It’s 2018 and we are immersed in what is the New Economy, with the changes across the global economy occurring faster than the speed of light, although Elon Musk would prefer us say faster than his SpaceX rockets. There are two major trends we need to inject into our governance DNA, the underlying detail of Larry Fink’s letter to CEOs about a ‘new model for corporate governance’, and Blockchain Governance.
In this new economy, we need to think laterally and exponentially. As one of my peers once said to me, take them on the your heroes journey. Don’t just hire old mate CEO! Think forward 5 years, even 10 years, what does your board of directors need to thrive in the new economy? It might not be a robot, but it could be an Eastern European PhD STEM thinker, a young female digital executive, a Singaporean Venture Capitalist, an Indian Blockchain CTO, an African American CFO of a NASDAQ listed company, a Chinese-Australian geopolitics expert M&A cross border advisor, a Greek Australian CEO of a listed company, or it could be an Israeli startup Founder, it could be an American Entrepreneur-in-Residence from a university or a Chief Innovation Officer of a HKSE listed company, or a Chief Risk Officer of a cybersecurity company. These are all real people I know with NED capabilities to unlock the critical risk blind spots of many boardrooms. To allow your companies to achieve exceptional return on equity for investors, sometimes it requires a paradigm shift in thinking. So, what does the board of the future really need?
BlackRock’s Larry Fink is chief steward of more than US$5.2 trillion in FUM, so he has some critical words of advice that we need to digest. He states that companies need to identify with their purpose, and without this, the company will ultimately lose the license to operate from key stakeholders. He emphasises the importance of a company’s ability to manage environmental, social, and governance matters, that this demonstrates the leadership and good governance that is essential to sustainable growth.
Many company CEOs have their ESG experts sitting in a corner, whereas they actually need them up front and centre, advising on new investments and strategy. Many CEOs do not have this lens over business and they persist with a pure balance sheet capital management decision making, without considering the externalities or the disruptive forces ahead. Larry also reiterates the risks associated with groupthink by recommending companies shift towards embracing diversity. He states,
“We also will continue to emphasize the importance of a diverse board. Boards with a diverse mix of genders, ethnicities, career experiences, and ways of thinking have, as a result, a more diverse and aware mindset”.
This seems practical when the data tells us GenZ are the largest consumer group in the world, in two years millennials are 50% of the global workforce, and the diversity of our customers, employees and investors are forever changing. We need changing mindsets to steer us forward and to unlock the blind spots of the major risks presented in front of us. Will we be disrupted or can we lead the disruption?
No only is Blockchain bleeding edge technology that will transform the economy and enhance trust in payments across the globe, but it is a governance challenge for any board of directors. In the Coinbase Co-Founder and Goldman Sachs trader Fred Ehrsam’s article, Blockchain Governance – Programming our Future, he’s quoted as saying,
“blockchains may teach us more about governance in the next 10 years than we have learned from the “real world” in the last 100 years”.
So, what does corporate governance 1.0.1 look like in 2018, you better believe it, it still can often actually look something like this:
I often question this image, it is a frequent one, older, white, privileged men, and it’s a difficult one to unpack but that saying ‘you can’t teach an old dog new tricks’, well it appears too often, too true. This image (albeit often this is simply 3 or 4 men as the Board of Directors of many small-mid cap ASX listed companies) can also bring some context to the analogy, the longer we are on this planet, the more layers of the onion we need to peel back, and our stubborn mindset to know it all, without being able to step back and realise that we are actually in a ‘Learn it all’ world [insert disruption, A.I, Blockchain, TCFDs etc.].
Last week I was challenged by the advisors on an IPO of a company onto the ASX in their hunt for the Chair of the Board, and this is a bleeding edge technology company with globally experienced founders. It seems they want yesterday’s CEO, in fact they’re considering appointing a Chair of a property company. I told them no, no. But still, they are second guessing so we’ll see how this plays out. And again last week, one of our future directors was told by several chairs of boards that he needs to be a CEO of a listed company to get on a board. To this, I say ‘NO, NO, you’re doing it all wrong’.
Here in Australia, if you can point me in the direction of CEOs who are at the bleeding edge of technology, artificial intelligence and global best practice in their social license to operate, then fire way? When <5% of ASX200 companies have an A.I strategy, and literally two companies are leading global best practice on TCFDs and climate risk, with activists knocking on nearly every ASX200 company’s doors for certain compliance blunders, I’m not so sure the CEOs are the best directors in the making to truly understand the risks in this new economy.
Recently I watched the Global Climate Fund board meeting on live stream (yes, sometimes I’m just a bored nerd?!), and they were specifically asking the Co-Chairs to make recommendations for more directors, and this is how 95% of board appointments occur. Quite simply, the Chair says to fellow board members ‘Who do you know?’
And this is why they are doing it all wrong! Boards don’t need more people like us, they need more experts like ‘them’, the people over there, but who’s them, where are these diverse and progressive thinkers, the future trends mindsets, the disruptive agents of change? So, this is where the challenge lies, the boards want “trusted and known confidants”, but these are often people like us, who think like us, and have similar careers like us, so how is that going to solve the problems of today and tomorrow? It’s not.
Boards might need more sub-committees including technology, digital etc. but they actually need to redefine their board skills matrix to be underpinned with a diversity matrix. At NED, to drive the character focus of board appointments, we call this our EQUIP proprietary model – Emotional intelligence, Universality, Integrity and Purpose (Values aligned). We also challenge current board composition to better reflect the “WOS” matrix. A Whole of Stakeholder assessment will better determine the best board to understand investors, customers, employees, community and environment.
I will leave you with the final words of the letter from arguably the globe’s number one fund manager, Larry Fink,
“As we enter 2018, BlackRock is eager to participate in discussions about long-term value creation and work to build a better framework for serving all your stakeholders. Today, our clients – who are your company’s owners – are asking you to demonstrate the leadership and clarity that will drive not only their own investment returns, but also the prosperity and security of their fellow citizens. We look forward to engaging with you on these issues”.
If you want to become a future director, get on board. If you want to hire the best board of directors to achieve exponential growth or simply retain your social license to operate then give NED the nod.
The NED Non-Executive marketplace continues to locate a portfolio of diverse directors with public listed, startup and global experiences, so if you want to be considered for selection, contact us.