When NACD was founded more than 40 years ago, one of our mantras was “nose in, fingers out.” John Nash, Ron Zall, and other director education pioneers at NACD were teaching directors to oversee management without getting too involved in it. Governance (also known as oversight) was considered to be very different from management (also known as operations). Directors were to keep their hands off the company’s steering wheel.
During that same era, in perfect parallel, federal securities rules (under Section 14a of the Securities Exchange Act, to be exact) identified certain topics as off-limits for proxy resolutions because they were deemed to be about ordinary business and not proper for shareholder votes. When companies have asked for permission to exclude such proposals, they have received assurances that the US Securities and Exchange Commission (SEC) would not take action in so-called no-action letters.
However, in recent years the formerly sharp separation between governance and management has blurred. To keep pace, NACD’s courses today focus on a wide range of topics, and the agendas of our educational events, in-boardroom programs, and local chapter events are rooted in helping directors lead with confidence in the boardroom. While our programs historically focused primarily on the core duties and responsibilities of directors, our programs today help translate the unknown into the merely uncertain, and no topic is off-limits for our educational programs if it matters to long-term company value. For their part, regulators have taken the stance that shareholders should be able to propose resolutions on any topic of strategic importance; these are no longer excludable under Section 14a.
What happened? From my standpoint, the sharp increases in both innovation and risk moved the needle for board involvement. This is why discussions with corporate directors about topics such as the intersection and convergence of cloud, mobile, and social media have evolved from “those are management topics” to “I need to know how emerging technologies are impacting our business.”
We’ve seen how Airbnb has transformed the hospitality industry, how Uber and Lyft have transformed the transportation industry, and how Amazon has transformed retail and health care via its acquisition of Whole Foods Market and their partnership with JPMorgan Chase & Co. and Berkshire Hathaway. All of these stories exemplify innovation.
The plot thickens when we add regulation to the mix. Many of our discussions with boards and directors today are focused on understanding the convergence and intersection of innovation, risk, and regulation. Consider Getaround, which is leveraging the sharing economy to enable car owners to rent their cars to others for income and provides on-demand car rental insurance. To accomplish this goal, the founders of Getaround needed to work with financial services regulators to create insurance policies that would enable their business model. Getaround’s model is now working, so to the directors who oversee Hertz, Enterprise Rent-A-Car, and National Car Rental are now asking management, “How are you going to evolve?”
Finally, we have seen how cryptocurrencies and blockchain—which are rooted in the intersection and convergence of innovation, risk, and regulation—are creating, disrupting, and enabling industries. In response, we are seeing how both the SEC and board members are playing catchup.
All of these examples are reflected in a recent NACD survey showing that industry disruption tops directors’ lists of business concerns. In such an environment, directors may well keep their hands off the wheel, but they will be standing at the tiller right beside management, offering encouragement and wisdom, and asking more than a few questions.
What’s next for directors and boards? My suggestion is to keep learning.