As a sitting director of public companies for over 20 years, I have been involved with most variations of tough boardroom issues. From dealing with multiple crises, to being sued, to orchestrating spinoffs, buyouts and mergers, to dealing with activists, these all bring their own set of challenges.
The takeaway is that tough issues, once outlier events, have become commonplace. As companies come under an increasingly hot spotlight from multiple stakeholders, directors find themselves having to answer more quickly and proactively.
WomenCorporateDirectors (WCD) convened a panel of experienced directors at a recent conference in New York to discuss how boards are managing the complicated and often highly charged issues that arise today; highlights from their discussion also were collected in a new WCD report, “Managing Tough Issues in the Boardroom.”
Susan Stautberg, the founder of WCD, noted: “Small errors can cause bad navigation. Being just a few degrees off at the start of a problem can lead to being wildly off course very soon.” With this in mind, and in mining the wisdom of the directors on the panel, here are 5 takeaways to be prepared for the next boardroom challenge.
“you must protect the board’s decision-making process so that directors can be honest and serve their fiduciary responsibility.”
1. Lean in quickly to tough issues. As one CEO reminded me, “problems are not like fine wine: they do not get better with age.” It is essential that the board get aligned at the onset of an issue around these kinds of questions:
• What is the real problem we’re facing?
• How do we identify a process to deal with this?
• Do we need outside expertise?
2. Form a special committee, if needed. Whether a separate special committee is called for is not necessarily the point. The point is that the board needs a small group of its independent directors to follow through with the process and outcomes desired. In addition, certain directors may have conflicts, necessitating them being walled off from certain deliberations around the issue at hand.
3. Use executive sessions early and often. The independent lead director/non-executive chairperson plays a pivotal role, especially in the midst of a challenge. It is important for him/her to convene as many sessions as necessary so that the tough questions get on the table, directors are apprised of progress, and there is buy-in to the resolution.
4. Protect the board’s deliberations while documenting the decision-making process. One of the panelists, Caroline Blitzer Phillips, a partner with Vinson & Elkins, said: “Documenting all of this is very important today because of the increased involvement of activists…you must protect the board’s decision-making process so that directors can be honest and serve their fiduciary responsibility.”
5. Be transparent with relevant stakeholders. This should be a core tenet, but particularly when there are activist investors or regulators asking questions or when a crisis emerges. Once the directors and management agree on a plan, the appropriate stakeholders must be informed. Diane de Saint Victor, general counsel and company secretary of ABB, Ltd., stated: “It’s not about being victimized by transparency. Transparency has dramatically changed the overall dynamics in the boardroom. It ends up driving more honesty and the overall outcome is probably better and more in line with the values of the company.”
The role of a director today is much more complex than ever, necessitating a sharper focus on the critical questions during tough times. The boards that take an early leadership role in stepping up to problems and to the process of resolution will help their respective companies thrive in turbulent times.