Poll of Directors Reveals M&A Challenges as COVID-19 Persists

During this time of global health crisis, disruption, and uncertainty, 86.1 percent of directors say that the COVID-19 pandemic has affected their ability to pursue, finance, and close merger and acquisition (M&A) deals, according to the 2020 NACD/Deloitte M&A Poll, conducted for a second year to explore trends in the board’s role in the M&A process.

This year’s results include feedback from 178 directors who responded to an NACD email request between August 5 and 25, 2020 seeking their participation. While the survey results reveal the effects of COVID-19 on M&A activity, they also provide insight into the most important related risks for directors and the areas in which boards may have to evolve to offer adequate oversight of the M&A process.

The Pandemic Alters M&A Closings

With a majority of respondents saying that COVID-19 has affected their ability to pursue, finance, and close M&A deals, more than one-fifth (20.8%) of poll takers say it has “significantly” affected their ability to close deals. Amid this difficult M&A climate, 67.2 percent of respondents agree that there is now a greater role and opportunity for nonexecutive board members to lend their previous experience to management during M&A discussions.

Fortunately, most boards appear to have the experience necessary to provide such guidance to their C-suites, as the vast majority of respondents (96.4%) say that their boards already have one or more directors with some background in M&A.

Nevertheless, in these trying times, some boards are seeking reinforcements. More than a quarter of respondents (26.1%) indicate that their boards have considered bringing on new members with specific expertise in M&A.

Boards already play a critical role in the M&A process, overseeing the various risks associated with any deal. Of the key risks related to M&A transactions that board members concern themselves with, respondents deem valuation (e.g., the risk of overpaying) and value realization (e.g., synergy execution) the most important.

Other notable key risks include hidden liabilities and those associated with change management and culture. More than one-third (32.1%) of respondents indicate that their boards will have to evolve how they provide oversight to address the major risks inherent in the M&A process, including in the three areas below.

Nonfinancial Metrics Lacking

The aim of any merger or acquisition is to achieve sustainable growth. While it is essential to monitor important financial metrics (for example, metrics associated with financial statements prepared using generally accepted accounting principles), such metrics may not provide a complete picture of a merger or acquisition deal. Key nonfinancial metrics related to culture, community support, brand health and reputation, and sustainability may add to the picture and have even gained in importance during the pandemic. The COVID-19 outbreak has cast a spotlight on the efforts organizations have made, or the lack thereof, to be better corporate citizens.

In addition, a focus on sustainability is increasingly associated with resiliency to new and atypical risks, such as climate change. Only 31.8 percent of respondents, however, indicate that nonexecutive directors receive information on the merging or acquired companies’ progress against nonfinancial benchmarks through the close of a deal.

According to NACD’s “Strengthening Oversight of M&A” installment in its Director Essentials series, a relevant question boards may wish to ask is, “What metrics will the board use to measure the transaction’s overall success?”

Integration Strategy Needs Oversight

This year, a larger proportion of respondents indicate that their boards will hold management accountable for integration strategy (93 percent this year, compared to 84 percent last year). So close to the finish line, it is at the integration stage that many organizations notoriously trip up and the prospective benefits of a deal are lost. As organizations endeavor to realize the prospective value of a given merger or acquisition for stakeholders, it behooves boards to remain vigilant and monitor management, even after requisite signatures are affixed to the dotted line.

Questions for the board to ask include: do we have the right mix of leaders from both companies to lead the post-integration effort?

Pre-close Process Commands Board Attention

Finally, the majority (58.7%) of director respondents believe that it is likely that the acquisition pre-close process will be subjected to increased levels of scrutiny by shareholders and regulators in the coming months. It is thus critical that boards ask the right questions at this stage, such as the following:

Under state law or our bylaws, do shareholders need to approve this sale?
What authorities need to be notified of this transaction and when?
Does the transaction require regulatory approval, and what are the arguments for and against it? How strong is our position?

Even before the outbreak of COVID-19, many companies were struggling to adapt to trends such as exponential technological change and the reinvention of industry and business models. One efficient way for companies to adapt is to acquire new capabilities via M&A transactions. As such, executive teams will continue to rely on their boards’ guidance throughout the deal process both today amid the pandemic and beyond into whatever new normal the future holds.

NACD: Tools and resources to help guide you in unpredictable times.

Evolve Risk-oriented Roles and Their Effectiveness Using the Three Lines Model

The Three Lines of Defense framework has long been used to help organizations manage risk. The Institute of Internal Auditors (IIA) recently developed an updated version, the Three Lines Model, to reflect changes in risk management and governance over the years, including the idea that risk management goes beyond simply defending or protecting value. In fact, effective risk management involves proactively addressing risk and creating value.

In a recent Baker Tilly webinar, “Leveraging the updated IIA Three Lines Model for greater organizational resiliency,” my partner Jonathan Marks, firm leader of our global fraud and forensic investigations and compliance practice, and I discussed how this framework can benefit all organizations. Of particular interest to governing boards, the model can help an organization to improve its oversight and monitoring of key risks by more clearly articulating the risk-related roles and responsibilities of the board, senior leadership, risk-related functions, and internal audit capabilities.

No matter the size or industry, every organization manages risk and pursues compliance to some extent—but how effectively? Some companies operate well without formalized risk-oriented functions; but most, and especially growing organizations, benefit from assigning responsibility and accountability to support collaboration and the identification and mitigation of risks that could impact achievement of the organization’s objectives.

The Three Lines Model helps leadership, including boards of directors, see the delineation of roles and responsibilities along the “three lines”: day-to-day management, risk oversight and monitoring functions, and risk assurance-oriented functions, such as internal audit. It also provides a customizable framework upon which to build your organizational understanding of and approach to risk management and monitoring functions. This includes how the organization effectively interacts, communicates, and collaborates between and within each of the three lines. Visualizing how these capabilities work together and address their respective areas of influence can help to identify functions in need of role clarification to ensure no unnecessary duplication or overlap, and any gaps in organizational risk oversight.

In a time of rapid change, clarity around enterprise risks, risk ownership, and risk-related roles and responsibilities can help to support rapid decision-making and prevent organizational risk information from becoming siloed. Becoming a more risk-resilient enterprise requires communicating where the organization is in relation to managing and overseeing risks, where it is going, what risks it’s facing, what challenges management is tackling, how the strategy is changing, what the competition is doing, and how all of these elements affect the organization.

In considering whether to use the Three Lines Model to take a closer look at the organizational risk-management structure, boards and senior leaders may wish to consider asking the following questions:

To what extent have we clearly internally articulated the interrelationships among our risk-oriented functions?
When the business must adapt quickly to address factors beyond its control, to what extent does the organization leverage enterprise risk information to inform decision-making?
Might a greater degree of formalization and clarity around risk- and compliance-oriented roles support strengthened decision-making and the pace of company-, industry-, or market-wide disruption and transformation?

After a year of novel, unpredictable, and ever-present sources of stress for businesses that may only be more dynamic in the year ahead, leveraging the Three Lines Model to evolve a more harmonious risk-management structure, with clearly defined roles and responsibilities, can better equip organizations to respond to these stressors as a united and collaborative whole.

Raina Rose Tagle is a partner in the risk advisory practice at Baker Tilly.

NACD: Tools and resources to help guide you in unpredictable times.

Continue Enhancing Developmental Efforts to Excel in 2021

The conclusion of 2020 marks a year memorable in many ways.  The end of the year will not miraculously resolve challenges experienced throughout, however, it does provide an opportunity to harness this experience in preparation for the future.  This year all organizations have had to strategically rethink the way they do business.   Leaders learned to reach their teams in new and novel ways and employees approached their work from unfamiliar context and perspectives.  As we enter the new year, take advantage of the notion that “change begets change”.  Seize this opportunity of transition to create an ecosystem in which your employees, and hence your organization, are poised to succeed now and into the future.

Just as your organization is unique, every employee is in a different phase of their journey with distinctive challenges and opportunities.  Successful organizations are examining the complete employee lifecycle to align and add value at each step along the way.  By focusing on individual needs and targeted growth, investments in employee development produce greater engagement, productivity, and return.  Career Partners International delivers human capital consulting programs across the globe at all levels of the organization.  Below are just a few examples of ways in which our CPI Partners help their clients chart a successful course for the future, even during the uncertainties of today.

Executive CoachingIt’s no secret that 2020 has upended how people relate and integrate to get work done.  Digital markets, consumer behavior, leadership development, and general workplace processes have been disrupted by cats walking across video screens, children interrupting negotiations or planning sessions, and even lost connections to critical server-held documents.

What has not changed in 2020 is that people must pivot; leaders just need to pivot more quickly.  Our talent development practice has paid close attention to supporting leaders who have had to hold things together on a grand scale, make incredibly difficult decisions around remote work and employee well-being, and navigate turbulence like never before.  Here are three specific behaviors our executive coaches have found critical for leaders to harness and leverage if they hope to be successful in the future.

Listen more.  Our current environment has proven that people will step up and step in when their voices are heard.  The current style of interacting in a “zoom room” has opened the door to incredible innovation.  

Get comfortable with intimacy.  Having visibility into peoples’ homes and moods is the new normal.  Boundaries are more fluid as we seek to truly embrace diversity, equity & inclusion.

Build trust and transparency. Remote work and easy commutes are here to stay.  Leaders must over-communicate and lead with integrity knowing that individuals and teams will rise to the occasion when trust is there to get work done.

Adena Johnston, D. Mgt.Master Corporate Executive CoachVice President and Practice Leader, CCI Consulting

Professional DevelopmentMany of our clients are looking for new and innovative ways to support the development of their employees to create a better employee experience, build stronger engagement & retention, and identify new leaders across their enterprise. Using our PowerAmp Coaching approach, we have provided clients with a solution that combines high touch live coaching with an AI based technology platform that allows them to bring development to a wider range of employees within the organization.

Our clients are using this solution to provide development skills for those employees who would not normally be selected for leadership coaching programs yet need to be strong in their roles as leaders within teams, across networks, and in their daily activities.  PowerAmp Coaching is also being used to identify employees who are most interested in their career development, ensuring returns on investment.   We are working with organizations to integrate this solution into high potential programs, greatly reducing the risk of spending development money on employees who are not willing to invest in themselves.

The way we work has changed significantly over the past year; PowerAmp Coaching provides a great opportunity to bring forth leadership skills at a large scale on a virtual basis.

Larry FisherVice President, Career Transition & Executive CoachingThe Ayers Group

Retirement CoachingWhat a challenging time we live in!   Many individuals have been faced with a career change they were not expecting, which often leads to a major point of reflection on the future.  For those between 50 and 70, it is especially difficult to determine what is important in life, beyond their traditional job.  The New Horizons LifeOptions-Lifestyle Planning program provides an ideal platform to help participants plan beyond just the financials of retirement, should it be in the next 15 days or next 15 years.  Retirement is a key milestone of the employee lifecycle and organizations that support their employees in preparing for this journey have found greater engagement, increased transparency, and stronger succession planning.

Coaching a future retiree with New Horizons provides them with the opportunity to learn new things about the journey which they are about to embark as well as confirm their predetermined thoughts about retirement; both are important.  During the assessment phase of the program considerable time is spent understanding that our past job was, for many of us, the total embodiment of who we are to ourselves and to our community. For many this means re-inventing oneself and discovering other aspects of life we love. For others, this means accepting that we are more than the subject matter expert in an industry, we are a grandparent, a friend, a yoga lover, a woodcarver, a whatever.  Some have gone on to “encore careers” matching their passion with interest; a Supply Chain Director who took on piano lessons, a Data Analyst opening her own catering company, an HR Training Manager volunteering to teach reading in the inner city, and many more.  By shifting the vision of retirement to an opportunity, rather than a looming and uncertain inevitability, employees can become more engaged and involved in their own succession exit. New Horizons are out there to be explored…now more than ever!

Gregg LevineSr. Career Transition ConsultantRatliff & Taylor

Career ManagementAs we approach the new year, many firms are looking at new and compelling ways to enhance employee experience.  Talent is feeling overwhelmed, disconnected, and at risk of burn-out.  Driven by trends related to a new social contract, an ever-evident war for talent, and rapidly changing environments, employees are hungry for more transparency and support related to career growth and development.  In fact, research from Fuel50.com shows that a staggering 81% of employees feel that their skills are not being fully utilized at work.  As talent leaders consider investments for next year, providing scalable and accessible access to insights, coaching, and mentorship support and learning opportunities will be key to satisfying this pervasive demand.

To add to this, research still shows that organizations are more inclined to hire externally, even though the data shows the merits of looking internal first.  This parallels research that shows only twenty-one percent of respondents believe their managers have the skills required to help employees develop their careers. Forty-six percent of survey respondents from a recent Deloitte survey say managers resist internal mobility.  Coaching and feedback are now table stakes competencies for leaders to do the important work of engaging and growing talent.  Investing in coaching, feedback, and productive conflict skills is essential to building or enhancing career agile cultures.

Liane TaylorCareer Engagement Practice LeaderThe Talent Company

In preparing for the new year, understand that the needs of nearly all employees have evolved, as have the tools available to support them.  Whether 2020 brought a struggle or a windfall, a challenge or an opportunity, continuing to invest in the people that make an organization great will yield sustainable positive returns.  Career Partners International Members all over the world are here to support the growth of organizations, their leaders, and their employees during every point of the journey.  We wish each of you a prosperous New Year.
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Minnesota Speaks – Leadership in The New Work Environment

The COVID-19 pandemic is administering an exhausting, once-in-a-centurystress test to every system of American life and culture. Organizations areworking to maintain effective, efficient operations as employees, customers, and communities at large face constant fluctuation and ambiguity.

With no immediate end to the pandemic in sight, CPI Twin Cities explored how the circumstances impact companies and leaders. Below is an excerpt of their research. To download the complete document, click here.

What Are You Doing to Create Vision andFocus?

Leader responses to this question created a wide spectrum. At one end, theorganization achieves very little in the way of vision and focus because thebusiness is in survival mode. At the opposite end, companies conduct globaltown hall meetings (involving 25,000 employees) to reaffirm values, crystallize vision, and re-establish core business strategies. Companies committing to vision and focus prioritize four areas:

Focus #1: EmployeesRespondents agree on the need to ensure employee safety, listen to concerns, show compassion, and demonstrate flexibility. One leader stated that his HR team created a customized work plan for each employee to alleviate pandemicrelated stress at the individual level. Multiple organizations delivered care packages to employees’ homes.

Focus #2: CustomersThe importance of prioritizing customer needs during the pandemic comesthrough in remarks like efficient and streamlined focus on the customer and unblinking focus on providing the best possible customer experience. Laser accurate customer focus helps employees understand they are responsible for business viability because success in the future depends on customer treatment during the crisis.

Focus #3: The BusinessSome organizations capitalize on opportunities that emerge from the pandemic. One company, citing positive opportunism, deviated from core business strategy and the traditional product line to manufacture personal protective equipment (PPE). Other respondents referenced tweaking strategic plans to redeploy resources.

Focus #4: The FutureEffective leaders are communicating a growth agenda through 2022, while also sharing specific go-to-market strategies for 2021. One executive highlighted early communication on how the company is better positioned post-pandemic.

To download the complete document, visit Career Partners International – Twin Cities.
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Take a Time-Out to Celebrate Your Team

I have always found the beginning of December to be a time to reflect on the year that has been.  It is such an energetic time with opportunities to meet with folks I haven’t seen in awhile, re-establish old business connections, and generally feel that ‘peace on earth – goodwill towards others’ that is the hallmark of the season.  Concurrently, we see our pace of work become a bit frenzied.  Our end of year tasks coupled with the demands of the holiday season can make for stressful times.  And importantly, everybody looks forward to holiday festivities in their own organization; be it a big year end party, a staff potluck, or a festive lunch to celebrate the year gone by.

Then along came the year 2020 – a year that has turned social gathering and connectivity on its head!

So, this year I started to reflect on what the Holidays really mean.  Perhaps this is more than just an event or a season but rather a frame of mind; the holiday spirit, if you will.  An expression of goodness, wellbeing, and peace on earth.

At the beginning of this year, many people reflected on 2020 in the context of 20/20 vision.  For those of you lucky to have 20/20 vision you know how incredibly sharp and focused your vision can be.  I recently underwent laser eye surgery in a vain attempt to acquire that elusive 20/20 vision.  Upon completion of the procedure, there are a few tense days where your vision is blurry and you wonder if you made a big mistake.  Your eyes just need rest, a ‘time-out’ to recuperate, and after a few days it is the most magical experience; truly clear vision without glasses or contact lenses.  I am left to wonder if perhaps, in some strange way, the year 2020 has given us that ‘time out’; the rest we required to refocus.

The holiday season is upon us and it is time to once again take a time-out to think about what might be most important to our team.  Here are a couple of ideas that organizations and leaders can use to help recognize our incredible employees who have worked so hard under the most unusual of circumstances this past year:

One Size Fits One.  No two people are alike, so you will really need to think about what is important to each person in your organization.
Some people love the gift of time.  With Christmas Day falling on a Friday this year, is there an opportunity to give a little more time off?
As Olivia Newton-John sang, “Let’s get physical”.  I say, “Let’s get flexible”.  Of all the years where flexibility is critical, 2020 has proven to be the one.  What can we do to be a lot less rigid throughout this special time?
The Holidays are always a tough financial time for just about everybody.  Is there a possibility to kick up the incentives this year?
Have fun!  Many organizations have adopted this principle throughout the year, and I think it’s time to double down on it for the Holidays (Do not lose sight of the fact that not everyone will want to participate.  Make sure you do not force activities on those that would prefer not to join.)
Get off technology.  How about sending a hand-written card to your employees or customers?  Pick up the phone and talk to somebody “live”.  What about dropping by and saying “hello” to your employees/customers in person while adhering to the strictest of physical distancing protocols?
As simple as this seems, be grateful.  Many of us have much to be grateful for; let’s embrace it.

Has 2020 let you pause to think a little harder about the things that are of utmost importance to us, our organizations, and our people?  Is this the gift of 2020?  Determining what is truly important to us? Uncovering what we really value in our lives and the places where we work?  Focusing on what does and does not matter?

I know many of you have reflected on these questions over the past several months and I believe the opportunity to stop and reflect has been the greatest gift of all.  Consider this for your employees as you thank them for their extraordinary efforts in the Holiday Season.

Terry Gillis CEO, Ahria ConsultingChair, Board of Managers, Career Partners International

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Defining the Audit Committee’s Role in ESG Oversight

Whether they are institutional investors viewing environmental, social, and governance (ESG) through a long-term value creation lens or socially responsible investors interested in specific areas of impact, the investor voice is getting louder.

PwC’s Governance Insights Center is often asked about the best way for a board of directors to exercise its oversight responsibilities related to ESG. We think it’s a mix between full-board involvement and that of various committees, especially the audit committee.

The Full Board: Integrating ESG into Board Oversight Responsibilities

The full board naturally wants to understand the organization’s ESG strategy, including related opportunities and risk mitigation needs. Directors also want to ensure the ESG strategy is grounded in the company’s purpose and strongly links to the company’s overall business strategy.

In our roles at PwC, we’re privileged to regularly meet with boards of directors and management teams at some of the world’s largest public companies. From those discussions, we know that some boards already have committees, such as safety or environmental committees, that have been and will continue to focus on ESG oversight. We are also hearing about some boards who are opting to start new committees entirely focused on ESG oversight. That may make sense for boards that need to take a step back and invest time in aligning the company’s broader purpose, messaging, and activities with the overall business strategy, and from there in ensuring that ESG strategies are properly aligned. A special committee might be best suited to address these alignments, though it would likely only be needed for a limited period of time.

Meanwhile, most ESG risks and opportunities relate to broader company topics that are already being addressed in standing committees. And oversight of the execution of the ESG strategy is likely to fall to the committees in pieces. For example, the nominating and governance committee may want to dig into the shareholder engagement element of the ESG strategy, while the compensation committee might focus on related pay incentives.

But as the business maxim goes, if you can’t measure it, you can’t manage it. As ESG issues gain in prominence and investors ask more questions, finance teams are getting more involved. And many of the finance teams that we’re speaking to have shared with us that as they wade further into ESG reporting it becomes apparent that more rigor is needed for disclosures to be accurate and investor-grade.

The Audit Committee’s Role

In addition to the audit committee’s traditional responsibilities, most public companies already delegate significant risk oversight to the audit committee. Over the years, that risk oversight has continued to expand to include areas such as cyber risk, data privacy, and other reputational risks. Despite the audit committee’s full plate, PwC believes ESG is an area that warrants the committee’s attention, as well.

The following list details several important points of intersection between the audit committee’s built-in expertise and ESG, making the committee a natural candidate to take on ESG reporting quality.

Disclosures. Determining where the company will be disclosing its ESG messaging—such as in corporate responsibility reports, proxy statements, the company website, US Securities and Exchange Commission (SEC) annual and quarterly reports, or earnings calls—is an important decision to make. For most companies, corporate responsibility reports house the broadest array of disclosures. There’s now also regulatory attention and a policy-making focus around material human capital disclosures (see this fall’s new human capital disclosure rules from the SEC), which are especially relevant in providing insight into how management is responding to risks from COVID-19 and opportunities for shifting how and where work is done. As ESG disclosures evolve, we expect to see more make their way into SEC filings, such as Form 10-Ks or proxy statements. Companies also need to think about the use of standards and frameworks. Reporting a metric that is aligned to a standard or framework can provide additional integrity to the disclosure.

Policies, procedures, and internal controls. ESG data is generated by a wide group of departments within a company. Environmental or recycling data might come from operational teams and talent-related data might come from human capital teams. Companies will need to focus on the policies and procedures that feed the development of ESG metrics as well as the internal controls that ensure the metrics are accurate and consistently prepared. Metrics should focus on the current state of, and the milestones toward, achieving an organization’s long-term goals, both of which should be regularly shared with the full board.

Independent assurance. As companies expand ESG reporting, the information should be rigorous enough to support accountability. Undefined or misaligned information may lead to reputational and credibility challenges. The audit committee may want to consider whether some level of review of these disclosures is needed to provide confidence and trust in the quality and transparency of information reported, whether by internal audit or outside assurance.

As a board determines where ESG oversight will be assigned, it may want to consider the following questions:

Will the full board take on the responsibility of broader categories of ESG oversight? Or is there a specific committee with the capacity, interest, and skills to take the lead on overseeing the company’s overall ESG efforts?
Have we considered how ESG oversight responsibilities should be operationalized and embedded in the current committee structure? Have committee charters and proxy statements been updated to transparently disclose to shareholders and other stakeholders the board’s allocation of ESG oversight responsibility?

Wesley “Wes” Bricker is a vice chair at PwC and the firm’s assurance leader. Paula Loop is a partner with PwC and leads its Governance Insights Center, which strives to strengthen the connection between directors, executive teams, and investors by helping them navigate the evolving governance landscape.

NACD: Tools and resources to help guide you in unpredictable times.

Greater Focus on DE&I Accelerates NACD Programming

As Virtual NACD Summit 2020 came to a close last week, it was abundantly clear that the board’s role in overseeing diversity, equity, and inclusion (DE&I) will only continue to grow. A mainstage panel on social justice and “Expert Insights” programs on the social aspect of environmental, social, and governance (ESG) issues and DE&I itself made it clear that directors, investors, and stakeholders all have a keen interest in seeing real progress on the DE&I front.

Indeed, the topics of diversity, equity, and inclusion were not only the focus of NACD Summit sessions, but also the impetus behind a new two-year education program called NACD Accelerate. The program aims to help build the board talent pipeline, in effect creating a highly diverse new generation of board-ready directors out of high-potential and mid-career executives.

“Diversity and the broad mix of perspectives and experiences that come with it are essential for the robust, insightful discussions that drive good corporate governance,” said Peter R. Gleason, CEO of NACD, in a statement announcing the launch of NACD Accelerate. “Yet, even with recent gains, diversity is nowhere near where it needs to be in this age of modern governance. NACD believes that we must build a deeper bench of directors now and ensure that all directors are better prepared to lead companies through challenges and uncertainty.”

And this year presented challenges and uncertainty like no other, not merely because of the COVID-19 pandemic but also because of social unrest over racial injustice in the United States. Along this vein, NACD Summit’s mainstage panel titled The Intersection of the Arcs: Social Justice Movements and Corporate Oversight emphasized the importance of understanding historical context and the need for directors to consider stakeholder concerns as a business imperative. The discussion was moderated by Tina Tchen, president and CEO of nonprofit advocacy group Time’s Up, and the panel comprised Denison University Black studies associate professor Lauren Araiza; Dr. Tony Coles, cochair of the Black Economic Alliance; and Sarah Kate Ellis, president and CEO of GLAAD.

During the panel, some 80 percent of Summit attendees responded to a polling question, acknowledging that recent social movements elevated conversations on how to address systemic racism in their boardrooms. One panelist advised directors to be true stewards of the companies they serve and challenged them to take a deeper look into their organizations’ current practices. A framework for considering diversity—”people, purchasing, and philanthropy,” developed by the Black Corporate Directors Conference—was cited as a good starting point for those boards who are early in their journeys toward creating more inclusive corporate cultures. And it was noted that operational changes, such as examining and setting goals around supplier diversity and aligning diversity objectives with executive compensation, can help make management more accountable. The gist of the panel? Resulting pressures from and implications of social justice movements need to be recognized by boards as more than reputational risks—they affect the company’s talent pipeline, productivity, ability to innovate, and, ultimately, the bottom line. 

While it has been greatly accepted in recent years that having diverse teams leads to better business results, this was underscored in the “Expert Insights” panel on DE&I, moderated by Anna Catalano, director at Kraton Corp., which comprised speakers Terri Cooper, chief inclusion officer at Deloitte; Stephanie Creary, assistant professor of management at The Wharton School, University of Pennsylvania; and Denice Torres, CEO of The Ignited Company. This panel discussion focused on how recruiting for and otherwise uplifting diversity is only the first step in a much longer journey. Boards must ensure that the companies they serve foster an inclusive and equitable culture to allow for those diverse voices to be heard and respected. As one panelist stated, “Diversity is being invited to the party, equity is playing music, and inclusion is being asked to dance.”

The board should ask itself, What is the partnership between the three terms? What is the corporation’s story if it is diverse but not inclusive? Organizations need all three elements to capitalize on the advantages of having a diverse workforce.

Finally, the session on “Understanding the Board’s Role in the ‘S’ of ESG” provided context for the discussion of diversity and inclusion by looking at the many social issues that have arisen in 2020. Between the pandemic and the renewed vigor of social justice movements, the social aspect of ESG issues has, due to recent events, risen to the top of boardroom agendas. For instance, after the mass move to remote work spurred by the declaration of the pandemic in March, stakeholder performance and health-and-safety considerations became front and center for both board and management teams.

The convergence of these issues led to one key takeaway from the panel for director attendees: Do not be merely performative. Instead, dig down when you see troubling patterns in data related to, for example, employee retention, pay equality, and who is being promoted—all areas that can reveal whether a company is, in fact, making progress. Stakeholders and investors alike will be asking related questions and boards must be prepared to address them with transparency and authenticity. The “S” of ESG can no longer be ignored in the boardroom.

NACD: Tools and resources to help guide you in unpredictable times.

Regulatory and Cybersecurity Responsibilities Intersect for Boards

Cybersecurity is a recurring and critical board agenda item for good reason. Related reputational, regulatory, and business impact risks—all of which are likely to have economic consequences, potentially resulting in regulatory fines, lawsuits, and decreasing stock prices—are just a few key concerns for companies and their leaders. The failure of an organization and its board to fulfill their cybersecurity responsibilities can even create existential risk.

Given the global business environment, the interconnectedness of today’s technology, and corresponding cyber threats, it is vital that boards keep current on news cycle headlines, trending cyber risks, and global regulatory cybersecurity requirements, expectations, and best practices.  

Regulatory Responsibilities

Director responsibilities with regard to cybersecurity oversight stem from a general obligation or fiduciary duty of care to oversee risk and, in many cases, are more specifically prescribed by regulatory requirements, strong recommendations, and expectations. Below are examples of such global regulatory responsibilities required by regulatory or law-making bodies in the respective countries in which companies do business.

The boards of certain organizations are required to approve information security or cybersecurity policies in a variety of jurisdictions around the world, including for financial services companies in the United States, Bermuda, Israel, Malaysia, and India. The board is also required to be the point of escalation for material cybersecurity risk, data breaches, or incident responses in those same jurisdictions.
In the United Kingdom, a director has a duty to exercise reasonable care, skill, and diligence in the conduct of their role, including for cybersecurity.
In Denmark, board members at insurance companies are required to complete a basic course on cybersecurity no later than 12 months after joining a board.
In Singapore, the board is expected to be regularly apprised of salient cyber-risk developments so as to equip itself with the requisite knowledge to competently exercise its oversight function.
In Australia, the board is responsible for ensuring that the entity it serves maintains its information security practices and for maintaining information security in a manner commensurate with the size and extent of threats to its information assets.

The Perils of Responsibilities Unfulfilled

A failure of the board to properly understand and effectively mitigate cyber risks that results in a cyber incident or damage to the company (reputational or otherwise) may amount to a breach of director duties, exposing directors to personal liability in certain jurisdictions such as the United Arab Emirates, Argentina, Malaysia, and Israel.

Under Europe’s General Data Protection Regulation (GDPR), companies have an obligation to reasonably safeguard data whether in electronic or paper form. Violations of this requirement due to a cyber incident or other factors can result in fines of up to 20 million euros or four percent of a company’s total worldwide annual turnover from the preceding financial year. The GDPR imposes fines for noncompliance only on legal entities, not individual managers. However, based on German procedural laws implementing GDPR locally, the fine is imposed on responsible individuals, which can include a corporate director, rather than the legal entity.

In France and Singapore, criminal sanctions of up to five and two years of imprisonment, respectively, may be applied against an individual responsible, including a corporate director.

Board Best Practices

The board plays an important role in helping the company it serves balance and oversee security risk appetite, risk mitigation strategy, and strategic business objectives. 

To avoid the perils of unfulfilled director responsibilities in relation to cybersecurity oversight, the board should consider the following tips:

Formally approve on an annual basis and in documented minutes the company’s information security program, including policy.
Try to recruit a cyber expert to the board in line with the US Securities and Exchange Commission’s suggestions from its guidance around cybersecurity disclosures.
Require regular (ideally quarterly at a minimum) reporting from management on cybersecurity and information security material risks and events, and how the leadership team is implementing the strategy for management of those risks and the treatment of those events.
Designate a board committee that will be responsible for regular oversight of cybersecurity activities (unless it is determined that cybersecurity will remain a full-board issue).
Stay current on the regulatory security landscape and your company’s compliance status and strategic approach with at least an annual briefing from internal legal counsel.
Understand what the company’s cyber insurance covers (e.g. does it include fines and penalties?).
Periodically practice the company’s documented incident response plan.
Understand the company’s plans for expanding or contracting business operations in geographic regions that are considered nation-state adversaries or otherwise present cybersecurity legal or operational high-risk challenges.
Ask about the company’s current and planned cybersecurity resources in an effort to ensure that the company is adequately staffed from numbers and expertise perspectives.
Require periodic updates from the company’s internal audit group on cybersecurity audit material findings and cyber program effectiveness.

Lucy Fato is executive vice president, general counsel, and global head of communications and government affairs of AIG and Nubiaa Shabaka is chief cybersecurity and privacy legal officer and associate general counsel of AIG.

NACD: Tools and resources to help guide you in unpredictable times.

A Methodical and Scientific Approach to Professional Development Coaching

Career Partners International has partnered with LeaderAmp to design PowerAmp Coaching.  PowerAmp Coaching is the world’s first professional development coaching program delivered by trained coaches augmented by rigorously created Artificial Intelligence.  This combination of professional coaching paired with technology gives organizations the power to provide coaching at a previously unthought of scale and significantly enhanced ROI.

While other programs may offer individual content and some form of guided development, none can match this level of scientific rigor and targeted development.  Many forms of coaching can provide participants with an experience that “feels” positive.  PowerAmp Coaching takes this to the next level by increasing engagement, measuring improvement, and providing transparent progress tracking to the client organization driving continued advances across the workforce.

One of the many unique elements of PowerAmp Coaching is the Time Trial.  Designed to identify those with the highest potential for coaching success, the Time Trial not only ensures the best application of development investments, it also uncovers hidden talent and organizational enrichment priorities.  Through brief assessments and AI guided prompts, participants will take part in self-guided development, demonstrating commitment to a coaching engagement.  By focusing efforts on those who are most prepared for and receptive to coaching, organizations can ensure that funds invested in development are being optimally allocated and motivated individuals are being appropriately engaged.

After successfully completing the Time Trial, the unique journey into modern development begins.  Participants are assigned a trusted CPI coach and complete computer adaptive self and 360-assessments to establish a baseline.  These proprietary and scientifically validated assessments, developed by LeaderAmp, measure each participant in 18 unique dimensions.  By focusing on the dimensions that each participant or organization has deemed most critical, coaches are able to ensure targeted development and progress.  Throughout the process Artificial Intelligence works in tandem with the coaches to track the emotional experience of participants, ensuring assignments are neither too challenging nor too simple, keeping participants in a growth mindset.

With over 50 Member Firms and 300 locations around the globe, CPI is uniquely positioned to deliver coaching to national, multi-national, and international organizations with a proven and uniform approach.  CPI’s experienced and credentialed coaches amplified by LeaderAmp’s scientifically developed content create greater levels of scalability, bringing access to quality coaching to all levels within the organization.  With artificial intelligence and modern engagement techniques, PowerAmp Coaching democratizes the professional development field and creates stronger leaders and employees.  Whether supporting high-level individual contributors, guiding new leaders, identifying diverse pools of talent, expediting change management, or solving for other complex issues, PowerAmp Coaching provides innovation and intimacy driving sustainable results.  
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