From the Front Lines: Assessing Risk, Leadership, and Crisis - NACD BoardVision
In a fast-paced business environment characterized by disorder and disruption, managing global risk is no small task for boards. Admiral Gary Roughead and Mary Ann Cloyd, leader of PwC’s Center for Board Governance, discuss leading practices for how directors can get the information they need to provide sound leadership for international enterprises.
Chris Clark: When it comes to global risk and providing timely leadership, directors really seem to be behind the eight ball. I'm Chris Clark and this is BoardVision. I'm joined today by Admiral Gary Roughead, Director at Northrop Grumman and Mary Ann Cloyd, the leader of PwC Center for Board Governance.
Mary Ann Cloyd: Nice to meet you.
Gary Roughead: Good to be here, thank you.
Chris Clark: Gary, let me just start with you. How do directors actually get their arms around a world of complexity, complete instability, and I'm talking far beyond Russia and the Middle East?
Gary Roughead: Well, I think it's important first to recognize that we're going through a period that is characterized by disorder and disruption. And my view is that it will be that way for some time particularly in areas like the Middle East, Eastern Europe. And I think understanding that and recognizing it and accepting it is is the first step.
Chris Clark: But it's not short term, it's long-term.
Gary Roughead: It will be there for a while and so it'll be important whether it's the leadership of a company or the board really takes a look at a very broad range of information, really looking at the areas that have these periods of disorder and disruption that can affect operations and investments that have been made. But also to try to understand what the drivers are and then distill that down to get to the elements that are important to the company.
Chris Clark: That's kind of the million dollar question is that wide aperture.
Gary Roughead: Absolutely.
Chris Clark: Mary Ann, in your experience because you deal with crisis and global risk all the time, you know, with your clients, what would you say?
Mary Ann Cloyd: As a director, it's different than when you were in charge.
Gary Roughead: Absolutely.
Mary Ann Cloyd: Right. So how do you really ensure, it's one of the things that I think I've asked you before, even as a director how do you ensure that you're getting the information you need, right?
Gary Roughead: Right.
Mary Ann Cloyd: And how do you sort through it.
Gary Roughead: I think the key part is is one making it a priority. You know, depending on the company that you're a director for or if you're the leadership in the company, really highlighting that area as a focus area. In my case, with Northrop Grumman, obviously we're a global security company and and world events and the developments that are taking place technologically, economically hugely important.
Mary Ann Cloyd: And at a pace like they never have before.
Gary Roughead: Absolutely.
Mary Ann Cloyd: Or at least that's certainly my sense is it's all happening so fast now.
Gary Roughead: It's happening quickly and so many American companies realize that the growth is going to be overseas and in places that we simply don't have a lot of experience with and that are undergoing this rapid change.
Chris Clark: But if that growth is happening globally that's clearly where the risk is. Do you really think that, and again in your experience, that most C-suites and boardrooms have not only the experience but the savvy to really understand through that wide aperture of this globally interconnected world.
Mary Ann Cloyd: One of the things that I see Gary is sometimes even with very, very sophisticated experienced, bright leadership, they don't necessarily have that true cultural appreciation for what it's like in the rest of the world and I've seen how that can come back to bite you in deals, right?
Gary Roughead: Absolutely.
Mary Ann Cloyd: And you assume if your experience has all been here and you've always seen how things operate and you assume that everywhere else in the world operates the same way; it can get into trouble really quickly.
Gary Roughead: Yeah. No, and I agree Mary Ann, and the term that I like to use is that you have to work very hard to look at things through someone else's lens.
Mary Ann Cloyd: Yeah.
Gary Roughead: And I think you have to really work very hard at it. You have to look at what is the information you're getting. The company leadership has to agree on the assumptions. And the board, I believe, plays a very strong role in validating those assumptions and then to not be satisfied that those assumptions are going to be static. And how frequently do you revisit them? How are you able to take a look at new information and routinely apply that new information to the assumptions that you've made? And if you are uncomfortable in how they may be syncing up then getting into a very serious discussion about are we still on the right track?
Mary Ann Cloyd: I keep thinking it's also understanding the culture.
Gary Roughead: Yeah.
Mary Ann Cloyd: There are just different cultural ways of doing things with other countries.
Gary Roughead: Without question. Without question.
Mary Ann Cloyd: And it affects business.
Chris Clark: Let me ask you both this and kind of draw it back into the boardroom. Your company going into a foreign country for the first time, what would your recommendations be, specifically, you know, that oversight of the board, should it be the full board, a particular committee?
Gary Roughead: I think it's important to not just have one pass on vetting the assumptions. That's why I think starting with one of the committees, getting a particular point of view, certain set of assumptions. And then when you go into the full board, having the full board take a look and vet and really challenge those assumptions. I think if you only do one pass, groupthink can easily take over. When you have more people involved, if there is a lone voice that may have a contrary view or opinion or perspective, just the math has a has a higher probability of subduing that voice. And so I think that having a committee and, in my case, my experience is that the audit committee is a great place to do it. I still think that the other committees, particularly on the reputational risk side, need to have a have a view of it as well. But I think having at least a two pass system; I believe you're in a better place as far as challenging the assumptions upon which your decisions are going to be made.
Mary Ann Cloyd: Sometimes it can get easy to say, "Well we don't need to spend that much time with it because it's not that big a deal." But if something goes wrong, the reputational risk can be huge.
Gary Roughead: Yeah.
Mary Ann Cloyd: And disproportionate and that's the thing I always like to point out, is it could be way disproportionate.
Gary Roughead: And I would say that we are in a particular period of time where the disproportionality can be a bit more acute. The way information moves today acts as an amplifier. And so I think you really have to try to get your head in the game and I think this is where the board expertise comes into play, of bringing people in who perhaps are a bit more current, a bit more savvy on the what I call the informational space that we're now living in because times have changed and they will continue to change rapidly especially in the information world that is really where where your reputational risk is going to rise or fall.
Chris Clark: Is there ever a time when whether you're talking about an M & A team, a board team, your team, that you quantify too much to the point of inaction.
Gary Roughead: We can look at an issue ten ways from Sunday and create all sorts of displays and data and parse it in different ways that quite frankly all that information can really be numbing.
Mary Ann Cloyd: I think that could be as or more dangerous. Too much information, I think, can be as or more dangerous than too little information.
Chris Clark: We've been talking about leading practices today, leading processes and great ideas. But there's something that we tend to forget when we talk about leading practices and that's trust.
Mary Ann Cloyd: To me, what you want between the board and the C-suite, is you want, you want a CEO who's willing to tell you what you need to hear, right? You want an open dialogue. The only way that's going to have, you're going to have that is with trust. And I think there can be a real responsibility on the board in that situation and that's to foster that environment where you let your CEO be a little bit vulnerable.
Gary Roughead: You can't surge trust. You can't increase the amount of trust at a critical point when you're trying to do something. And so the opportunity to have these very frank discussions, very important but I also believe that it's important that the board have the access throughout the company because my experience has been that you can find out a lot about the tone of an organization in a very short period of time when what we in the Navy call when you're “on the deck place."
Chris Clark: The best part about today, and I thank you for participating, I think you've brought all of your insights and ideas to the deck. And without that it wouldn't be helping our director audience, so I thank the both of you.
Gary Roughead: Well, thank you. It's been a real pleasure.
Mary Ann Cloyd: Thank you. Real pleasure.
Chris Clark: If you'd like to learn more about this subject and I hope you do, please read the current issue of NACD Directorship. There's a column called Repartee and you can learn more both from Mary Ann and Gary. You can go to the PwC web site or you can go to nacdonline.org to learn more. I'm Chris Clark and this is BoardVision.
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