Injecting ethics into boards through diversity

For a business to function well, it requires oversight, which should come from a board of directors that tell the CEO what they should be doing, not just letting the CEO tell the board what should happen. On the show today to discuss the balance of powers between a company’s board and its CEO is Denise Keane. Keane was formerly on the general council at Altria, and now presides on the board for DirectWomen.

ABERMAN: First of all, Denise, thanks for joining me.

KEANE: Thank you so much for having me, Jonathan.

ABERMAN: Well, this whole issue of yes-men boards, there’s some real challenges with that. Let’s talk about that.

KEANE: Okay, well, I think that there are basically two trends that we see going on in corporate governance today. And one of them is the fact that, given the environment that we’ve seen, I truly believe that the line of what a corporate board of directors is response for, and what is the province of management, is evolving. I think that is what we see in terms of an ongoing expectation that boards get more involved, and not just be spoon-fed what they’re told by management. They have a whole host of responsibilities, and many of them do it so well, but I think the scrutiny that people are going to be under, in general, is: are they acting proactively enough to discourage their fiduciary responsibility and represent the shareholders?

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ABERMAN: I will tell you, sadly, I admit, that over of my lifetime as a businessman, I’ve been on some boards where the CEO, basically—it’s like a boy’s club. Everybody yuks it up, but there’s no real oversight. But, what those boards, then, have in have common is that they’re boys clubs. Isn’t there are real issue here, with respect to diversity and getting different viewpoints, in the boardroom?

KEANE: You’re touching upon a topic that is very close to my heart, and that I feel very passionate about. I truly leave that we’re in an area where the lack of diversity on a board really is, in fact, a corporate governance risk. I think long gone are the days where companies can basically say, oh, I really can’t find diverse candidates. I think, in today’s environment, diversity becomes a starting point for what is good corporate governance. I think those companies that, unfortunately, get into trouble, are going to have a particularly difficult time in explaining why their board doesn’t have the diversity that should really help break down the groupthink that you’re talking about.

ABERMAN: What I find sadly amusing, that most directors don’t really focus on, is that they are the primary conduit for which disgruntled community members or disgruntled shareholders are going to exercise their legal rights. The board gets sued for not providing good oversight. So, how can it be that boards would sooner choose a monoculture, rather than a culture of people that challenge, if, ultimately, they’re the ones, individually, that face personal financial liability if a company like a Volkswagen, or an MCI WorldCom, or others, turns out to be a fraud or worse?
KEANE: I think I’d answer that in a couple of different buckets. One, I think it is important for boards today, and boards take on a huge responsibility, to really go back and focus on what their core responsibilities are. It involves not just hiring a CEO and compensating a CEO and senior management, it deals with long term plans. It deals with dealing with risk, of which some of the topics we’re talking about now truly become risks.

It deals with compliance, but it also deals with creating the right tone for managing true stewardship, and, I think, breaking groupthink is an aspect of what true stewardship should entail. People should want different perspectives. They should want the perspectives of their shareholders, their consumers, their suppliers. If you don’t have that, how can you de facto say that, in fact, you’re truly analyzing some of the very difficult problems that our boards face today?

ABERMAN: I hear two issues there. The first one is that, frankly, it’s a political, sociological issue, which is: how can you have an organisation that claims to be responsive to community without having representation? The second one I hear is: if I have a bunch of inbred, self-regulated conversation, I don’t have people asking hard questions, I may run a personal financial risk If I’m a director that tolerates that. How, and why, does having women in boardrooms change those two calculations?

KEANE: In a couple of different ways. I think, number one, you’re bringing in a different perspective. You’re bringing in people who will evaluate the facts, and hopefully engage in the type of conversations that we think are so important. We have seen studies, we have seen empirical evidence that shows diverse boards perform better. We show that they, in fact, have greater conversation, that they can be more proactive, and especially for companies that are having true challenges, I think they are a critical part of laying a foundation for plotting a path forward, because long-term guidance is one of the core responsibilities of a board of directors.

ABERMAN: I’m sitting here. I’m listening to this. I’m a CEO, I’m on a board nomination committee. I say, alright, that’s fine, but I can’t find any qualified female candidate, so I gotta do a training program to find them. What do you say to that?

KEANE: Of course, you’re baiting me with that one.

ABERMAN: I’m sorry, I have to. It’s radio!

KEANE: In reality, the answer of, you know, I can’t find them, is no longer acceptable. There are so many, many qualified women out there, women who have tremendous experience. And, in fact, there are even organizations, like DirectWomen, that can help you find mind women who would be truly qualified to be on boards. I think the other excuse that I see happening is, oh, I have to hire a CEO. Well, we all know the dismal numbers of how many women are CEOs, the answer is not that I need a CEO, the answer is: what is the thoughtful analysis of what skill sets I need? What is my conscious plan, and what is my deliberate action to identify women who can fill those slots?

ABERMAN: In my experience, what makes somebody a very good director is: domain expertise, exceptional judgment, and the ability to communicate, right?

KEANE: Absolutely.

ABERMAN: Last thing before I let you go, Denise. It appears to me that we’re at a crossover moment where this discussion about diversity is going to become a liability issue for boards. What do you think?

KEANE: I think that we’re almost there now. You look at who is out there talking about diversity, and I think 2018 is going to be an interesting proxy session, because you have retirement funds, you have CalPERS, you have CalSTRS, you have state comptroller Thomas DiNapoli in New York. I mean, they represent billions of dollars of investment. You have have Black Rock, you have State Street, you have Vanguard, you have shareholder proposals. So, I think the momentum is really building. And so, now is not the time to say, I’m not going to deal with it now, I’ll put it off for a few years. Now is the time to say: how do I get ahead of it? How do I bring diversity? How do I have the alignment that I need with these important shareholders, and do something that’s right for the organization at the same time?

ABERMAN: It’s great: politics and money come together, and change occurs. Denise Keane, formerly on the general council at Altria, and now on the board of DirectWomen. Denise, thanks for joining us today.

KEANE: Thank you for having me.

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