to strategy, growth and M&A activity.
- Stay ahead of talent management issues. The Board’s most important task is to ensure that the right CEO is in place and that his /her successor is identified and capable to step up when needed;
- Build relationships with key management team members in the C-Suite and below to get a handle on what’s really going on the business. Spend time with the CEO in between Board meeting to advance the strategic agenda.
4. Europe: Plan for more than your next family vacation
Continued shakiness in the EU, uncertainty related to sovereign debt and concerns whether EU leaders have the will and means to resolve the situation should lead Audit Committees, not just in banks and financial services companies, to ask key questions:
- What’s our degree of overall exposure? Are there contingency plans and tactics in place to reduce risk if the situation worsens, including shifting production and expanding into new markets to offset risk?
- Are we maintaining strong relationships with customers in countries that could conceivably separate from the Euro, creating uncertainty about the value of contracts in Euros and whether and how we will get paid?
- What’s our supply chain risk?
5. Asymmetric information risk: Thank management for their input but seek additional views
Management can provide the Board with a wealth of valuable perspective. But therein lies the risk --it is only their perspective. The Board should seek input from a broader spectrum of sources:
- What are analysts and industry bloggers saying?
- In social media what’s the buzz coming from employees and from customers who use your products and services?
- Is the Board spending enough time outside the boardroom with employees in the field, in key operational roles and in facilities where products are made and services delivered, to get a broader perspective on what’s really going on?
- Is the board familiar with the markets in which the company operates? Can board meetings be rotated to expose Directors to different regions and their unique cultures and issues?
Do these sound like some of the same issues you’re talking about with board members? If not, it may be time to start that conversation.
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