The New Normal In Governance: A Paradigm Shift?

A group of veteran directors weigh in on how the pandemic has changed governance practices and why boards must embrace new solutions.

As the coronavirus has made its way across the globe, nearly every person and every business on the planet has been impacted. Since 1945, when the Second World War ended and RHR International was founded, the consultants in our firm have worked with our clients to assist them in seizing the opportunities and meeting the challenges inherent in leading their organizations. Throughout the decades, those leaders have had to navigate their businesses through a number of highly disruptive events including wars, terrorist attacks and financial swings, along with the accompanying mercurial and rapidly changing markets. Given the unprecedented disruption in the world precipitated by Covid-19, we thought it important to examine how the pandemic is impacting the way boards are operating in the current context and how that may change in the future.

To better understand how the pandemic is impacting boards, we invited input from some of our client directors. The directors we interviewed were a highly experienced group who currently serve on or have served on the boards of more than 60 companies, ranging from Fortune 500 global organizations to midsized and start-up firms across more than a dozen different sectors. We asked those directors to share their perspectives on two questions:

1. How have the value proposition and contribution a board needs to deliver been changed by the pandemic?

2. Are there any differences in how individual directors need to contribute? (I.e., how are the requirements and desired capabilities for directors changing?)

What follows is a summary of the responses offered by those directors.

Differing Impacts and Common Responses

Affirming the framework offered by RHR’s David Astorino, PsyD, MBA, and Val Nellen, PhD, in their The New Normal is Now article, several of the directors noted that different companies are being impacted differently by the pandemic. In that framework, three modes of impact are described:

1. Crisis mode (extreme disruption of supply and/or demand)

2. Weathering the storm (some disruption requiring short-term adaptations)

3. Capitalizing mode (new opportunities have been presented)

The focus of the directors we spoke with varied depending upon whether the companies they were governing were struggling for existential survival (e.g., retailers, some energy companies, travel, and hospitality) or determining how to capitalize on new opportunities presented by the pandemic (e.g., consumer packaged goods (CPG) food, online businesses, and some pharma companies).

“All businesses have been impacted but to meaningfully different degrees. Some are facing mortal threat while others are looking at opportunities,” said Archie van Beuren, chair of the governance committee at Campbell Soup Company and vice chairman of Brandywine Trust Group

Whether in crisis mode, weathering the storm, or capitalizing mode, the directors we spoke with were unanimous about how the pandemic was changing the governance cadence and focus. The commonalities include:

• An overarching priority on the health and safety of the workforce

• The imperative to aid and support management

• More frequent interactions among board members and with management teams

• All meetings and contacts being done virtually

• A sharpening of the focus, intensity, directness, and candor in dialogue

• The impact of working remotely on board and company culture

• The need to consistently confirm the viability of the strategy and speed of decisions

Some director perspectives: 

• “First and foremost, we are focused on the health and safety of our workers.” Jack Liebau, chairman of the board at Myers Industries, Inc. and director at S3 Software

• “The board’s objectives in discussing issues and giving guidance to succession planning are more difficult to accomplish [via virtual platforms], and going forward, it will change board composition to have directors who can act more independently and remotely.” – James V. Rosati, board member of Delta Dental Rhode Island, Avadim Health, Inc., Uncas International, The Miriam Hospital Foundation, and member of Bryant University Board of Trustees

• “One thing I have seen is a level of intensity that has kicked up. We are having way more-frequent meetings and discussions.” – Alan Wilson, former chairman and chief executive officer of McCormick & Company, Inc. and lead director of T. Rowe Price and WestRock

• “We are seeing companies stressed in one way or another. We are there to provide support. If you believe there are times for special committees, now the board is one big special committee.” – Howard Brownstein, director at P&F Industries, Inc. and Merakey

• “We are even more focused on purpose and what makes the company distinct. We have spent more time on culture and HR in the last six weeks than I ever have in the boardroom.”  — Fabiola Arrendola, board member at Burberry Group, Campbell Soup, National Public Radio and FICO

Implications for Directors

The board members we interviewed had a lot to say about the demands being placed on directors currently and how they need to step up to those demands. There was unanimous agreement that directors need to be extremely well-informed about the business of the organization in order to add value during fast-paced, highly focused interactions. It was also mentioned by many directors that broad and deep business experience, particularly in operations, finance and HR, is particularly valuable in these times. Directors who have only been exposed to a single organization in their careers may not have the perspective needed to provide insightful counsel.

Comfort with ambiguity and an extensive network of contacts who can access resources on behalf of the organization were also cited as important attributes. When videoconferencing is the medium for board and committee meetings, high levels of trust and transparency and the ability to be simultaneously direct and collegial were seen as critical attributes. These qualities are challenging to convey without the nonverbal cues that in-person contact enables. The intensity and demands of board service now require high levels of physical and emotional energy along with patience.

Some director perspectives: 

“We need well-rounded directors who can operate collegially—IQ and EQ. No one hijacks the agenda. Tenure is more important than age, and directors need a much deeper understanding of the board materials to contribute to direct, fast-paced discussions.” –Rick Lenny, nonexecutive board chair at ConAgra Foods, current board member at McDonald’s, and former CEO of The Hershey Company

“The board’s objectives in discussing issues and giving guidance to succession planning are more difficult to accomplish [via virtual platforms], and going forward, it will change board composition to have directors who can act more independently and remotely.” –James Rosati, board member of Delta Dental of Rhode Island, The Beacon Mutual Insurance Company, Avadim Health, Uncas Manufacturing Company, and The Miriam Hospital

Governance in the Future

Although the core role of a board will remain essentially the same—i.e., to ensure the company’s prosperity by collectively directing the company’s affairs while meeting the appropriate interests of its shareholders and relevant stakeholders—aspects of how boards discharge that role are changing. The Covid-19 pandemic has exposed vulnerabilities in companies, which boards are currently leaning into and will need to better anticipate and prepare for in the future. Certainly, online board meetings will continue for the foreseeable future. Many directors commented about the efficiency of virtual meetings and how much time and wear and tear are saved by not having to travel for in-person meetings. There is no question that boards need to increase preparedness for disruptive scenarios. As Ramon de Oliveira, who chairs the boards of AllianceBernstein and Equitable Holdings and is a director at AXA, put it: “It’s not about guessing the future. It’s about building scenarios—that’s the most important job a board can do. And then figure out what operating strategies a company can put in place in each scenario.”

Also, the speed with which the coronavirus struck underscores the need for a board to be able to pivot quickly. Doug Conant, the former CEO of Campbell Soup Company, former board chair of Avon, and a current board member at RHR International, offered this view: “Boards and directors will need to become more agile. Warren Bennis used the term VUCA—volatile, uncertain, complex, and ambiguous. Now the world is VUCA on steroids!”

Directors in the future will need to be curious, courageous and willing to speak their minds. They need to be willing to deal with ambiguity, listen and be able to process different perspectives. If the world is changing, directors can’t stick with their preconceived view of the world. Bob Eckert, a director at Levi Strauss & Co., Amgen, Uber, and McDonald’s, offered the following insights:

“I see this crisis playing out in three stages. The first phase is crisis mode, then the restart phase—which we are currently in—and the third phase is when we ask what the new normal will be and what changes will we need in our operating model, infrastructure, and supply chain. There will be opportunities for big bets. One of my board colleagues boils down a board’s role to three important tasks: 1) making sure the best leadership of the company is in place and being developed; 2) making sure there is a winning strategy in place; and 3) making sure the proper safeguards to manage risks are in place. Due to the pandemic, discussions between board and management on these topics are all changing—the discussions are bigger, deeper, and more important than ever.”

The directors we interviewed stressed the importance of extracting lessons learned during this time of crisis. Several emphasized the importance of using the annual board evaluation process to do this and to examine how the board needs to operate differently in the future. Deborah Hall Lefevre, a board member at Wintrust, recommended conducting after-action reviews of emergency response plans and making sure that succession plans are in place. Directors also noted that there are implications for the board’s responsibility to ensure that strong talent management and succession planning are in place. The current leadership demands are revealing some exceptionally capable talent on management teams as well as exposing some weaknesses. As part of their review processes, boards need to make sure management teams are doing all they can to retain the company’s best talent and should consider what revisions might be needed in succession plans for mission-critical roles.

Aida Álvarez, who is a current director of HP Inc., Oportun, and Fastly; a former director of Walmart; and the former cabinet-level secretary of the Small Business Administration in the Clinton administration, thinks the current pandemic has ushered in a new chapter in corporate governance when she says: “This has unearthed weaknesses and strengths. There is a paradigm shift for everyone—how government and business partner and how the whole interdependent ecosystem must function given the interdependence among the component parts.”

As RHR’s Joanna Starek, PhD, described in a recent Corporate Board Member post Twenty-First Century Leadership for Twenty-First Century Problems: “We are globally connected, and we have the tools to bring all of human ingenuity and brilliance to bear to thrive in new and unique ways. The challenge is to eradicate old mindsets and embrace new solutions.”

Boards in the future need to seize the opportunity to work in partnership with their management teams to realize that challenge.