At our upcoming Directors Forum in Boston next week, we’ll be talking with a host of great people—including Cyrus Taraporevala, CEO of State Street Global Advisors—on some of the most meaningful topics facing boardrooms today. Please join us.
But one participant is worthy of special mention. That’s Jack O’Brien, a longtime financial services executive and CEO, who the American College of Corporate Directors, our sister organization, will be awarding the Clint Allen Distinguished Director award.
He’s served on numerous boards over decades. O’Brien is being recognized for his ongoing efforts to improve the state of corporate governance in America, and how he’s helped the firms he’s worked with transition in a very volatile time.
I spoke with O’Brien last week about some of the challenges he sees in the boardroom today, therough market, where ESG is going next and why—despite all the challenges and growing pressures—he still things boardroom service is a great opportunity for anyone to take on. What follows are excerpts from that conversation, edited for length and clarity:
You’ve been around boardrooms a long time. What are the biggest challenges you see facing boardrooms right now? What’s the evolution been?
I think it’s fair to say that right now, allocating time and dealing with and setting priorities is more important than it’s ever been for companies. I’ll give you a lot of reasons.
One is, there’s been all this pressure from stakeholders and primarily stakeholders representing ESG issues, which opens up the door for all kinds of people that have specific interests.
As a result, boards get subject to a variety of demands from shareholders. In some cases, the shareholders that own a thousand shares, but they have a legitimate social request. So sorting that all out, along with the new requirements, especially some new SEC requirements that are coming, and some of this added pressure from shareholders, institutional shareholders who have now formed these groups to deal with proxy issues in addition to investment issues.
That has created a lot more need for allocating your time carefully at the board meeting and making sure you’re scheduling the right things and addressing the right issues because you can’t address them all.
Pressure on the companies is accelerated by the fact that earnings are under pressure, the economy is under pressure, the stock market is weak.
How is that playing out in the day-to-day? How have you seen people deal with that well?
Directors have to become current with all these issues. There’s much more of a need for a director to stay current by reading a lot of things, You’ve got to be really focused on director issues.
Committee chairs have to take more of an input into asking management to provide information on specific issues that they feel they need to know in order to do their job. And there’s also more demands on bringing in outside consultants.
Groups like the ACCD and the NACD have become more important too, because they offer the opportunity for the directors to take the initiative and to get up to date on these particular issues.
There’s more demands on the director, and actually being a director is more important than it’s ever been. I say than it’s ever been, but it’s much more important than certainly, it was when I started 30 years ago.
Right now, it’s at the stage where you’re reacting to the inputs that are coming to you. Either they’re coming to you from specific requests from groups that have priority issues. There may be, as I said, some social groups, some pension groups. The SEC is now coming up with these climate disclosure requirements.
I think right now the boards are reacting, but in so doing, they have to make sure that whatever they do is accurate. And at the same time, they’re establishing a pattern that can be repeated year after year on these things. But right now it’s more a question of reacting, especially to proxy proposals and the SEC requirements.
So as this evolves, boards are going to have to evolve to deal with it. Certain directors are going to have to get more up to speed on climate, which involves education and then presentations. Or we’re going to have to bring in directors that will be able to do that, and mentor those directors and make them part of the team.
Five years ago, it was, “you really need to get that cyber expert on the board.” And then it was a diversity-inclusion expert, you had to have someone with that specific skill set. How do you balance the push to get this narrow expertise in all these areas against people who simply have broad business experience, not experience on how to make a corporation work?
First of all, you’re not gonna be able to get one expert for everything and still provide the type of expertise that you need to run the business, and running the business is still very important.
How do you deal with the shareholders versus the stakeholders? It’s both, but you can’t take your eye off the shareholder, right? This past quarter is a good example. A lot of companies reported disappointing earnings. The stocks went down dramatically in terms of doing that, and I didn’t see one thing that said the stocks shouldn’t have gone down, or that the management is doing a wonderful job on ESG issues when earnings are down 30%, 40% or 20%.
So shareholder issues are still very critical and directors have to produce value for the shareholders. That means you need a certain number of directors that just plain have experience. They don’t have to be all ex-CEOs or CEOs. In fact, it’s very difficult to get CEOs now for a whole variety of other reasons, but you’re still going to need that type of expertise.
You can accept somebody that may not have the managerial or the CEO experience, and they may be at a slightly earlier stage in their career. But they’ve demonstrated all the capabilities you need and they’re coachable, which is the term you have to use in terms of bringing in new directors and having them fit with a culture of the company.
Talk about that balance of stakeholder versus shareholder capitalism, ESG, the whole conversation around that in a bear market? Will some of this go away if we continue to have the market we’re having right now?
I don’t think it will go away because of the bear market. I think the bear market creates more demands on directors’ time and may require meetings to become longer because you have to really… Now you have to react to the things that are causing the bear market, whether it’s inflation, whether it’s the war, Covid, is having an impact on business.
So you’re spending more time on these types of things, supply chain things at the board meeting, but at the same time, this pressure for these ESG type issues or these stakeholder type issues is not going down, it’s going up.
I think there were 529 proxy proposals this year for 2022. Some number like that. It’s up substantially from last year. You have to react to those, the board has to react to those. That pressure is going to stay.
I welcome the SEC [climate proposal], because I think the SEC may help to come up with some standards for disclosure on a whole number of these issues, whether it’s greenhouse gas emissions or how you’re going to deal with it or something. As they become standard, then shareholders will be able to compare companies because they’ll be looking at the same type of reports from companies. I think that may take the pressure off, but I don’t think a bear market takes the pressure [off].
This is a tough time to be a director at a public company. How do you maintain the collegiality? Give us some tips amid a growing amount of stress and pressure in the boardroom.
They’ve changed the format of the board meetings. I hate to go back that long, but board meetings used to last four or five hours. Now they last 2.5 days. I mean, they always include some social time. Not social time for fun. I’m talking about a dinner with the directors or a dinner with the directors and key members of management with nothing on the agenda specifically, but they get to know each other and that helps on the collegial part of it.
The other part of it is just a recognition that the board’s going to need refreshing and people just have to face up to it. It’s not going to be 10 CEOs anymore, you know what I mean? The CEOs are gonna have to deal with different types of people and the different types of people are going to have to deal with CEOs.
But the worst thing, I think one of the most dangerous things somebody could say is, “This is the way I used to do it,” because the board has to adjust to the new things and look forward to it. You can’t complain about it. Sometimes I say, “Geez, I wish it were the way it was 20 years ago, you know, where we concentrated on revenue, and earnings, and cash flow, and spent a lot of time on strategy.”
We still do, but we have to spend time on these other things. Then you have to look at it from the point of view that it is interesting. It’s an interesting time. You’ve gotta take on the new challenges.