Helping boards tackle new markets and business models

Aug 18, 2016
<p>With business disruption becoming the norm, boards can&rsquo;t afford to not include discussions on strategy and innovation on their agendas</p>

Frontier Communications matches each of its 10 board members with a senior leader in a two-year, rotating mentorship program, according to its former executive chairman, Maggie Wilderotter. ‘I put this program in place specifically for the board to get to know the senior leadership of the company, and for the senior leaders to get to know the board members,’ she explains.

‘The only rules are that [participants] have to get together at least two to three times a year outside of board meetings, preferably over a meal so it’s more relaxed. Our senior leaders love the program, and so do our board members.’

One hallmark of a board open to innovation and actively helping the company evolve for the future is a willingness to venture beyond the confines of the boardroom itself. Susan Stautberg, chairman and CEO of the WomenCorporateDirectors (WCD) Foundation, says she’s impressed when ‘directors are wandering around the company and getting a chance to ask more questions.’

Too often, corporate boards focus so intensely on risk that they fail to pour the same energy into strategy, innovation and questions of whether a company is expertly pursuing new markets and business models.

‘What most boards don’t do that they ought to is have a line of sight into strategic portfolios,’ says Rita McGrath, professor at Columbia Business School. ‘I’m often surprised by multi-billion-dollar companies. When you ask, Who’s working on next-generation innovation?, it’s 20 people.’ McGrath says CEOs use the pressures of Wall Street and other short-term imperatives as an excuse for not addressing larger issues. Arguments like this, she says, are a cop-out because CEOs are paid to innovate and to think strategically – and the board and corporate secretaries should help them do just that.

Framing the conversation

Putting innovation and discussion of new businesses and markets on the board’s agenda is the first step in making sure these topics are given the time and attention they deserve, says McGrath.

Cynthia Cohen, founder of Strategic Mindshare and former member of the boards of Office Depot, Sports Authority and Steiner Leisure, notes that while the board’s governance committee should include a lengthy strategy discussion on the agenda at least once a year, even this worthy goal is too often derailed.

‘If you were to look at survey conclusions, boards still don’t spend enough time on strategy discussions,’ she says. ‘All of the boards are trying, but they’re time-pressed.’ In a world of cyber-crime, environmental disasters, terrorism and other day-to-day challenges, the board may find itself scuttling or cutting short a strategy discussion to deal with an unforeseen catastrophe requiring a swift plan of action.

The ideal, says Wilderotter, who co-chaired the National Association of Corporate Directors’ (NACD) Blue Ribbon Commission on Strategy Development that resulted in the 2015 report The board and long-term value creation, is to incorporate and integrate strategy into every board meeting held. 

‘Strategy is not something you do once a year or every other year. It’s something that has to be ongoing,’ she notes. Even regularly penciling strategy discussions into the agenda isn’t enough. ‘When there are different events that happen within a company, strategy should be looked at again and updated,’ she adds.

Just as important as giving discussion of strategy and innovation priority is making sure board meetings are not overwhelmed with the wrong topics, says Michael Useem, co-author of Boards that lead and professor at the Wharton School of Business. ‘You don’t want to take board meeting time to report what the company was doing to a bunch of smart and well-connected people and not ask for a lot of feedback, commentary or guidance,’ he says.

Skillfully conducting conversations about new markets and businesses is an art in itself. Useem maintains that a savvy independent board chair will find ways ‘for all 10 or 11 people to put their voices into the conversation like a high-performance team.’ To elicit diverse viewpoints, the independent board chair might need to call on board members or conduct round-robin discussions so no one is left out.

Finally, Stautberg recommends that all board chairs or lead directors budget time for meaningful discussions about future strategy and potential disrupters that could upend the current business model. ‘If companies spend all their time in board meetings having show-and-tells or watching PowerPoint [presentations], they’re looking at the past. They’re not looking at the future,’ she points out. ‘They’re not looking at new markets. You want boards to have real conversations.’

Innovation committees

One way to make sure innovation is given its due is to create a board committee designated to address this arena. Jamie Flinchbaugh, a corporate adviser and author at jamieflinchbaugh.com, applauds the creation of innovation committees because they are ‘a structural component that keeps innovation in the light.’ He sat on the strategy committee of a private company’s board that examined new products and niche markets – and one of the niche markets the strategy committee brought to the attention of the full board soon became a major product line for the company.

Wilderotter, who currently sits on the boards of Costco Wholesale, DreamWorks and Juno Therapeutics, agrees, noting that while innovation committees are not all that common, they can be very helpful to both the company and the board.

In the past, Wilderotter sat on the innovation committee for the Procter & Gamble (P&G) board. The committee met just twice a year, but sessions ran for four to five hours. ‘We went through the whole pipeline of what P&G was working on from a product innovation standpoint,’ she recalls. ‘And we didn’t stop at products. We looked at innovation in how P&G went to market and innovation across the board in the company.’

That said, Wilderotter points out that the NACD Blue Ribbon Commission on Strategy Development recommends strategy be the responsibility of the whole board ‘and not delegated or relegated to a committee.’ Many board members feel exactly the same about innovation.

Should a company decide to create an innovation committee, the corporate secretary can be enormously helpful in defining the scope of the committee’s duties, Cohen says. A company launching a new board committee should look at what peers are doing to define roles and responsibilities, and then very clear definitions should be written into the committee charter. One drawback to creating an innovation committee is that it can unintentionally ‘trample on or confuse’ the roles of existing committees or even of management, she says.

Boardroom dynamics

Arguably, almost all the hot board issues of the day – gender and racial diversity, board refreshment, the graying of current directors – play into whether or not the board is actively and creatively assessing new opportunities and exploring cutting-edge products and practices.

At a very high level, though, boards need to be asking themselves whether their leadership is suited to the future a company is pursuing. ‘As companies change and morph, the boardroom has to change and morph,’ says Wilderotter. ‘Boards need to replenish and refresh to make sure they have the right talent for the situation the company is facing at that point in time. It’s diversity of talent, capability, experience, gender and race. You’ve got to have all of them to really have the right mix.’

Stautberg recommends creating a skill set matrix that complements the strategy of the company. Some of the skills might be very specific, such as expertise in supply chain management or manufacturing in India. Others are more personal in nature. ‘You want to avoid groupthink,’ she says.

She suggests that when a company wants a cutting-edge approach, a younger board recruit with a deep understanding of social media may be desirable. In 2011, for instance, Starbucks made headlines by inviting Clara Shih, a then 29-year-old author of a bestseller on social marketing, to join its board.

Putting 20-somethings on the board is not the answer for all companies, however – especially given the fact that board seats are such a precious commodity. For this reason, a handful of companies are creating digital or social media advisory boards. ‘With an advisory board, you’re able to get great knowledge about what your company should be doing. And if you think one of these individuals should go on the board, you’ve had them sit around the table for a year or two and you can see how competent they are,’ Stautberg explains.

While advisory boards are very rare in corporate America today, the idea is interesting, says Useem. ‘What a non-fiduciary board does by definition is spend all of its time not on earnings per share but on advice,’ he says. ‘I think they can be very useful to the top executives of a company as an active window on the world. For innovation, this might be an under-used sweet spot.’

Building the right culture

When it comes to creating a board that can give incisive advice on innovation, new products and promising markets, culture arguably plays a central role, says Cohen. ‘If you have a culture of new ideas and trying things, it’s going to yield results. People make good judgments and are not stuck [thinking], This is the way we’ve always done things,’ she explains.

One key to creating a fertile board culture is fostering the right attitude toward failure. ‘Failures frequently produce a correction and then an ‘Aha!’ moment,’ observes Cohen. ‘So you also have to encourage companies to try things and not give them disincentives for having an open, testing, innovative culture.’

Stautberg agrees, noting that corporate secretaries should help directors keep their eyes on what matters most: recognizing upcoming trends and possessing a true strategic vision. ‘We need our directors to have one foot in the present and the other foot in the future,’ she concludes. ‘A visionary board goes beyond oversight and insight: it has foresight.’

Stuck inside these four walls?

One way to prevent a board from getting into the type of rut that stifles innovation is by meeting at a non-central site – and even visiting facilities internationally, says Cynthia Cohen, founder of Strategic Mindshare. She points out that when a board approves R&D expenditures, it’s heartening to see what the company later accomplishes in terms of the next generation of products.

Maggie Wilderotter, former executive chair of Frontier Communications, says she was given the opportunity as a Xerox director to attend an optional get-together at Xerox Park. ‘The five of us who went got a good sense of what Xerox was working on from a technology innovation perspective,’ she says. ‘Xerox doesn’t have an innovation committee, but it opens up innovation activities to its board.’

Board members do not necessarily have to travel to widen their horizons. Often, companies do the legwork in identifying and bringing in outside experts who can help directors decide to pursue a new strategic direction. Mary Meeker, a partner at Kleiner Perkins who got her start as a pioneering internet analyst at Morgan Stanley, recently did a two-hour ‘deep dive’ with Frontier’s board on internet trends she had identified for the next two to three years, says Wilderotter. She stresses the importance of format: the program featuring Meeker was open, allowing ample time for Q&A.

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