Twin Cities Business Outstanding Directors Awards: Introductory Remarks by John Stout
Prepared by John Stout & Elizabeth Dunshee
On October 13, 2016, members of the Twin Cities business community gathered to honor Gail Boudreaux (Xcel Energy), Martha Goldberg Aronson (Hutchinson Technology), Karen Grandstrand (TCF Financial), Lee Schram (G&K Services) and Stephen Shank (Lifetime Achievement Award), for outstanding service as outside directors. John Stout opened the event by describing some of today’s most important governance themes.
This must top the list. From Enron through the brokerage and banking firms at the heart of the financial crisis, to Volkswagen and most recently Wells Fargo, after Sarbanes-Oxley and Dodd Frank, we still face serious issues of corporate integrity and the ensuing severe consequences for shareholder value and reputational harm. The assurance of a company’s integrity to regulators, financial providers and markets, customers, suppliers, employees, shareholders and other stakeholders, is clearly one of a board’s most challenging tasks – and to say directors need to redouble their efforts would be an understatement. Here are some resources boards can use to monitor the company’s culture for appropriate values, ethics and legal compliance:
- internal and external auditors
- human resources executive
- legal department
- compliance group
- hotline reports and other submitted employee complaints/concerns
- exclusive outside vendors which assess corporate cultures (e.g. the
Minneapolis-based Center for Ethical Business Cultures)
The importance of diversity (skills, perspectives, gender, ethnicity, age, background) to enriched, effective board discussions and decision-making has been well researched and demonstrated. It is an important characteristic of high-performing boards and can further the board’s ability to assure integrity. There is particular focus now on gender diversity, not to exclude the importance of the other elements just mentioned. Pressure on boards from regulators and key stakeholders to improve gender diversity has increased significantly. This is a subject only boards and directors themselves can address. As fiduciaries of the company, directors must make their board seats always available to serve the needs and interests of the company and the board.
Sustainability is a tsunami heading toward our business environment. Over the next 5-10 years, looking at a business’s long term viability through the lens of sustainability will change the way we develop and access business models, strategies, risks, opportunities and operations in very material ways. Boards need one or more directors who clearly understand the importance of business sustainability. There needs to be a clear understanding between the board and management of the definition of sustainability applicable to the company – as it will differ from company to company. For resources which will help boards understand the growing impact of sustainability, check the following:
- Websites of leading companies (e.g., Coca-Cola, Unilever, BMW, 3M, Xcel Energy) and investors (e.g., Calpers, CalSTRS, TIAA-CREF, BlackRock and Vanguard).
- The work of the Sustainability Accounting Standards Board which has assessed sustainability risks for companies in 79 industries.
- Material released by the World Federation of Exchanges, a group of 23 stock exchanges including NASDAQ and the New York Stock Exchange. The WFE has a Sustainability Working Group, chaired by Evan Harvey at NASDAQ. It issued its first sustainability White Paper applicable to exchanges in October, 2015.
- Materials published by the Conference Board, Business Roundtable, Council of Institutional Investors and the National Association of Corporate Directors. My colleague, Deb Kool, and I have just completed a chapter on business sustainability for a soon to be published Directors’ Guide from the ABA’s Corporate Governance Committee. Our chapter will provide directors with questions to be asked in the boardroom, and resources available to directors seeking greater understanding of this subject.
Common Sense Corporate Governance Principles
I am sure many of you have seen the Common Sense Principles signed by 13 CEOs of companies including GM, Berkshire Hathaway, JP Morgan Chase, GE, BlackRock, Vanguard and State Street. It is worth being aware of these, not because they suggest ground-breaking governance changes, they do not. But they do underscore the importance of a well thought out governance framework, and sound governance practices focused on long-term value creation. Many companies are checking their principles against the Common Sense Principles. In this way, the Principles may help facilitate dialogue between a company and its shareholders/stakeholders on important governance subjects and serve as one reference point for evaluating a company’s governance principles.
Given the above, it goes without saying that shareholders and stakeholders are requesting greater engagement with companies, and increasingly wanting directors to be part of that process. Boards and management must be well prepared and planful when faced with these requests.
The Current Political Environment
Without getting lost in this morass, it is safe to say that this is a unique election. Distressing if you believe in good public sector governance as well as private sector governance. Distressing if you lay what is happening with our parties and candidates against the subjects of integrity, trust, character, sustainability, diversity and fiduciary responsibility. As directors, executives, shareholders and stakeholders we will be required to continue to navigate a challenging domestic and international social, political and economic environment in the aftermath of November 8.