We’re going to talk today about an issue of tremendous importance to business and society in general: the issues of governance, and how you make sure that you avoid mono-culture — that you get a group of directors that represents the broader interests of the community that a business serves.
We have three experts with us today to talk about this topic: Andrew Sherman is a partner with Seyfarth Shaw, Andi Cullins is founder of DirectHer Network, and Denise Keane is the former Executive Vice President and general counsel of Altrea Group and a member of the Direct Women Board. Ladies and gentlemen, thank you for joining me today. Let’s begin by talking about governance, because I think that’s a word that people use all the time–certainly in the current political environment, governance is a word that’s thrown around a lot, but Andy, I’ll start with you. What does governance actually mean?
SHERMAN: Governance is the fiduciary responsibility that one has a over a group of people that they are governing. So, whether it’s in the context of government, or corporations, or not for profits, there is an inherent stewardship that’s being created where you have to put the interests of those that are depending on you to do the right things, and to manage risk and take those responsibilities that are fiduciary in nature seriously, and not put your own interests ahead of those that are depending on you to make good decisions.
ABERMAN: There’s a magic word you used a number of times there: fiduciary. That’s a magic legal word isn’t it?
SHERMAN: Well, it’s a magic legal word, but it’s also, I think, an ethical and philosophical word that we’ve lost a bit of touch with in the last ten to twenty years–where you are a caretaker, you are at responsibility to look out for others, and to take both risk management and opportunity recognition and execution seriously.
ABERMAN: Denise, you’ve been an EVP and general council in an organization. That would clearly, with my experience over the years, that would mean you’re right in the middle of this issue of of governance. Help our listeners who perhaps aren’t familiar with the legalities of governance. What does it mean as a practical matter for an organization?
KEANE: For an organization, governance is critical because you have a board that is there to represent, amongst other interests, shareholders, and shareholders invest in a company because they think it’s going to be properly run, they think there is going to be a vision that they will understand, and I think that your board, who is in reality the pinnacle of governance for an organization, has to deliver against that, and that’s why I think it’s so much in the news today with so many things that we see going on with corporations.
ABERMAN: So, so far the conversations around governance within the context of corporations, Andy, it would strike me that this issue of governance, I would have thought it applied just as much to not-for-profits as it does to a for-profit business doesn’t it?
CULLINS: Yes, it does. Not-for-profits have a different cadre of stakeholders, but they are still operating in the best interests of a particular group, and so they’re still going to have the same kind of governance issues, and they have the same kind of board issues. The structure is simply the difference.
ABERMAN: So, in my life, I’ve been on many boards, and I’ve worked as a lawyer, and as a business person in various contexts. And the way I explain it to fellow directors and people is pretty straightforward: if you can’t think of anything else, just imagine that what you did was on the front page of The Post, and do the right thing. Is that the the simplest way for us understand what governance is trying to do?
CULLINS: I mean, I think doing the right thing is where it starts, but I think one of the issues we’re seeing today is: where should the line be drawn between what directors become involved in, and what is the province of management? And I think there’s been a little bit of pushback in terms of, perhaps directors need to get more engaged and understanding some of the, what I would call critical issues, that might really influence a corporation or not-for-profit in a broader context.
SHERMAN: And I think the standard that you articulated is very good when it comes to doing the right things and making informed decisions. What the headline news standard might not cover is an issue that I think is just as big of a problem in governance today, and that’s apathy, and complacency, and laziness.
ABERMAN: Among who?
SHERMAN: Among boards who are not investing the time and the resources they need to make good decisions. Or, they punt and say, since we can’t make a good decision, we’ll make no decision. Well, as you know Jonathan, from your experience, no decision is a decision, and that’s one of the other problems with governance today, is being willing to make a hard decision and the accountability of having it at the top of the headline news, which is the standard you articulated.
ABERMAN: I’m surprised to hear you say that, because I would have thought that, in light of some of the scandals that companies have been involved in–Equifax recently, Enron, MCI WorldCom, and various things where the boards were found–where are you guys? Where have you been? If I was a director right now, I would be I would be hysterical about trying to stay on top of things, but you tell me that’s not the case?
SHERMAN: No, no, no, I’m agreeing with you completely. I’m saying that, I think that one of the flaws in governance today is not taking the time to make good decisions, or punting, kicking the can down the road, and not making a decision at all.
CULLINS: You know, I have a phrase, which is “when the accepted becomes unacceptable.” And I think there was a point in time where directors could perhaps take a little bit more of a hands-off role and wait until management came and presented issues to them. I think now, what Andrew is talking about is, they have got to get more proactively involved, because that behavior is no longer acceptable. They can’t deliver against their fiduciary responsibilities by just waiting until they hear about it.
SHERMAN: And in the fast moving world that we’re living in, we can’t wait until the next quarter’s board meeting, you know. “Oh, well, we’ll just be complacent and we’ll defer our decision making till the next quarter.” Well, by the next quarter, the whole world’s changed again.
CULLINS: I think that’s, again, where the issue of diversity on boards becomes very impactful. Because it’s easy to be complacent when you’re operating in an echo chamber, with people who are just like you, and who think just like you. It is much more broadening if you are operating with a cadre of people who have different points of view, will push back, will think about things that, maybe, the echo chamber didn’t allow, and bring in a more proactive approach, because they’ve got feelers out in other areas.
SHERMAN: You know, Andi’s right. A lot of complacency can come from too much like-mindedness, and like-mindedness tends to root itself, sometimes, in a lack of diversity.
CULLINS: But it also kind of goes to another point, which is, and I think it’s been established, hiring a woman, for example, for board is great, but you really do need a cluster, because otherwise, I have seen a mentality which is: let me beat it out of them, and let them think like me. So, you really need a, sort of, I think, a group of voices that can come together, because the benefit of diversity is letting diversity play out, and not turning it into something that otherwise might have existed in the boardroom.
KEANE: And I think there are statistics, I didn’t bring the citations with me, that show that boards with three or more women actually have a very deep impact on corporate productivity and return on investment, beyond just having a single individual.
ABERMAN: And there are statistics that show — as an aside — that women-led businesses significantly outperform their male counterparts. I see that in venture capital industry time and time again. After the break, I want to continue this conversation, and turn to culture and ethics, and how governance really does drive an organization one way or another. So we’re here on a What’s Working in Washington EXTRA, and we’ll be right back after this break.
ABERMAN: Let’s go now and talk about this whole issue of mono-culture. The idea, as Andrew pointed out, of boards just living in this echo chamber. It would seem to me to be an enormous problem. You saw it in Uber, you saw it in Volkswagen, you see it in the Weinstein company, it just seems to be everywhere. Companies are getting caught in situations where they’re not doing what we described in the first segment as just “doing what’s right.” So what is the responsibility of the board, and how do we avoid things like this?
SHERMAN: Well, I’ll just get the conversation kicked off here. The NACD, the National Association of Corporate Directors, only a few months ago appointed a Blue Ribbon Commission recognizing culture as a strategic asset. This is a pretty recent development, that groups that are focused on board education or board best practices are recognizing that the intangible assets inside a company are just as important, if not more important, than the tangible assets and so I think culture, as Denise knows, has such a close tie, not only to risk management, but to opportunity recognition, and it’s just elevating itself as we’re speaking today into an issue at the board level that the board’s grappling to understand.
CULLINS: I think that part of the issue in the diversifying boards is also to bring people in who have that foundation of understanding culture, and understanding the impact of culture, and to bring that in with them, so that boards are more aware of that.
KEANE: When you talk about it, culture really starts with the people that you hire. So, people go to corporations that they think represent the culture that they want to follow, and in fact, companies should be hiring people that execute against that. And boards are part of the process of setting that tone, and setting that expectation, and judging management accordingly. And so the fact that culture is now being highlighted, I think that many board members were always interested in it, but now what they’re being told is: it’s your job. And I think, before, some of them might have been a little bit hesitant in getting over-involved. And I think we’re defining the line differently in terms of how boards need to get engaged, and understand the companies that they represent.
CULLINS: Absolutely, and I think social media has also put a lot of pressure on corporations and boards in a way that didn’t exist fifteen or twenty years ago. Because now, when you’re on the front page, when Uber makes that “oops”, it’s all over social media, and there is pressure on the corporation, and direct pressure on the board, because now it’s going to impact bottom line, which goes back to the fiduciary responsibility. So, the exposure now is much more instantaneous, and much more far reaching, and unforgiving for being tone deaf for what’s happening in culture.
ABERMAN: So Andi, what you’re talk about there I think is the importance of understanding that we’re all living our lives now in a public stage, and you have to be mindful. When you’re talking, though, about culture, you’re not just talking about culture, you’re talking about a culture that has certain values that are consistent with societal values. For example, the current outrage, the #metoo movement, is that a cultural issue, or is that a social issue turning into a cultural issue, how would you categorize that?
CULLINS: I think that’s very much a social issue that pours out into a cultural impact. And again, it’s a perfect example of boards that are tone deaf, because they’re operating in that echo chamber. So, if we don’t have women and minorities on the board, and it’s a boys’ club, then when this issue comes up, if it even comes up to board level, it can be easily dismissed, because there’s no one in the room to say “wait a minute guys, have you thought about this impact?” or “this is wrong because…” and it’s so much easier to have it swept under the carpet than if you are responsible to a board that is sensitive to the issue.
ABERMAN: But are we just talking about diversity, or are we talking about something broader here?
KEANE: I think we’re talking about something broader, but diversity is a critical way to create the environment that you are getting different perspectives. What’s an easier way to do that than to bring people together who view the world differently? And I think that’s the benefit of diversity on boards, and just kind of going back to the to the #metoo movement, I mean, it should be getting the notoriety it is. It’s been going on for so long, the underlying issues, and the fact that it’s just coming out now also goes back to our earlier conversation about — that is just not acceptable, and boards, you have got to dive into that issue. You just can’t wait until you read about it in the newspaper, so I would view it as an engine to kind of drive the issue that we’re talking about, in terms of greater accountability for the culture of an organization, and behaviors — some of which are illegal, but then some of which beyond legality.
SHERMAN: We’ve all worked in cultures that are rich in trust and respect,
we’ve worked in cultures that are rich in lack of trust and disrespect, and #metoo is an unfortunate reflection of how many cultures and are still rich with disrespect, and distrust, and incentives for all the wrong reasons. And that’s what needs to bubble up to the top and get a greater recognition.
CULLINS: Jonathan, now I want to go back to your original question about “is it a diversity issue or is it something broader,” and frankly, I’m always a little dismayed at that dichotomy, because it implies that, somehow, diversity is different than what is good for the entire organization and nothing could be further from the truth. The fact is, that the very things that promote diversity and enable a corporation to become more diverse are good for everybody in the organization. And so, it’s not a question of “should we do this just to be diverse?”, it’s “shouldn’t we be doing this, because it is best practices to have other voices at the table, to have other point of views and to make sure that we are really in touch with the culture and environment that we’re working in?”
KEANE: Can I just say, that is such an important point, because if your diversity goals are not integrated into your business plan, then, in fact, we’re always talking about diversity, it should be part of what it means to be a high-functioning organization. It’s not an add-on, but without a doubt, it is a critical aspect of getting to that point.
ABERMAN: It sounds to me that the other part of this conversation we haven’t had yet is that the reason why boards need to be thinking about diversity and culture and viewpoints is because — here’s a newsflash: society is diverse. I think that, in a way, what’s really important about this conversation — and it’s so timely to be having it in Washington. When we come back after the break, I think this is really intertwined with a lot of big social trends right now, and businesses can either be part of the change that needs to happen, or they can get in way. Let’s talk about that we come back after the break.
ABERMAN: Aren’t we just really talking about society?
CULLINS: We’ve said all along that boards should reflect the composition of society, of their investor group, and certainly of their consumers.
ABERMAN: So we’re living in a world that’s changing, and it’s time for boards to understand that they either get with the program, or they get themselves in trouble.
SHERMAN: It’s very important to re-emphasize the business case for diversity on boards and in leadership. It’s not just the right thing to do and a reflection of society, it’s smart business. For boards to sit on top of corporations with fiduciary and stewardship responsibilities, and not be a reflection of the markets and the customers they serve, is just stupid. It’s stupid. It’s bad business. And so it’s not just about a societal need to do the right things, it’s a good business strategy to understand the markets you serve.
ABERMAN: Well I would suspect that by now, using the word stupid, we’ve got everybody’s attention. So, now let’s help the people who are on boards, and thinking about boards, let’s give them some tangible advice for how we can build the right kind of boards. Denise Keane, I’ll start with you. Your work on the Direct Women Board, and its Institute. What can you offer, what should people know about?
KEANE: Well, Direct Women was founded in 2007 by the American Bar Association, and their mission is to get more women on corporate boards, because they believe that that is a way to enhance governance. And so, what they do is they have a Director Institute every year. They go out and try to identify very, very qualified women lawyers, and that’s kind of the pool that they look to–women who have been in businesses where they have their leadership tested, where they are problem solvers, where they really break what I would call the stereotype of the support a lawyer provides. So, they bring these women together, they introduce them, and they have a three day program. They introduce them to other directors, business leaders, faculty, to try to really enhance their understanding of what it means to be on a board. They then provide a series of networking opportunities. So, their goal is to identify these women and to give them the tools, so they can go out and try to find the positions where, from our perspective, they’ll make a really big difference in trying to enhance corporate governance.
ABERMAN: Andi Cullins, you’ve founded something called DirectHer Network. What does that do, and how is this filling in the void?
CULLINS: It’s sort of the next step after what Denise was talking about, so I have to back up and tell you that I wear a different hat. I actually work for the McCormick Group, it’s an executive search firm, and in that capacity, I see board searches, and I see people coming to us with one very set notion of what they need–either in the C-suite or at the board level, they already have a picture drawn in their mind. And it occurred to me that I could impact that, if I could get there ahead of that.
So, I put together a group as a referral network. So, the DirectHer Network does absolutely no training, people are already doing that. Direct Women does a great job of it, Catalyst does a great job of it, not trying to train people. What I’m trying to do is take people who are already board ready, the same women that Denise just talked about, and bring them to the attention of corporations based on how their business case is going to be benefited by a particular profile or expertise. So, again, it takes it out of the realm of, you know, have you been a CEO? And into the realm of, how can you impact a corporation’s bottom line, and what benefit will you be to the board? And we work with individuals to help them articulate that. And we also work across our membership to bubble up names: who should be on the board? Who is ready? Do you know someone who has this kind of background? So that we’re constantly then sponsoring each other. So, beyond mentoring, into sponsoring. And my idea was not to reinvent the wheel, but to bring all these organizations together.
We have representatives from women in technology, women in international trade, the American Retail Association, the American Bar Association, Women’s Bar Association, I’m sure I’m leaving some of our connections out, but that’s sort of the group that we’re playing with, and saying, “bring us to the people who are board ready.”
ABERMAN: Surfacing great candidates. Andrew Sherman, I’ll turn to you with the last couple of minutes here. You represent and advise many boards, what is best practices these days to build a compliance and the right kind of culture?
SHERIDAN: Well, it’s fascinating. You know, being here in D.C., putting on your policy hat, of course everyone thinks, “well, let’s just regulate it”, “let’s just make it the law.” Some countries have begun to regulate the number of board seats that need to be held by women or minorities. I think in this country, we still have a crisis, we’re at 22% where we have 51 % of the population, that’s a huge gap needs to be filled. I think that it’s going to be a combination of social pressures as we’ve been talking about, but the main way to get things done in corporate America is through private initiative. Black Rock just announced, they’re the world’s biggest money manager, that they will not invest in a company, in a portfolio company, without at least two women on the board. If more and more private equity and venture capital–a world that you’re familiar with–begin to have investment mandates, together with, perhaps, some regulatory pressures, I think you’ll see the needle start moving in a way that it needs to. But, again, the business case for diversity and private action is going to always be–in my opinion–more powerful, and more impactful, than trying to regulate it where people feel like it’s a check-the-box, compliance-like function.
KEANE: Can I just add one thing, Jonathan, and that is, and it sort of goes to the conversation we’ve just had: companies are out looking for women on boards, but I think one of the impediments to success–and I know Andi’s group works on this very extensively is–everybody wants a CEO. I want a woman CEO on my board, and I think that is a critical impediment to increasing the numbers, because there just, at this point in time, aren’t enough women CEOs. And I think it is really incumbent on companies to say, “what is this skill matrix that I need?”, “what are the talents that I need?”, and you can go out and find a number of people–a number of women and more diverse groups that can fill that, and that’s what we need to be doing.
SHERMAN: 100% right, I mean you think about how much time we’ve spent talking about culture on the show today. A chief human resources officer might be more valuable with the expertise that she would bring to the table on a board than a CEO, and be able to suggest more best practices and diversity strategies. So I think Denise is 100% right on that.
ABERMAN: It’s talent, talent, talent, isn’t it? Getting people on a board that actually can provide insight rather than just parrot things.
KEANE: And the right complement of talent, right?
CULLINS: One interesting statistic I drew from a GAO report that came out in January of 2006, the Government Accountability Office, where they were looking at diversity in boards and in particular women on boards, and one of the things that they noted is that, given the current pace of board seat turnover, it would take until 2055 to reach parity if we keep doing what we’re doing. So, in other words, there are so few board seats that turn over–and this was focused on the Standard and Poor’s top 1500 companies–so few board turn over that there’s very little opportunity to change that makeup of that board. So, what they’ve recommended, are several things. One of them is exactly what Denise was just talking about: moving it from just the CEO and broadening the search criteria, but a second was considering enlarging the board–adding an extra seat or two. Most boards are about 9.5, is the average these days, and typical is anywhere from 8 to 15. So we could definitely just make more spots.
ABERMAN: It would seem to me that we should all be focusing on helping women start businesses, so we fix this by letting them run their own businesses! Maybe we need to get some men on some women-owned business boards. Well, I want to thank all of you for taking the time to join us.