I mentioned the “Board’s
Role in Corporate Strategy” session below at the NACD Corporate Governance Conference. Here are a few more tidbits from the
absolutely packed session, so popular that three rounds of additional chairs
had to be brought in and people still were left standing in the back.
Norm Augustine: Committees are
very good at critiquing and dissecting but poor at putting things together. It
befalls the management team to put together the strategic plan. The CEO sits
down with management and comes up with the plan, then sits down with the board.
I believe in the chair and CEO being held by the same person but, for this
purpose, it may not be a good thing.
Beverly Behan: In my work, I’ve
made a number of international site visits. Could you talk about that when you
were at P&G?
Norm: I was on their board
for 18 yrs. P&G does some unusual things: I spent a half-day sitting with an
earphone in the Complaint Department listening to complaints. It was revealed to
the customers that a board member was listening in. This gives you a real
perspective from the person who counts: the customer. Sometimes we went to the
annual offsite a day early. Then we paired up and visited someone’s home and asked
if they were willing to talk about household matters. We wouldn’t tell them what
company we were from. I’ve sat in fancy homes and homes with dirt floors. You get
real insight into consumers. After about 20 minutes, people became very candid.
I learned more during those visits than from all the management briefings. Here’s
an example. We were in a very poor country. If you buy Tide in a big box, you
save money. But if you have to walk a mile to get groceries, then it’s too
heavy to carry and people buy it in little packages, which costs more.
Peter Boneparth: At Jones
[where he served as CEO], from a supply channel standpoint, it’s hard to understand
what goes on in the far east but until you’ve seen it. It gives you a different
perspective on corporate responsibility. At Kohl’s [where he’s a board member],
the board is required to make five site visits per year. At Jet Blue [also a
board member there], there is a maverick culture, which goes all the way to the
board level. One benefit is free travel but we have to file trip reports and
are expected to engage with people all up and down the chain on morale and talk
to customers on flights. This is very important to developing corporate strategy.
Industry expertise is at a premium in the boardroom.
Norm: I used to walk through
stores on my own. I saw a woman taking non-Tide detergent off the shelf and
asked her why she was not buying Tide. She said it was too expensive. It was $1
more per box. I bet her $2 that she wouldn’t buy it so she bought it.
Beverly: I just talked to
someone going onto new GM board. At the first meeting with the new board, they all went to the
Design Center where they walked them through the whole car making process from a
blank piece of paper through to production. That afternoon they went to the
performance track to see the Volt and other new vehicles drove them on city
streets members of the production team.
Question from audience: Could
you tell us what information is essential for board to have in regard to strategy.
Peter: Competitive information
is critical but don’t inundate the board with information. Understanding the customer
base is critical. And you need good information on people in the organization.
Norm: I’m an engineer [as
per below] which means I’m one of those guys who created the button that says “start”
to turn off your computer.
Peter: I’m now sitting on
two bds. What I see now is the need for appropriate deference to management’s
capability. You have to know enough about the industry to feel confident in
asking the right questions. As CEO, I wasn’t comfortable that board at
reservoir of knowledge.
Norm: That’s the greatest
dilemma I faced as a director. Your basic source of knowledge comes from the
CEO and top management. If they’re not candid with you, there can be real problems.
Alternatively, I’ve been on boards where two of the directors had buddies in
management a few levels down feeding them information. Having been in the Pentagon,
I believe in the chain of command and that’s just wrong. That company got into
trouble and those directors with buddies knew about problems before the rest of the board. It can undermine the
CEO if you have board members dipping into the system without the CEO knowing.
And then this little
reminder, which feeds into an upcoming post:
Norm: American companies are being bought at an alarming rate.
Remember my saying that 