A New Era for Business: Donna Zarcone on the importance of placing purpose front and center
“Think about the next generation of employees and consumers and what their expectations are from the corporation. They are really looking for corporations that demonstrate that they have a commitment to a purpose.”
Experienced board director Donna Zarcone believes that the role of the organization is changing, and that businesses have an unprecedented opportunity to make a positive impact when it comes to society and the environment.
In this audio interview, Zarcone joins host Hannah Freegard to discuss the importance of corporate purpose, why candid conversations are critical and how engaging with all of the parties in their ecosystem can transform how businesses operate.
Hannah Freegard
Directors are the guardians of the organization.
They are responsible for governance, strategic oversight and, increasingly, corporate purpose.
Yet in the past few years, the role of a company director has become more complex.
Donna Zarcone is no stranger to this shift.
Donna currently serves on four U.S. company boards, including CDW and Cigna. And she was recently named as a commissioner to serve on the NACD Future of the American Boardroom Initiative to re-examine the role of the board beyond its ongoing commitment to shareholders.
I'm Hannah Freegard, and in this episode, Donna joins me to discuss how diversity shapes board and company culture.
In your view, what defines a healthy board culture based on your experience of working with different company boards?
Donna Zarcone
I think a healthy board culture is a culture that has the capability to have candid conversations. To have — as one board leader that I worked for — to be able to disagree without being disagreeable. The ability to listen and learn and understand another perspective and then to be able to contribute with your own point of view and then to create a very healthy dialogue as a result, will lead to better outcomes.
We can talk a little bit about the importance of diversity. But I think that's just really key to a healthy board culture because when you have a diverse board, they greatly benefit the corporations that they serve. When a board is comprised of members that have a mix of backgrounds, gender, race, ethnicity, age, geographic location, and experience, plus industry and professional expertise. And you combine that with a range of tenure on the board where you've got some historians, as well as some new points of view, you get a really rich conversation. And a healthy culture allows that conversation to ensue that offers points of views that have many different angles, but that provides a highly valuable outside-in perspective that management really needs to hear.
Hannah Freegard
In your view, how important is age diversity on the board as well? I know this is something that's kind of secondary to some other forms of diversity that are being looked at. But it's interesting because when you look at the average age of directors, that's decreased ever so slightly.
Donna Zarcone
Definitely. I think that diversity can come in many different shapes and sizes and elements and the aspect of age is one of those elements. And I do believe that it can be a very important factor. I've been involved in boards where we've had, I would say, more senior board members and we've had much younger board members who were definitely disruptors in their industries that have come in and have created such a rich conversation at the boardroom. Because there's the perspective of what are the strengths of the business and there's also, from a disruptor or a younger board member, a perspective on where the business needs to go. And when you combine those two and allow for that richness of that dialogue and that trust that says, let's hear each other out, let's figure out what the best path forward is, you can really transform a business and take it to a different place. Open up new business lines, change the way you go to market, change the way you're interacting with the customers. That can have a very positive outcome.
Hannah Freegard
And one of the other areas that we've been looking at through the data that Spencer Stuart gathers is director assessments and the value that they have in helping boards to become stronger. And a lot of the interviewees we've spoken to have been very positive about director assessments and say that they see them being carried out more frequently, at different levels. So at the overall board level, committee level and so on. What's your view on director assessments and what kind of role do you think they play?
Donna Zarcone
I believe a robust individual director committee and full board evaluation program that's conducted annually is absolutely critical to developing a healthy board culture and increasing the board's overall effectiveness. A board should be functioning as a high-performing work group to fulfil its oversight role and in creation of long-term value for the shareholders that it represents.
The best practices that I have seen involve very candid and confidential conversations conducted with each board member using a structured framework that looks at several aspects, including board effectiveness, board leadership, agenda management, including time spent on critical issues involving strategy, talent and risk. The relationship with the board and management, including the information sharing between management and the board. The effectiveness of the committee's structure and the committee composition and the overall board composition, including diversity and the mix of skills and experiences on that board. I also think that it's a very healthy process to have the board evaluation process conducted by an independent advisor every three to five years.
Hannah Freegard
One of the initiatives that you're involved with is the NACD Future of the American Boardroom Initiative, which re-examines the role of the board beyond its ongoing commitment to shareholders. I'd love it if you could speak a bit more about that because, obviously, stakeholder capitalism has been in the media a lot recently, and there's been a lot of debate about how businesses serve communities beyond their shareholders.
Donna Zarcone
I believe there is an increased awareness and understanding of the evolving role of the corporation, where success is not determined just on short-term financial outcomes for shareholders. But rather, with an appreciation and valuing of the many inter-relationships with constituents, such as employees, suppliers, customers, regulators and the greater community. Including not only the greater community, but including the environment upon which we live and the footprint which we create. And if we take all that mix into consideration and think about all those inner relationships, along with the commitment we have to our shareholders, I believe that will lead to sustainable long-term value creation.
Hannah Freegard
That's really interesting to think about and just reflecting on the fact, I think during COVID-19, we saw a lot more kind of scrutiny and focus on organizations' behavior when it comes to how they treat their employees, how they treat their customers and the wider environment and really their core values. So that sort of chimes with that, and it's interesting to hear how the board's responding to it.
Donna Zarcone
Think about the next generation of employees and consumers and what their expectations are from the corporation. They are really looking for corporations that demonstrate that they have a commitment to a purpose. And that they're fulfilling that commitment to their purpose in the way that they go to market, and the way they treat their employees. And the way they treat their suppliers, and the way they treat the environment. All those things are going to be important factors for that next generation. I would argue, it's usually the focus on the next generation, but I have a grandchild. And so as a grandmother, now I think about what is my responsibility to leave her a better world. Those factors are just as important to me as well.
Hannah Freegard
Where do you think organizations are on the journey to doing that right now? Do you think it's something they're grappling with or doing well at? Do you see a difference across different organizations?
Donna Zarcone
I do think it varies by organization, but I believe that we're going to continue to see that refined. Particularly, when you look at the institutional investors, the Annual Letter from Larry Fink, for instance, where he's stating very clearly to the corporation, "You must demonstrate your purpose." What is your purpose? And then how are you going to live that purpose? So the expectations from the institutional shareholders are laid out very clearly and then demonstrate how you are acting upon that, I think will only continue. And we think about the change that's happened in corporate ownership where institutional investors have a much higher percentage of ownership, they are also having a much higher impact in terms of their influence. And I believe that will drive this change.
Hannah Freegard
Fantastic. Thank you so much, Donna.
Donna Zarcone
Thank you.
New Horizons: Frank Blake on the shifting role and remit of corporate boards
“There have been increasing demands on boards, to address issues involving more than their shareholders, involving broader societal issues — definitely environment, climate change, diversity and inclusion,” explains Frank Blake, former CEO and Chairman of The Home Depot. “It’s a very different environment for boards and management.”
According to Blake, boards must play a vital role in navigating firms back to growth following the pandemic. Yet to do so they need a broad range of skills and perspectives, and the ability to address new challenges such as the Great Resignation and the changing demands of the workforce.
In this audio interview Blake joins host Hannah Freegard to discuss how the priorities for company boards are changing, the benefits of an “inverted pyramid” approach to leadership and why consensus is rarely right.
Hannah Freegard
Today's dramatically shifting business environment is having a huge impact on the boards of S&P 500 companies.
To respond effectively, boards need the right mix of skills, high levels of accountability and, in some circumstances, the willingness to reinvent their approach.
If there’s one man who is adept at navigating change on this scale, it’s Frank Blake.
For many years, Frank served as CEO and chairman of The Home Depot, an organization with almost half a million employees.
Prior to that, he served in a number of political roles, including as Deputy Secretary for the U.S. Department of Energy, and Deputy Counsel to Vice President George Bush.
Today, Frank serves on the board of directors for Macy’s and as non-executive chairman for Delta.
I’m Hannah Freegard, and in this episode we dive deep into the changing remit and structure of boards.
Hannah Freegard
As an experienced board director, what changes have you seen in the type of challenges that boards are facing? Do you expect these challenges to change?
Frank Blake
I put it in three different buckets. One bucket is there are a set of changes that were occasioned by COVID. So boards saw a more rapid pace of change than ever before. I serve on the Delta board and as an example of that, literally in February 2020, we were sitting around the boardroom thinking Delta was going to have its best year ever. And then in March, we were looking at a business that had lost almost 95% of its revenues, from a business perspective, overnight. While that's an extreme example, I think lots of businesses saw over COVID just dramatic shifts in customer behavior, dramatic shifts in the business environment, and management and boards had to work to address those shifts. So that's one degree of change.
The second degree of change is, just as you said, there have been increasing demands on companies, and therefore boards, to address issues involving more than their shareholders, involving broader societal issues — definitely environment, climate change, diversity and inclusion. There are a number of those issues that companies need to address, and boards need to address at a level very different than was the case 10 years ago. And then finally, I'd say just the general theme of disruption in business models. And you've seen that, I mean, that happens all the time, companies have always been faced with that. But the pace of disruption, the pace of change has accelerated completely. Even if you normalize for COVID, that's accelerated over the last decade. So a very different environment for boards and obviously management.
Hannah Freegard
You sit on the board of Macy's, which is one of the world's best-known retailers. And we know that during the pandemic, retail was one of the sectors that was really hardest hit by lockdowns. And also since then, that sector's been really impacted by the Great Resignation — difficulty finding employees. What challenges does that present to the boards of retail firms?
Frank Blake
The impact of COVID on retail was actually quite differentiated. So you had in a way, particularly in the first year of COVID to haves and have nots. Were you viewed as a necessary retailer or not? So if you compare the experience of Home Depot or, for that matter, Walmart or Target, all considered essential retailers, all remained open through COVID versus Macy's, which was not considered an essential retailer, who basically saw its business disappear for several months.
We can talk about the merits of categorizing businesses as essential or non-essential in that context, but it was definitely the case that Macy's had to adjust far more dramatically than, say, the retailers like Walmart, Target and Home Depot.
And you see all retailers now having to deal with the Great Resignation, as you put it, everyone struggling with what is the best way to attract talent and retain talent in a very different environment than existed pre-pandemic? And I think every employer is wrestling with the, "To what extent do I need my workers back in an office?" if they have workers in an office, "What do I do to make that move as positive as possible?,” and “How do I retain my workforce?" — because you're seeing continued high turnover and a lot of open slots.
Hannah Freegard
I was listening to the interview you did with Tim Ferriss. And you talked there about how, when you were the CEO of Home Depot, you used the inverted pyramid approach to leadership where it sees this CEO as serving the company, so at the bottom of the pyramid. And I was interested in hearing more about that.
Frank Blake
What you're referencing is the inverted pyramid where the CEO, or for that matter, the board, is at the bottom of the pyramid, and the employees and the customers are at the top of the pyramid. So it flips the way pyramids are usually presented in a corporate environment. My belief is that that is the most accurate reflection of how companies and organizations, for that matter, actually work. Which is when you're trying to accomplish something as a business, gravity isn't your friend. I'm always amused when I hear leaders talk about messages cascading down through an organization, which again, suggests gravity is your friend. Nothing cascades down. Everything is an effort to push a message up through the organization and to the extent you visualize it that way, you understand that actually that message and what you're doing has to be perceived as of value and benefit to the employees, and obviously most importantly to the customers. So I think it's equally true on the board side as it is in the management side.
Hannah Freegard
You mentioned earlier in our conversation, Frank, about the importance of diversity of backgrounds on the board to ensure that they've got that rich variety of perspectives and the skills that they need. Now, I know that you've held various roles in politics. How do you translate the experience that you gained in those political roles to the work that you do on boards now?
Frank Blake
The important thing for boards on the diversity side is to understand that there is a need for diverse representation. So the way I would phrase it is you want your employee base to be able to look at its board as well as its senior management and say, "Yeah, there are opportunities for me in this company, and this company has people around who I can look at and say, 'Yeah, gee, that person more or less looks like me,'" because we all have to acknowledge that we do have biases towards people who look like us. And so businesses have an obligation to get over that.
Hannah Freegard
What do you think are the biggest mistakes that boards are making at the moment, or the biggest mistake potentially that you've seen a board make?
Frank Blake
I think boards have an enormously important role in terms of ensuring that companies go through the right thought process. And whether the thought process is strategic planning, or capital allocation, or audit risks, or whatever it is, ESG, that the management's thought process is both there and thorough. In my opinion, though, boards also need to be conscious of the fact that if you put any group, name the number of people together, the instinct of the group, particularly a group of colleagues, is to come to a consensus. And to also understand that, from a business perspective, consensus is rarely right. That businesses really make a difference when they're often tilting against the consensus, and boards need to make sure that they are appropriately giving the space and management to do that.
Because if every major decision is a consensus decision, everybody will be relatively happy, but the company may not do well. And I think good board members understand, they give their advice and counsel, but with the exception of a few major issues, their dominant role is not to make the decisions for management. That is not the role, with a few exceptions.
Hannah Freegard
Do you think there's a risk of boards straying into that territory too much?
Frank Blake
Absolutely. I think if you ask every CEO, every CEO's periodic frustration with her or his board is that they think they're the decision makers. And they're not, and you can't expect that from people who interact with a company five or six times in a year for a couple of days. The CEO and management of that business are worrying about those sets of issues 24 hours a day. And so boards have to approach their task with an understanding of what they're there to do, and with a certain amount of humility.
Hannah Freegard
Fantastic. Thank you so much, Frank.
Frank Blake
No, thanks very much. It's a pleasure.
Leading the Future: Fred Diaz on the changing face of corporate boards
“EQ is every bit as important as IQ. And you can't have one without the other. The emotional intelligence that is required of leaders today is paramount.”
Fred Diaz is the former President, CEO and Chairman of the board for Mitsubishi Motors North America, and he currently serves on the boards of four U.S. companies. He believes that honest and open dialogue between directors, paired with diversity of thought and avoidance of “groupthink,” are critical ingredients in a company’s success.
In this audio interview, Diaz joins host Hannah Freegard to explore the importance of peer-to-peer evaluations, why socioeconomic diversity is vital and the components of a healthy board culture.
Hannah Freegard
Businesses today face a plethora of fast-evolving challenges, from navigating economic shifts following COVID-19 through to making sustained progress towards environmental and social responsibility goals.
Naturally, the board of directors plays a central role in helping firms to traverse this new territory.
For board leaders, the right skills and experience is key. And this is something Fred Diaz knows all too well.
Fred currently serves on four U.S. boards, including Valero Energy Corporation and the aviation and aerospace firm Archer.
He's also the former president, CEO and chairman of the board for Mitsubishi Motors North America, with a career spanning three decades in the automotive sector prior to that.
I'm Hannah Freegard and in this episode, we take a closer look at the skills and smarts that board leaders will need in the coming years.
Fred, you’ve said before that leadership has been one of the cornerstones of your career. What qualities do you think are essential to being a good leader? And how have you applied your leadership skills in that context?
Fred Diaz
Sure. EQ is every bit as important as IQ. And you can't have one without the other. The emotional intelligence that is required of leaders today is paramount. And certainly that your experience, your background and your IQ is really important too in order to be able to add substance and to be able to perform on a board.
I also believe that being a board member requires you to be the type of person that has no ego, that has a level of humbleness that comes with you and your leadership skills that have been honed over the years. You have to have that critical ability to listen and learn. Listen to your executive leadership team, listen to the other board members, listen to the other diverse opinions about how to address an issue, how to go forward with strategy. And if you're not open-minded and willing to listen and learn and truly understand the perspective of others, I don't believe you can be an effective board member today.
Hannah Freegard
It's clear that businesses are operating in very uncertain times following COVID-19. They face a range of different issues and obviously that increases the pressure on boards and means that directors have to take on new challenges. In your view, what are the most critical issues that boards are going to be dealing with over the next five years?
Fred Diaz
ESG has become a critical issue for all boards. And ESG from a committee and a board perspective has now become every bit as important as the audit committee function, the comp committee function and nomin gov function. Some boards today are even establishing a specific ESG committee to address the issues that come with that.
And of course, as is normal, boards today are constantly looking at their skills matrices to see where their gaps are, where their needs are, and determine what it is that the board requires in order to meet the needs going forward and where the gaps are so that we can find either functional leaders that can fill those gaps or find people with CEO titles, who every CEO at some point in time was a functional leader, but they also have that very broad and grand overview of how to manage all the functions and how all of those functions come together to play an orchestrated symphony.
Hannah Freegard
So when we spoke last time, one of the points that really interests me is you spoke about the importance of diversity of thought on a board and avoiding groupthink. And I'd love it if you could explain a little bit more about what diversity of thought means to you and how it can benefit the operations of businesses.
Fred Diaz
Yeah, diversity of thought becomes extremely important when on a board, sitting on a board and participating and performing on a board. It's important to understand that everyone comes from very different socioeconomic backgrounds. And those differing socioeconomic backgrounds provide a key diversity of thought when it comes to problem solving, strategic planning and, bottom line, making better decisions when and if your board is faced with a strategic dilemma.
Hannah Freegard
Do you think that's increased in importance following COVID-19 and obviously, some of the geopolitical situations we're seeing at the moment with the environment getting more complex out there? I would assume that that diversity of thought becomes even more critical.
Fred Diaz
You're absolutely right. And I believe since COVID and post-COVID and even to a degree before COVID, I believe companies and corporations are starting to really understand that it's helpful to have a full spectrum overview and understanding of their consumer base. And when you have this diversity, whether it be gender, racial, ethnic, age, whatever it may be, it becomes important to truly understanding your customer base.
Hannah Freegard
I imagine that must require quite a high degree of trust on the board as well if you're giving those kind of peer-to-peer evaluations and feedback.
Fred Diaz
That level of trust that exists within boards, that honest desire to be a good director, to perform as a good director, and the willingness to take constructive feedback or praise, whatever it may be. And that level of trust has to exist within a board in order for it to be successful or feelings can be hurt, people can take things the wrong way. And it needs to be understood amongst the board that we're only doing this to make sure that we are doing everything that we can as board directors to better ourselves in order to lead and be able to help with the oversight of the executive leadership team.
It's not easy. I'm very fortunate to participate on boards that have these meaningful discussions and honest and open dialogue, and not just with annual or biannual evaluations. These are dialogues that take place sometimes within a meeting and sometimes outside of a meeting when taking a break or at lunch or at breakfast or dinner, whatever it may be — hallway conversations. I think those intimate pieces of feedback that take place amongst board members is often very, very important.
What I love most about serving on boards is that you take best practices from one board and you can share those best practices with your other boards. And that I think is where I think it's a holistic, enriching experience for board directors and also for making each one of the individual boards better.
Hannah Freegard
There’s been so much discussed recently about the importance of company culture and how that pertains to employee wellbeing and the impact that the organization has on different stakeholder groups. And I was wondering, in your view, what role does the board play in influencing organizational culture?
Fred Diaz
Organizational culture is really important and what I find is that, at least in my particular situation, the culture of the board, and it's always a question I ask when interviewing for the ability or possibility of being able to join a board, I always ask what the culture of the board is and how that culture coalesces with the culture of the executive leadership team. And then beyond that with the management team and the other employees that are within the company.
And I have found that where the cultures are similar but also healthy, that those boards and companies are the best-performing boards and companies.
Hannah Freegard
And would you mind commenting on what you feel are the kind of qualities of a healthy culture? Is there anything that stands out to you?
Fred Diaz
I think that the biggest thing that stands out to me in a healthy culture within a board and leadership team is when you can have very honest and frank dialogue about issues, concerns, problems, whatever they may be, and that you can express those concerns and those differences without any fear of hurting somebody's feelings. Of course, how you structure your comments is really important. The ability to feel like you can walk into a board meeting, express issues or concerns that may be different from everyone else on the board or maybe similar to everyone else on the board.
But I think it's having that freedom of being able to express your feelings, your thoughts about something with an open dialogue without sitting in your chair and saying, "Oh my god, should I say this or should I just hush my mouth and not say anything and let it go on?" I think those are the dialogues that make for a really, really healthy board dynamic.
Hannah Freegard
Thank you so much, Fred. That's been a great conversation. I really appreciate your time.
Fred Diaz
Thank you for having me on your program.
Navigating Complexity: Mike Calbert on the capabilities that will empower today’s boards to succeed
“The role of a public company board member has become much more complex, not just because of COVID, but because of expectations of shareholders as to the role of the board. It's a much more holistic set of responsibilities from a governance perspective.”
His experience of serving on the boards of companies including PVH and Dollar General has given Mike Calbert a deep understanding of the skills and attributes that make boards successful.
In this audio interview, Calbert is joined by host Hannah Freegard to discuss the capabilities that today’s boards need most, the changing role of the chair, and why early succession planning is vital.
Hannah Freegard
Across sectors, today's boards face a series of unexpected and unprecedented challenges.
To respond effectively, they need the right mix of strategic and domain skills, increasingly high levels of accountability, and in some circumstances, the willingness to completely reinvent their approach.
Joining me today to share his insights on this is Mike Calbert.
A highly experienced board director, Mike currently chairs the board of PVH, which owns brands such as Tommy Hilfiger and Calvin Klein.
Mike is also a member of the board of Dollar General, which operates more than 18,000 stores in the U.S.
I’m Hannah Freegard, and in this episode, we take a close up look at the evolving relationship between boards and the companies they serve.
Mike, in our last conversation you mentioned that the priorities for boards had shifted quite dramatically as a result of COVID-19, and that board directors now need to focus on issues such as how to manage changes to the workforce post-COVID-19, for example, bridging the talent gap, and then alongside that, addressing issues such as environmental and social responsibility and cyber security. So, it'd be really helpful if you could start by giving me a sense of what's front of mind for board directors at the moment.
Mike Calbert
I would step back and suggest that the role of a public company board member has become much more complex, not just because of COVID, but I think because of expectations of shareholders as to the role of the board. It's a much more holistic set of responsibilities from a governance perspective. So, it's not just about ensuring shareholder return, but it's also looking at all the other constituencies that companies are responsible for. And large institutional shareholders have pushed on the responsibility of the board, even pre-COVID.
I think you touch on COVID. I think the key risk that COVID brought out really was around human capital management and how do we ensure that we're doing the right thing by our people during an environment of unprecedented disruption and risk. I think it brought on a heightened sense of governance over enterprise risk as it related to COVID in the operations of companies. So, I think it's just a much more complex governance environment today, not just because of COVID, but I think, really driven by expectations of large shareholders.
Hannah Freegard
That complex set of challenges must require, I imagine, a much broader range of skills. So, looking at things like the different stakeholder groups, particularly if we’re looking at environmental issues, for example, that requires quite specific domain expertise to manage issues such as that. So does cyber security, human capital management. On the boards that you sit on, how are they recruiting the right skills to manage those complex challenges while also maintaining that strategic oversight and those high-level skills?
Mike Calbert
I would say first and foremost our role is one of oversight. First order of business, at least from my perspective, is to make sure that the management team is equipped with whatever skills are necessary in this evolving, complex operating environment. But from a governance perspective, I think the conversation has gone from, "Does this potential board candidate have public company board experience?" To one of, "What specific skills do we need to provide oversight on either an evolving enterprise risk, or a changing operating environment?"
So, probably the best example I can give you is cyber security. Ten years ago it certainly wasn't a focus at the board level that it is today. And so, the question during the board refresh process is, "Do we need somebody at the board level who has that level of domain expertise around enterprise risk and cyber security?" Or, it just could be IT risk more broadly speaking. And so, I think we're trying to build boards now that have a level of expertise so that we feel comfortable providing the oversight on the changing environment as well as the changing expectations. And so I think you'll see, if you look at public company boards today, I think you'll see more people serving on their first public company board, but bringing to that board a set of experiences that didn't exist in the past.
Hannah Freegard
And one of the things that we spoke about on our last call was the role of the chair, and I'm really interested to delve a little deeper into this, because I know you chair two boards of very large organizations. What skills do you think are required to fill the chair's role successfully in that increasingly complex environment? I'm just imagining what you've said there around, the board's much more accountable, it's dealing with broader issues. That must increase the pressure on the chair to manage that effectively.
Mike Calbert
I think it's a balancing act of making sure that you're driving the right level of oversight that our shareholders demand, while allowing the management team to run the company. And it's not a black and white line in terms of, at what point are you getting into too much detail at the board meeting or overstepping your boundaries as a board member.
And so, I do think whether it's a lead director or a chairman, I do think there's a really important role that is helpful to the management team in that they don't have to manage the company and manage the board and manage the shareholders. They manage the company and report to the board, and the lead director or chairman takes some of that burden off of the management team in terms of interacting with shareholders, understanding shareholders' demands, and then making sure that the board is appropriately organized and focused on the right set of issues coming out of that conversation.
Hannah Freegard
What do you see as the biggest mistakes that boards tend to make today, if you were looking at companies at the moment?
Mike Calbert
I don’t know that there’s anything that jumps to mind as mistakes that boards are making. I think if there's any regret boards have, it's typically not getting focused on or starting some process soon enough. And the most important job of the board is getting CEO succession right, I think. And I think it's easy for boards, particularly if you have a high-performing CEO, everything's going right, and it's easy for a board to not focus on succession because you have such a wonderful leader in place, in the seat. And then that leader raises his or her hand and says, "I'm ready to retire." And you look back and say, "Gosh, I wish we had three years to develop an internal candidate or three years to define what we want in a leader and to start a search." Whatever that looks like for the individual company.
So, it's probably one of timing, not one of not understanding the risk or issue, but getting started on these things sooner.
Hannah Freegard
Do you think boards are looking for different qualities in CEOs today than they maybe were say, 10 years ago? Are the range of skills or attributes changing?
Mike Calbert
Well, I think the easy answer is yes, absolutely. And I think it's somewhat parallel to the evolving demands of the board. The CEO's board, because shareholders have different expectations, board have expectations of CEOs that are broader, more complex than just producing results. And so, I think you need leaders today that can deliver on multiple fronts, whether it's delivering to the communities they serve, delivering to the employees that are in the organization.
I think it's just a broader set of expectations of leaders today. And I would tell you, when I engage with leaders of the organizations I serve or leaders outside the organizations, they have evolved quite dramatically over the last 10 years, as the boards have. So, they have a different mindset in how they approach their job, what they're there to do every day. And I would argue that I think COVID also really shined a light on just how important other issues, other risks are, for the CEO to manage than just financial performance. It wasn't optional in terms of how you take care of your workforce, as an example. It wasn't optional in terms of how you manage your supply chain. So, I think CEOs have done a wonderful job during COVID in that balancing act. And again, I think they've come out of it probably with a different, as boards have, with a different level of appreciation for the expectations.
Hannah Freegard
Thank you so much, Mike. That's been a great conversation. I really appreciate your time today.
Mike Calbert
Hannah, thank you for having me.
Shifting Priorities: Wayne Hewett on why values should be the firm’s North Star
“ESG is front and center in every board I'm on,” says Wayne Hewett, who currently serves the boards of UPS, Wells Fargo and The Home Depot, among others. “But there’s still a lot of work to be done.”
Hewett believes that ESG and diversity are two of the biggest issues that boards are grappling with at the moment. Choosing the right approach is vital, and will have a profound impact on the future of the organization.
In this audio interview, Hewett joins host Hannah Freegard to discuss how boards are strengthening ESG and diversity, the impact that this has on organizational culture and why values should be the firm’s North Star.
Hannah Freegard
To thrive in today’s fast-paced business environment, companies need dynamic groups of people at the helm. A board of directors with a variety of skills, experiences and backgrounds not only strengthens business performance, it also makes a company more attractive to current and future employees.
This is something that Wayne Hewett knows all too well. Wayne currently sits on the boards of UPS, Wells Fargo and The Home Depot, and he chairs the board of pharmaceutical manufacturing firm Cambrex.
I’m Hannah Freegard, and in this episode, we shine a spotlight on ESG and diversity in the boardroom.
I'm really keen to speak to you about ESG, and how boards are managing the increasing importance of issues related to ESG. Particularly in the media recently, we've seen things around really important social issues, around diversity and inclusion, we've obviously got the climate crisis accelerating alongside that. In the boards you sit on, do you see those issues as becoming a higher priority?
Wayne Hewett
Absolutely. I think that every board I'm on is increasing the amount of time that we spend on ESG. In some cases, we would talk about it as independent disparate topics before, and now it's all coming together under the ESG umbrella. But in terms of the focus, absolutely. And all it really stripes a bit because there's the internal component of ESG, there's a shareholder component of ESG, there's also just the external component of ESG, the communities that we all do business in. So yes, I still think that we're in very, very early innings. So some organizations have been very, very clear in terms of their goals for 2030 and in 2050. Some would have a clear pathway or at least an initial blueprint, if you will, as to how to get from here to there. Some are more advanced than that, some obviously understand Scope 1 and Scope 2 much better than Scope 3.
So there's still a lot of work to be done. People are struggling with, do you have a separate ESG committee? And some companies have gone down that path. Some companies have gone down the path of if ESG is so important, isn't that really should just be the board agenda as opposed to be delegated to a committee? So everyone's still trying to figure this out, and there's clearly no right answer. And I'm sure over time that we'll continue to develop and hear about different approaches and different best practices. But to your question, ESG is front and center in every board I'm on.
Hannah Freegard
So what does this mean for diversity, and how have you seen this impact the businesses that you serve on the boards of?
Wayne Hewett
If you think about the workforce today, the workforce today is so much more diverse than even when I was actually starting out and working, which in my case was approximately 30 years ago. And I remember a CEO I had many, many moons ago talking about diversity, he actually grew up as someone who was Irish, and for him diversity was a difference between Protestant and Catholic. And clearly, today the definition of diversity is just so much more in every single facet, and continues to expand. So for me, on the board, on every board I'm on, we take it extremely seriously.
And I’ll just give you a couple of examples in terms of having diverse points of view. I remember once, there was a very, very talented person of color and there was a big, big, big, big promotion. And every time that this job was open, for whatever reason, she kept getting overlooked, and somebody else went into the position and they'd fail.
And finally, I looked at the CEO and I said, "Why not this individual? Why don't we give this individual a chance?" And the CEO said, "Wayne, I'm really, really happy you brought that up. And let's just have a conversation about it." And we just had a conversation about her strengths, her weaknesses and so forth. And lo and behold, he ended up making the decision to put her in the role, and now she's a superstar in the role, and several promotions later, is continuing to flourish. So I just think that having diverse points of views in a boardroom can just help CEOs and leadership teams think about things a little bit differently.
Hannah Freegard
That's a really nice segue to the question I wanted to ask you next, which is about how diversity on the board links to diversity in the organization. Is that a reinforcing relationship in the sense that if you increase diversity on a board, in your experience, does it tend to help increase diversity within the organization, and vice versa as well? What do you see as being the relationship there?
Wayne Hewett
I completely agree, and I'm young enough that I still remember when I was in the workforce. And I know how important it was to me to look up and look at someone on my board who, in my case, happened to be African American. And obviously, at first, you think that person is just so far away from you, and is obviously a great role model, and you're great and you aspire to be that. But then over time, I started to develop relationships with those individuals. And you just start to get to know them, and it just made you much more comfortable as an executive. And you just had more and more confidence that, you know what? I too can get a fair shot as an employee.
So I actually see it from both sides. I knew what the impact it had on me, going through the ranks, and I definitely know that on all the boards that I sit on, I've gotten very, very similar feedback from the employees in those organizations, where they're just proud of the fact I'm there. It means something to them, it sends a signal to them that they too have an opportunity to progress. They know that there's somebody who is in the boardroom who is sympathetic to their issues and their concerns. So yes, I would completely agree that I think it really goes both ways in terms of helping to make an organization more attractive for incoming employees. But also I think it goes a long way to help to retain the employees that we currently have in those respective organizations.
Hannah Freegard
We've been through some quite intense periods recently that have brought about huge challenges for organizations. Do you think that's changed at all how the board operates in terms of how it works with the management team?
Wayne Hewett
One of the big decisions that a board is responsible for is succession planning. A: are you happy with the current CEO? And at whatever moment in time that a change is required of a CEO, who will be the next CEO? And for a board to do that, I've learned that you have to have exposure to the management team because you have to say, is there anyone in this company who I think should be the next CEO, or are we in a situation that there's no one in the company? Now, if there's no one in the company, hopefully you can do it far enough in advance to work with the CEO and get someone into the company so that you can start to groom somebody to be their successor, or you have to go outside.
But to really do that, you need exposure to management. And the best practices I've seen are companies that give exposure of management to the board, not only in the boardroom, because that should just happen naturally in a boardroom, but also create opportunities for the management team to be exposed to the board members outside the boardroom. Now, you need to do it the right way because this is not about trying to micromanage — that's not the point. The point is just get to learn about individuals and understand how they think and get a perspective. So that's clearly a best practice that I've seen. And I think that with COVID that was hard to do, or harder to do. Yes, you tried to do that with Zoom but just not the same. I do think that as we get back into the more normal world, however you want to define normal in a post-COVID environment, we'll see more and more of that.
Hannah Freegard
Now, some of the issues that we've talked about today really relate to how organizations define their core values and purpose. And obviously to some extent, the board is part of that, defining the core purpose of the organization. And one thing that I've noticed in the media recently in particular is there's almost been, with all of the political events that have been happening, more pressure on organizations to take a particular standpoint on some of those issues, be that from their customers or from their employees. Do you see that happening? Do you see boards grappling with the, "Do we need to take a particular stance on this issue?" or become more involved from that perspective?
Wayne Hewett
There is no doubt that there has been more pressure on companies, be it at the executive level and/or at the board level, to wade into topics that 50 years ago probably wouldn't have even made it to the boardroom. But I think every company has got to figure out what makes sense for them. There's no one size fits all. And there's so many different pressures because it's not just about the external, or I think you use the word political, pressures from the outside. But employees today, they want to understand how companies feel about certain issues. But you have to be very, very thoughtful as to, first of all, can you take on every issue? The answer is no, so you've got to figure out which issues are the ones that are worth weighing in on and which ones, for whatever reason, they're not really critical for company X. And then really think very thoughtfully about what positions you end up taking.
And I found that having those debates, going back to diversity, what we talked about earlier, having a lot of diverse points of views, thinking through, one of the things I'm really big on is a law of unintended consequences. So really thinking through, "Okay, let's really pressure test these positions. If we're going to take a position. Why? How?" Sometimes, as they say, "What's that really, really narrow, fine line that you're going to go try and walk?" And in my view, the quick reactions, almost the knee-jerk reactions are the ones that are most problematic. Because it may sound good today, but then a week from now or a month from now, you say, "Well, why did I position myself that way or have the company positioned a certain way?"
So I go back to the values of a company. And I think you have to make sure that the values of your company help you to think through what decisions and which of these topics you get involved on.
Hannah Freegard
Fantastic. Thank you so much, Wayne.