This is an Apollo 13 moment for us – what are the risks in the Internet of Things, and how are we addressing them?
“The stakes are higher for directors today, who are trying to navigate between their ongoing oversight duties and their increasing responsibility to provide foresight so that their companies are positioned for a future full of unknowns,” says Susan Stautberg, chairman and CEO of WCD, the largest organisation of women directors in the world.
Amid the unknowns around everything from Brexit to cyberthreats to the “Uber economy”, directors at WCD lists the trends that are forcing themselves onto boardroom agendas this year:
1. The Internet of Things and risk management
With the Internet of Things creating as much as US$11 trillion in economic value by 2025 – each year – directors are craving information on this phenomenon ranging from smart homes and cars to smart supply chains, health devices, and more. “Your opportunity as a board director is to think about how to get value out of the Internet of Things,” says Florence Hudson, SVP & Chief Innovation Officer, Internet2, and a former Director of Society of Women Engineers and IEC Electronics. “But the flip side as a director is the risk management around all of this. This is an Apollo 13 moment for us – what are the risks in the Internet of Things, and how are we addressing them?”
2. Transformation of the production ecosystem
“The data enablement of products and devices has transformed the value chain – we are moving from a product-centric value chain into a customer-centric value chain,” says Dr. Claudine Simson, Director & Business Development Executive, Research and IP, Worldwide Growth Markets, IBM Corporation, and Director at PRIMA Quebec. “This is disturbing the whole ecosystem. Now the product manufacturers have direct access to the end users, which they never had before. And on the engineering and product design side, they get direct feedback with the field data on their products and can analyze how the products work in specific applications – this cuts down the product development cycles.”
3. Rising importance of customer support
The world of increasingly interconnected devices has the ability to make our lives much more efficient and convenient and effective – but we still have to know how to use them. “Customer support is an important vacuum in the whole evolution of innovation,” says Maggie Wilderotter, former Executive Chairman of Frontier Communications Corporation and Director at Costco Wholesale Corporation, DreamWorks Animation, Hewlett Packard Enterprise, and Juno Therapeutics, Inc. “When you have smart devices and something doesn’t work, people feel like they are just on their own. So companies like Frontier are the first call by customers who need help, including app use, set up, and troubleshooting. Customer support becomes part of the basic product. We are the safety net and are there for customers 24x7.”
4. Going beyond the race for market share
“If you focus only on your market share, this is limiting; the guy who had the greatest market share in buggy whips felt real good about that until Ford invented the motor – then it didn’t matter what his market share was in the buggy business,” says the Honorable Frances Townsend, Executive Vice President, Worldwide Government, Legal and Business Affairs, MacAndrews and Forbes, and former Homeland Security adviser to President George W. Bush. “You can think of organic growth and rely on your legacy business. But, over time, the company has to shift and invest its time, energy, and money as well as its intellectual capital in growing its digital and mobile businesses, because that’s where the future is. If you only focus on your bricks-and-mortar payout, you’re going to die.”
5. Thinking about the unthinkable
“To me, the biggest crisis today is the shortsightedness in many boardrooms, and I’m not speaking of quarterly results,” says Elaine La Roche, Director at Marsh & McLennan Companies, Inc., and CEO, China International Capital Corporation US. “By our very nature, we were born to be optimistic, and as leaders both in management and on boards, we want to focus on the bright horizons and not the black swans. It’s not in the DNA of management and boardrooms to really think about the unthinkable, to be frightened and concerned. But because of the world in which we operate today, there is a need for the board to act not only in an oversight capacity but to think of it as being a disruptor – to think about the ‘unthinkable’ happening at our companies and in our world, and positioning our companies to be prepared.”
6. Setting the right tone at the top
When it comes to judgment around risk management, employees will follow the example set by their boardrooms. “As a board member you must really show that you care about risk management, that you care about the controls, that you don’t think that compliance is annoying,” says Marina Brogi, Director of Luxottica Group and Salini Impregilo. “In some companies, the message that trickles down is: if you can make more money for the company, it’s a good idea – whatever it takes. This is not good. At the board level, it’s important that we put in the time on risk management and that we care and that we show we care. The fact is that every single employee can make the difference – the unethical actions of even a single employee can have an impact on the entire company and greatly mar its reputation.”
7. Engaging employees with the mission
“When you look at talent and culture, it most notably manifests itself when a company is going through a crisis or difficult time,” says Bella Goren, former CFO of American Airlines, Inc., and AMR Corporation, and Director of Gap Inc., LyondellBasell Industries N.V., and MassMutual Financial Group. “It is critically important to tie employee engagement to the mission of the company, so that every person feels that their work and contributions are integrally linked to the company’s ability to recover and succeed. Having every person feel that they are connected and know that they can make a difference not only has direct operational and financial implications, but can truly shape the future and ultimate success of an organisation.”
8. Competing for talent
“Competition is great for making better products, but our biggest competitors are those who steal our talent,” says Estelle Metayer, Director at Ubisoft Entertainment SA, a multinational video game developer and publisher, and at BRP (Bombardier Recreational Products) Inc. “We sometimes have limited flexibility in how we compensate employees, so our challenge is in understanding how we will keep employees engaged. Do they find meaning in what they are doing?” Avigail Dadone, the Chief People Officer at Diligent, echoes this belief: “What I’ve seen work well and what I advocate for in any of the organisations that I’m part of is clarity of career-pathing and being able to articulate to new joiners what the various paths are at the organisation. It’s all about keeping people really interested in what those various opportunities could be. It’s not just being able to talk about it but really putting some time and energy into putting that down on paper and having some data to back it up in terms of movement that’s occurred.”
9. Managing activist shareholders
“The rise of shareholder activism is here,” says Julie Hembrock Daum, North American Board Practice Leader, Spencer Stuart, and Director, Seacoast Banking Corporation. “We saw 106 total board seats won through campaigns in 2015, and 44 CEOs that experienced activist campaigns are no longer CEOs this year.” This influence is increasingly becoming accepted by the public, says Daum, and boards should be aware that “activists are targeting larger companies with a much smaller percentage of shareholding. But these shareholders are gaining in sophistication – they are very well advised, they have better research positions, and they’re going mainstream.”
10. Putting strategy on the boardroom agenda – always
“Board involvement has truly improved and evolved to best meet organisational needs. For instance, the days of the one-off, catch-all strategy session are over,” says Andrea Jung, President and CEO, Grameen America, and Director at General Electric Company, Apple, Inc., and Daimler AG. Rather than just checking the box through offsite strategy sessions, she says effective boards are now required to provide proactive strategic guidance and thoughtful follow-up through ongoing conversations. “Now, more than ever, we need to ensure there is a connection between what is discussed in board meetings and subsequent follow-up. That discipline is essential.”
What will it take for directors to be able to anticipate these and other trends, given the rapid change in technology, customers, geopolitics, and more?
“More than anything else today, directors know they have to be visionary,” says Stautberg.
WCD likewise recently developed with the KPMG Board Leadership Center, a report on how to steer companies towards building a diverse boardroom.
Ultimately, says the report, “a visionary board is by definition a diverse board – diverse in expertise, industry, geography, gender, ethnicity, and age”.
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