Three years of economic hardship have dramatically changed the way people view businesses and the people who lead them. This change in perception has not been limited to those outside the boardroom. Many board directors and executives are also starting to see themselves and their functions differently and are taking a new look at how they do their jobs.
In the 12 months since NACD Directorship conducted the inaugural What Society Thinks? survey, we have witnessed unprecedented change in the regulatory environment and a continuing shift in attitude about the obligations of corporations and the role they should play in society. A raft of new rules has been enacted in an attempt to more closely align regulations with the expectations of the public at large.
The crisis and the ongoing debate have led many experts and casual observers alike to question the traditional corporate structure. It is likely that these concerns are, to some degree, a function of the unique economic climate, but it is clear that, even as conditions improve, there has been a permanent shift in expectations. Corporate directors need to ensure they are in tune with these changes and understand how shifting regulation and altered public perceptions impact the way they are expected to do their jobs—in particular, the selection of strategies for growth and development and the relationship they have to risk oversight.
The scrutiny and criticism directed toward boards and management intensified during the economic downturn. Last year’s survey identified the global financial breakdown as the main cause of corporate malaise and many sectors of society held directors at least partially responsible. Directors have taken steps to restore confidence in the institutions they represent and, as this year’s What Society Thinks? survey results demonstrate, they are having some success. More needs to be done, however. Despite some well-publicized failures, most boards have worked diligently and made significant contributions to improving overall governance standards. In order to set the record straight, directors must first understand what people think and why. Now in its second year, What Society Thinks? determines how the broader community views the boardroom and aims to establish a baseline that, reviewed over time, will record changes in perceptions and point to areas where education and reform may be needed, in the eyes of public opinion. Once again, NACD Directorship and Deloitte LLP teamed up and in conjunction with Korn/Ferry International surveyed a broad cross-section of society—herein referred to as “Main Street”—including academics, journalists, financial experts, students and policy makers. To provide some perspective, and to measure how these views differ from those inside the boardroom, we also garnered the thoughts of board directors themselves, CEOs and executive management.
A Workable Balance
So why go to the effort of examining the opinion of Main Street? After all, they are not business experts and do not run the companies that the economy depends on. The answer may be more apparent—and important—than ever before. Shareholders have gained significant power in recent years and are able to influence boards through proxy proposals and increased voting power. In addition, public opinion has a way of reshaping political agendas. Many leading experts believe that Corporate America’s unwillingness or inability to govern itself forced politicians to enact legislation to rectify perceived deficiencies. Whether these deficiencies are real or not is debatable. The modern reality is that a slew of new regulation is changing the way boards perform their work, while increasing director responsibilities and liabilities.
“Boards are asking new questions,” explains Henry Ristuccia, partner, Deloitte & Touche LLP and leader of Deloitte’s U.S. Governance and Risk Management practice. “Directors are getting more involved and demanding greater transparency from management, especially as it relates to risk management. They are encouraging management to find a workable balance between risks that create value versus those that protect value. They are also examining strategy and creating a shortlist of business risks, then evaluating how to measure those strategic risks on an ongoing basis. Directors want to make sure they are not only checking the box to meet requirements, but that they are on the road to a more sustainable consideration.”
In short, perception is quickly becoming reality and directors need to be out in front of the debate, shaping its course. Negative sentiment not only impacts reputations— both personal and corporate— but also drives equity and capital markets. In uncertain times, directors need to be reassuring investors that things are not just under control, but heading in the right direction.
“The reality is the scrutiny of public company CEOs and directors has never been greater and people who have the personality, intellectual capabilities and leadership skills are individuals who love a challenge and don’t shy away from the big problems. The general complexity of running a public company is daunting, but these are natural leaders and they revel in the responsibility that comes with the role,” says Nels Olson, vice chairman and co-leader of the Global and Board & CEO Services Practice at Korn/Ferry.