A Message from NACD’s CEO to Our Members

Each year I find myself declaring that the profession of directorship has become more challenging than it was in the previous year. I believe we’ve now reached the point where we should recognize this escalation as the status quo, not an annual anomaly. The Securities and Exchange Commission’s director qualification disclosure requirements, the advent of proxy access, and the increasingly public role of shareholder activists have contributed to a business environment in which directors’ qualifications and performance are continually scrutinized.

NACD’s mission is to help directors lead with confidence—and to foster stakeholders’ confidence in their directors’ ability to effectively serve their companies. I’d like to highlight three critical issues that we believe directors—of all company types—should focus on during the year ahead.

1. Director Awareness

The dramatic slowdown in China’s economy, plummeting oil prices, recent terrorist activities, and the rise of the digital economy have put a fine point on the need for directors to be aware of disruptors that may cause a drastic change in sea conditions for their organizations.

No one can be expected to anticipate every potential disruption. (Who could have seen Uber idling around the corner?) But foresight comes down to one deceptively simple practice: asking the right questions. Are board members exploring the possible impacts of a terrorist act on the company’s supply chain, investigating their organization’s vulnerability to a cyber attack, or considering new competitors that can bring products to market faster than ever before and with nominal investment?  Throughout 2016 our NACD Directorship 2020 initiative will continue to focus on disruptive forces, putting a spotlight on the issues that may affect your companies in the years to come.

Suggested NACD Resources:
Environmental and Innovative Disruption: What Directors Need to Know
Leveraging Social and Demographic Trends

2. Shareholder Activism

It goes without saying that activist investors have gotten our attention. A record-setting 355 activist campaigns were announced in 2015, including 33 against Fortune 500 companies. Last year was also a record year in terms of activist campaigns resulting in board seats—127 resulted in at least one board seat for the activist or the activist’s appointee. Our own annual survey of public-company directors found that 20 percent of respondents’ boards were approached by an activist investor in the past year. But nearly half of respondents reported that they are unprepared for an activist challenge.

Activists aren’t practicing black magic; they are performing effective due diligence and smart analytics on their holdings. Boards need to think like activists and anticipate the issues these investors may raise. Do your company’s metrics fall outside industry norms? Does your board composition have any perceived weaknesses? Do you engage with management about the assumptions that undergird your company’s strategy? In 2016, NACD will continue to provide resources that can help your boards to anticipate—and respond to—emerging issues.

Suggested NACD Resources
Identify the Enemies of Effectiveness and Think Like an Activist
Investor Perspectives: Critical Issues for Board Focus in 2016

3. Mergers & Acquisitions

M&A activity reached record levels in 2015. Given this phenomenon, it’s more critical than ever that boards understand their role in M&A. We believe it boils down to readiness and oversight.

At any given time, directors may need to consider either the sale of their own company or the purchase of another company. The board must carefully weigh all opportunities to buy or sell as part of its routine corporate oversight. Be on the lookout for NACD’s new M&A Board Resource Center, which will be available later this quarter. The center will serve as a one-stop shop to help boards participate effectively in the evaluation of proposed M&A transactions.

Suggested NACD Resources
FAQs on the Role of the Board in M&A
Recorded Webinar:  The Extent of the Board’s Role in M&A

NACD Cyber Summit
On a final note, I’d like to call your attention to the 2016 NACD Cyber Summit, which will be held on June 15 in Chicago. With Congress now considering passage of a bill that would require companies to publicly identify the “cybersecurity experts” on their boards, scrutiny of the board’s role in cybersecurity oversight has never been greater. This year’s Cyber Summit will equip directors and management with the tools they need to foster cyber resiliency and confidently oversee cyber-risk management.

If you would like to receive additional resources on the three issues mentioned above or more information about the Cyber Summit, I encourage you to contact your dedicated NACD Concierge. If you have not yet had a chance to meet the concierge assigned to you, give us a call at 202-775-0509, and we’ll connect you.

Thank you for being an NACD member. I wish you a successful year ahead.

Sincerely,

Ken