The latest in our series of lunches for Chairs and NEDs was introduced with the following:
In the current climate there is a common consensus, across both the Executive and Non-Executive community, from all sectors, that we are living in an unprecedented time of change.
This change is driven by a myriad of factors that include the changing needs for leaders and the scarcity of C-suite talent, increasing regulation, Brexit, digital innovation, customer expectations, cybercrime, managing the message in a post truth social media world, Generation X vs. Generation Z and Diversity & Inclusion.
With this list of challenges that continues to evolve, there’s still the underlying need for the business to hit the numbers!
In the context of the above, guests were asked to consider what, in their capacity as NEDs, are they observing around the boardroom table and how are these challenges being tackled. How is the board coping and is the conventional composition of boards robust enough to address the multiplicity of the challenges presented?
Tom Smith – Chair of the Nuclear Decommissioning Authority set the tone of the discussion by challenging our premise that we are in unprecedented times. No we are not! Many generations who have gone before us have lived through far more difficult times such as war and famine. However he acknowledged that some of the changes we are experiencing are bewildering but within our control to influence and use to our benefit, such as AI.
Peter Boddy – Chair of the Hollywood Bowl Group compared his experience of living through the growth of the internet and the dotcom boom with today’s boards who seem petrified of Technology. The threats posed by Cyber Risk for example seem to develop very quickly and his concern is NEDs generally are not equipped to keep up and understand, or indeed know what role to play, especially in terms of governance.
Mark Brickhill – NED at Office for National Statistics is also CEO for a group of SME manufacturing companies. He shared with us the learnings from a manufacturing conference he had attended just the day before. There is a view that Technology is moving so fast it is difficult for SMEs in manufacturing to keep pace and they consider this to be one of the greatest challenges their businesses are facing. Mark added “The view of the businesses at the conference regarding Brexit was that it’s happening, it’s political. We are going to do business with or without it. Just don’t get distracted by it”.
It is interesting to hear that Consumer facing businesses, where technology is the business, are light years ahead of where industrial manufacturing is.
Dominic Cameron, one of the original team at Lastminute.com and a serial NED commented perhaps from a position of greater knowledge and experience. He is on the board of various technology businesses, some relatively new and some far more established, both in the UK and in the Middle East. His perspective is positive; he acknowledges that the challenges are huge, but the technology, the people resources and solutions we have to actually respond and act, are way ahead of where it was a few years ago. Our Chair interjected with “And is that appreciated at board level amongst board executives and NEDs?”
Dominic has no doubt there could be an improved level of awareness and indeed a greater level of alertness which can easily come from people reading and paying more attention. “There is a way of getting into this space which is not as scary or abstract as it might at first, seem”.
Angela Knight, Taylor Wimpey plc said the issues her boards are facing are both company specific as well as issues present in the wider economic environment. At a company level, the board is talking about IT/Data security including GDPR and cyber risk, through to governance issues such as executive remuneration in the light of increasing shareholder activism.
In terms of the economic environment, the major theme emanates from Brexit with a general softening of the UK economy as the potential for a collective ‘do nothing’ spreads as the impasse continues. Leave or remain are now not the main topics of conversation as preparations for leave are made. As if this was not enough, she highlighted the European economic problems in France, Italy, Spain and now Germany coupled with the USA/China trade stand-off and not to be over-looked, the threat to business of a Corbyn government.
The Gen X/Y conundrum is simply growing! The new term is “Selfhood” – all about letting this generation do things the way they want to and embracing it. They drink less and yet they socialise more – both digitally and interpersonally.
Jemima Bird, NED Revolution Bars/CarpetRight and an experienced retailer added “There’s also a lack of digital understanding around the boardroom table. Digital is a channel of marketing, but a bit like bitcoin, people’s lack of knowledge around digital make them think it’s a special thing. It isn’t – we have passed a tipping point whereby media is now digital – irrespective of what media channel (out of home, TV, News, etc) this media is available in both traditional and digital mediums. As a result we shouldn’t think of digital as a separate channel it is just media! Having digital clarity is a key focus for boards and ensuring the right brand and marketing decisions are made versus emperor’s new clothes is going to be critical. The changing face of the high street and the shift to digital is creating entirely new scenarios that old school war gaming can’t solve. Key is ensuring that regular futurologist reviews are looked at with plans to address worked through at board level – this should then help the board recommend to the Exec what are the challenges to embrace and which are the red herrings that can be carefully placed (and watched) in the long grass.
Lynne Weedall, NED at Greene King senses that everything is changing and at the same time nothing is changing. A regular boardroom issue is still how to give great customer service whilst keeping control of costs. When a business is suddenly disrupted and people you thought were your competitors are now your partners, this requires skills and capabilities not planned for. So boards need to be creative and most importantly, agile.
Peter Baker – Chair, Finsbury Foods gave us an insight into the food sector, believing food manufacturing has suffered more than most. It is not so much about technology, which is available and can be acquired, it is a general feeling that the industry is running out of steam. This has been caused by 3 years of uncertainty, devaluation of the £ and the retailers having their own really tough problems with discounters taking sizeable shares of market. Without some level of certainty, investments generally will have to slow down so the robotics technology that can help us to improve our productivity and competitiveness, will be delayed until we have more clarity.
Our Chair then asked Peter what pressure this generation of leaders are facing versus his career experience.
Peter replied having been in Food for 40 years “the bad news is I have never seen anything like this before”. The major food manufacturers have had decades of growth driven by the large food retailer’s growth, something they can no longer depend on. Relying then just on individuals’ experience alone will therefore not be good enough. Future success will come through people and products. “If you have great people and you are creating great and innovative products for the consumer, you will get through this”.
Giving us a perspective from a completely different sector, Tom Hunersen, NED at National Bank of Greece and also with a career in Financial Services is still seeing clients in the “broken banking space” suffering. When the board is broken and the institution is suffering, it is very important to ensure the board’s competencies become more aligned with the activities of the organisation. Populate your board with a good mix of people and aim to avoid having blind spots. “You don’t know what you don’t know” so you need to have people who are clued in and can manage through change.
Risks and governance also change by country/region and for example in Greece, the risk profile for a director is very different and very real. There is an absence of talent in Greece which is a function of the system having been in distress for so long but there are also legislative reasons as to why it is difficult to attract talented people.
Clifton Melvin, Chair Risk Committee at Unum picked up on this theme and also the need to adapt generally and for example, specifically to address other topics such as climate change and biodiversity which are now firmly on the board’s agenda. Certainly with Brexit, his clients have had to adapt. One in particular had to transfer its entire business from Scotland to Dublin to ensure they would continue to enjoy EU Passporting rights. When faced with challenges the board has to ask what the business model is and what are the priorities; everything cannot be done at once. So you have to examine risks to your business model and adjust and quite often, it is the Risk team working with the Strategy team to decide what the future may hold and how we mitigate those risks.
David Leigh, Chair of Study Group and also three PE portfolio company boards. He focused on the word experience, believing one of the challenges at the moment is that we might need to refine what that word means. Of the two most significant issues that face his businesses, the first is Digital. If there is any business out there that is not asking itself are we at risk of Amazon or an equivalent coming into our space, then they have misunderstood completely what Digital is. It is a fundamental business model issue. Secondly, if one employs people under 30 or sell goods or provide services to people under 30, you are dealing with a mind-set that previously has never existed. So how does a board have the right experience around the table, in terms of people who understand those two themes? It won’t come because they have been on boards for 40 years. “So how you inject the right experience to tackle these two particular issues, is a fundamental question”.
In the main we have over 50s on boards (predominantly male) trying to work out how to sell to someone half their age. Embracing this group within organisations is going to be key to ensure this voice is understood at the board table.
Jemima Bird also referred to the need to have the right mix of NED’s around the table. With increased regulation, smaller boards are going to struggle with having the right talent to be able to chair the different committees. Real expertise is now needed, to ensure that the right decisions and messages are being managed.
However it is not just about injecting the right sort of experience, but increasing engagement across the business. It is very hard for an NED to be fully equipped in all areas and therefore you have to open your eyes and ears and listen to the people around you, and use your experience to make decisions. It’s about listening to your teams and to the people who work in these specialised areas. Sue Clark, NED Britvic plc echoed Peter’s comments about margins being really squeezed at present in Food. All of the growth is in niches where the new players are coming in and it is hard for the large incumbents to get to it quickly. It requires massive cultural transformation which many organisations are grappling with.
Given the fact that many businesses are not seeing growth, this makes life difficult for remuneration committees. How you set targets for Executives when growth is going in the opposite direction? How do you set targets that are challenging but do not force or encourage executives to take the wrong actions behaviourally and at the same time, you can actually sell to your investors that these are really challenging targets. This balance is quite a challenge.
Declan Collier, Chair at the Office of Rail and Road concluded our discussion. He works with a lot of businesses in the transportation sector and one of the biggest threats to boards is one of marginalisation of skills. Many sectors have fallen into the trap of believing that if you work in Financial Services, Aviation or Rail, you need a board that reflects the sector in terms of board level experience. Declan believes the greatest challenge is to attract different skills that will look at businesses in a more oblique way.
He suggested a solution for boards to access and include different points of view and skills is to work with expert panels but how do we work with them and what type of authority should these panels have? How do you change the board governance structures to allow the board itself to be more flexible and agile?
It is certainly an interesting and challenging time to be a Chair or NED. Homogenisation, Technology and Generational differences are putting traditional boards and business models under threat and ‘Change’ is now a constant. It would seem the answer to many of the issues facing boards, is to embrace agility!