Our guest today is Ralph Ward. Ralph is an internationally recognized speaker, writer and advisor on the role of boards of directors, how benchmark boards excel, and the future of governance worldwide. He publishes the online newsletter, Boardroom Insider, and he editor of the Corporate Board, the nation’s leading corporate governance magazine as well as six acclaimed books about boards and governance. In this episode Ralph talks about how increased transparency into a board’s actions are accelerating changes in behavior in the boardroom and in how boards are composed.
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The Boeing Shareholder Case
Boards of directors need to understand that there is a lot more transparency on all their communications. There’s a lot more that a good plaintiff lawyer can reasonably look at to determine just exactly how a board of directors acted – personal and work emails and texts for example.
Is the transparency, the additional transparency, the extraordinary transparency that is now available to plaintiff lawyers, is that a bad thing?
I think it’s a good thing if it’s a whip to better board operations and oversight. It’s forcing Boards to up their game.
As you said, good lawyers have scrubbed the meeting minutes to the point that you really don’t know exactly went on at the meeting. It’s really a record created for other people to read rather than necessarily a look at what transpired. So, isn’t it holding the board of directors to the fiduciary duty that they’re responsible for?
“The reality is that how the sausage is made is not always really a thing that you want everyone to see, but what’s important is the balance.”
Do you think the heightened level of transparency might, in some way, stifle open and honest conversation or deter people from becoming board members?
I have an issue of Forbes that has a discussion of director liability issues in it, and the author raised a very good point, “Are we going to make it so dangerous to serve on a board of directors that no one wants to anymore?” And it sounds like a valid point – it was from a Forbes article in 1968. If there has been any overall frightening away from serving on boards of directors, I haven’t noticed it.” but what they will do is take a closer look before they go onto a board of directors, do some more digging; what’s in the background, what legal issues have come up here, who are the leaders here, what’s the current climate in this boardroom, why am I joining the board? Well, because someone left. Well, why did they leave? What was the story behind that? And that’s I think all to the good.
“I think if you ask the question, is it a good idea to avoid “groupthink?” Everyone would give you the right answer. Of course, we don’t want “groupthink” in our board or in any kind of group of people that are making decisions. And yet, the diversity of perspective in a boardroom is something that’s only really coming in to its own now.”
“Serving on a board is not something you do in your spare time and make a few extra bucks. Whatever the size of the company, no matter how small or whether it’s a Fortune 50 company, the job is really important to the company and to the stakeholders of that company.”
The sabbatical in the boardroom (during Covid) I think, really refreshed our governance in ways we never anticipated.
Why do we need to get all these folks together every three months in a room for a day or two to make decisions? Why can’t we do it as a sort of a bite-sized chunk information. Have this section of the board meet for fifteen minutes online tomorrow, have this committee meet little bitty meetings all over the place, giving them the information, they need on a drip feed basis instead of a 50-pound board book just before the meeting. Why not try that? What could we do?
The reality is that what we’ve learned from virtual meetings, along with the heightened scrutiny, has brought us back to focus on the fact that being on a board is a job and it’s a difficult job and a serious job and a time-consuming job. The reality is that to get the best people with the expertise and the experience and the other attributes you’re looking for, you have to go beyond that limited network that you or other board members may have, or people that were former CEOs and have served on boards, and that I think is a positive as well.
Joe: Hello and welcome to On Boards, a deep dive at what drives business success. I’m Joe Ayoub and I’m here with my co-host, Raza Shaikh. On Boards is about boards of directors and advisors, and all aspects of governance. Twice a month, this is the place to learn about one of the most critically important aspects of any company or organization, its board of directors or advisors, as well as the important issues that are facing boards, company leadership and stakeholders.
Raza: Joe and I speak with a wide range of guests and talk about what makes a board successful or unsuccessful, what it takes to be an effective board member, what challenges boards are facing and how they’re assessing those challenges, and how to make your board one of the most valuable assets of your organization.
Joe: Our guest today is Ralph Ward. [00:01:00] Ralph is an internationally-recognized speaker, writer and advisor on the role of boards of directors, how benchmark boards excel, and the future of governance worldwide. He publishes the online newsletter, Boardroom Insider, a source for practical, firsthand advice on better boards and directors, and he edits the Corporate Board, the nation’s leading corporate governance magazine.
Raza: He is the author of six acclaimed books about boards and governance, Board-Seeker Guide Book, Boardroom Q&A, The New Boardroom Leaders, Saving the Corporate Board, Improving Corporate Boards: The Boardroom Insider Guidebook, and 21st Century Corporate Boardroom.
Joe: In addition, he’s made numerous media appearances, including CNBC, TheStreet.com, CNNfn, C-SPAN, Voice of [00:02:00] America, Bloomberg, National Public Radio, and Marketplace, and he writes and comments for the New York Times, The Wall Street Journal, USA Today, Across The Board, and many others. Welcome Ralph. Thanks for joining us today on On Boards.
Ralph: Welcome. I’ve been looking forward to it.
Joe: Great. So, something that you and I have talked about and that you’ve written about is the recent Boeing shareholder civil action against members of the board of directors. As a former trial lawyer, this really caught my attention, and I think one of the things you said was that maybe the rules of the game have changed. Let’s talk about that.
Ralph: Yeah, I call it the coming naked boardroom, just because that sounds like a good catchy title, but as you’re aware as an attorney looking into the case and also some of the recent media coverage on it, one thing [00:03:00] that’s amazing is how much depth the plaintiffs were able to dig out from the board work of the Boeing board here, and we’re not just talking about the standard minutes of the meeting or looking at the agendas, looking at text messages, looking at emails, being able to dig into the servers of the board members to find out what sort of things they were sending back and forth and look at all of this material, and it was kind of scary the depth that that revealed of the company of various things like a board that was more interested in the optics of having their planes crash than perhaps the safety record and probably being a little bit too lax in responding to the 737 crashes and being too willing to listen to the CEO’s assurances on it.
Now, these are all of the sorts of things that obviously plaintiff attorneys are [00:04:00] going to be trying to prove in court, but when you can dig to that deep of a level of everything that the board has been communicating among itself with management; offhand notes, quick text messages, everything, it’s very easy to make any board of directors look lax, look completely inept, and it’s something I think could happen to all of us if we were being monitored that closely.
Boards of directors need to get that idea now there is a lot more transparency on all of their communication. Is that going to make you look good or bad when you have a director sitting in the docket? And most of the time, most of us are going to look pretty bad.
Joe: Well, there’s a lot to unpack there, Ralph, so let’s start with this.
First of all, you’re absolutely right. There’s a lot more that a good plaintiff lawyer can look at and reasonably look at in determining just exactly how a board of directors acted. So, [00:05:00] in this case, the board says that it publicly deliberated over whether to ground the entire fleet of 737 MAX jets after the crash in Indonesia, but the information that the plaintiffs has seen thus far contain no evidence the board ever discussed grounding the airplanes in the months between the incident and the crash in Ethiopia. So, I guess the question I have is, is the transparency, the additional transparency, the extraordinary transparency that is now available to plaintiff lawyers, is that a bad thing?
Ralph: I think it’s a good thing if it’s a whip to better board operations and oversight, because as you mentioned here, if you look at board minutes of most meetings of corporate secretaries and council have long gotten smart to say as little as possible about the content of what went [00:06:00] on, the board discussed this duly at length and decided to vote X or Y. Maybe what actually happened was someone mentioned it, everyone said, “Yeah, that’s a good idea,” and then they went on talking for a few more minutes about something else.
But the minutes told a good story. If you start having a lot of other messages coming in, texts, issues, things like that saying the opposite or even worse, saying that there wasn’t anything done, you’ve got a lot of back-up material now that shows, “No, you weren’t doing the job.” So, that’s going to definitely crack a whip over boards. They have to say, “Not only this is what we did, but how was it going to look? How are the optics going to be?”
Joe: So, a board of directors has a fiduciary duty, not just to the shareholders, which in this case is obviously front and center, but all of the stakeholders, so isn’t that level of transparency a good thing? As you said, good lawyers, and some of my best friends are lawyers, but good lawyers have [00:07:00] scrubbed the minutes. You really can’t tell what’s going on. It’s really a record created for other people to read rather than necessarily a look at what actually transpired. So, isn’t it holding the board of directors to the fiduciary duty that they’re responsible for?
Ralph: It is, and it’s forcing them to up their game. Remember that all of these tend to be retrospective sort of issues. If you do not have a disaster strike, if your planes don’t crash, if there’s not a major accounting issue, if one of your factories doesn’t suddenly explode, if your ship doesn’t get stuck in the Suez Canal, none of these issues are going to arise. No one is going to be looking at how the board did its job. So, you have to ask yourself, “What can we do to prevent a problem happening, because if that problem happens in the boardroom, then suddenly everyone is going to be looking at us?”
One thing I’d mentioned over the last [00:08:00] year that has made this even more problematic with video of virtual online board meetings, if someone at the company secretary’s office or at the information people in the company decide, “Oh, well, I’ll take a video, record everything that would happen in the board meeting,” well, then you’ve got another huge barrel of worms that could be opened there because you’re going to suddenly be able to see board members checking their text messages in the meeting, you’re going to see that someone’s an empty chair there for five minutes when an important vote happened. All of these things are going to be ten times more transparent, which is why as any good lawyer will say, “No, don’t videotape your online Zoom board meeting,” but whether everyone gets that message, I don’t know.
Joe: Yeah, I think it’s a little different. I think it’s okay to tape it. I know boards that do it for purposes of creating the minutes. I think what’s important is to not keep it in the archives [00:09:00] because it’s not necessary and it’s not a good idea. Every little thing that happens in the board meeting actually shouldn’t be part of the permanent record, and I would say if you have in-house counsel or your outside counsel, every board that is recording Zoom has been hopefully advised of this.
But there’s still, even without that, a level of transparency now, as you said, text messages that are being exchanged. We all know that there’s chatter behind the conversation. Now, you can actually get a look at that chatter, and it isn’t always going to be flattering, as you said. The reality is that how the sausage is made is not always really a thing that you want everyone to see, but what’s important is the balance.
The transparency about what a board like Boeing did is a great lesson in what boards should be doing. We [00:10:00] need to be doing the job that we’re supposed to be doing, and knowing in the back of your mind that if something goes wrong, someone can take a look at actually what was happening during that period of time. It keeps people on their toes.
Ralph: It does, and it tells a lot more than we tend to give a credit for here. Suppose you were to sit in and know everything that’s going on on a meeting of the Tesla board of directors. Well, wouldn’t it be interesting to know exactly how much Elon Musk is telling people to jump and having them say, how high? Minutes of the meeting probably won’t show that, but if you had some more real-time insight on it, then you might not like what you’re seeing, and that would apply to just about any company with its board of directors.
Joe: Yeah, I can guarantee you the minutes don’t show that no matter what is happening at the board meeting. So, one of the things we talked about was whether this heightened level of transparency might, in some way, stifle open and [00:11:00] honest conversation. What do you think about that?
Ralph: I think it won’t because you have more actually of an obligation to be the hand raising in the room now, because in the back in your mind, aside from thinking how is this going to look, you’re also thinking, “I want to be the one who ask the question, was this a good idea when the lawyers come looking at our transcript four or five or ten years down the road here?” It will be a prod for individual board members.
Having said that, then you start getting into the question of, how much do you prod members of a board before they decide, “The game isn’t worth the candle. I don’t want to serve on boards?” And that’s one thing that I’d like to address because it always fascinates me. I have an issue of Forbes that had a discussion of director liability issues in it, and an author raised a very good point, “Are we going to make it so dangerous to serve on a board of directors that [00:12:00] no one wants to anymore?” And it sounds like a valid point, and then I dropped the trap on it, “Okay. Well, that was from a Forbes article in 1968. If there has been any overall frightening away from serving on boards of directors, I haven’t noticed it.”
So, that’s kind of a bogeyman. I think, that directors will be too scared to go on boards because of their own liability, but what they will do is take a closer look before they go onto a board of directors, do some more digging; what’s in the background, what legal issues have come up here, who are the leaders here, what’s the current climate in this boardroom, why am I joining the board? Well, because someone left. Well, why did they leave? What was the story behind that? And that’s I think all to the good.
Raza: Ralph, you’ve been writing about and lecturing about corporate governance since the nineties, so now let’s broaden this context of this conversation, has governance level improved since then [00:13:00] in your observation? Are boards getting better selected, better equipped, and better trained to do the job that they’re supposed to do, which is to hold management accountable, drive strategies, and help to identify and manage risk. What do you say, is the state of governance improving?
Ralph: It has improved, and I think as much as directors have gotten the message worldwide, they need to do better. I think just the infrastructure of making boards more effective has improved and it’s forced them to up their game. That comes from two ways. One is from global regulation, stock market listing requirements, improving and seeing more independent directors, stronger committee structures, more disclosure, ” Why are we paying the CEO? We have to put that in our filings. What is the rationale behind that? Here are the [00:14:00] goals. Here is what we’ve done. Here is more bio background on the members of the board that everyone can see.” And I think that’s one aspect.
The other aspect, and this is something that I’ve been pushing at Boardroom Insider and I think the message is getting through, is that the nuts and bolts of governance is improving. Better committee structures, because your listeners who serve on boards know that a lot more of the actual hard lifting of governance nowadays isn’t happening in the full boardroom, it’s happening at the committee level because you have audit committees that have taken on huge new responsibilities. Compensation committees, particularly at the Fortune 1000 level, CEO employment pay contracts have become monstrously complex. Nominations and governance committee that used to be a sleepy backwater, now they’re doing regular evaluations of the board and their members, better minuting better information package, better use of [00:15:00] digital portal tools to get more backstopping for the board’s work.
I think it’s somewhat of a broken windows effect here. By putting in all of these backstops building in, you have to have better government just to meet all of these standards, it has pushed up the work that the individual directors are doing.
Raza: Our guest, Didier Cossin, in an earlier episode, also affirmed that in his view, the state of governance is getting better, but I put this counter or a question more like that on the other hand, the longevity of a publicly-traded company or the number of years that they survive is actually going down. So, on one end, we think we’re getting better at governance and risk management, yet on the other hand, we are seeing more blowups. How do you reconcile the two?
Ralph: I don’t know if the two are directly related because we’ve had so much more [00:16:00] frangibility over the last half century in buying and acquiring companies, companies being spun off things like that, and I don’t know if governance is a direct relationship to that or not. It might actually be a sign of better governance.
If you go back a couple hundred, three hundred years to the beginning of joint stock companies and chartering, all of the charters were for a limited amount of time. The idea that a corporation or however it was structured could go on for decades, for centuries outliving the founders two hundred years ago, that would have seen as bizarre as a hundred-year-old fruit fly.
No, we don’t do that. We set out this up to do this particular task to build a turnpike or do a voyage, then all of us cash out and reinvest in some new operations. So maybe we’re actually seeing a return to form for corporations.
Raza: I think it’s also a testament that the cycle and the [00:17:00] speed of the cycle for everything has just increased. That’s how it is with products and services, new of them come and that replaced previous ones at a faster pace, and that’s what the corporations are also facing.
Ralph: I agree. And also I think eventually we’re going to realize that the last year of prying boards out of the boardroom, putting them in front of their computers, on Zoom screens for meetings, using their portals more for information was not a bad thing. It was a good thing because it allows us to literally tear apart the whole idea of how a board works and what it does and rethink it all. Why do we need to get all of these folks together every three months in a room for a day or two to make decisions? Why can’t we do it as a sort of a bite-sized chunk information. Have this section of the board meet for fifteen minutes online tomorrow, have this committee meet little bitty meetings [00:18:00] all over the place, giving them the information they need on a drip feed basis instead of a 50-pound board book just before the meeting. Why not try that? What could we do?
Because suddenly, board meetings go sort of through a Moore’s law change here instead of a board meeting being one big, expensive thing, suddenly it costs next to nothing, and you can break it down into these little chunks. Well, what could we do differently on governance? How could we do it better?
Joe: Well, it also opens it to the concept that being a member of a board of directors is a job, and most jobs we have don’t require that every three months you pay attention. They require that you’re actually paying attention kind of all the time, not every day, but you don’t just pick up as has been the custom for a long time a big fat board book and catch up and figure out your questions, and then you go on. That actually [00:19:00] may not be the best model. The reality is that this, along with the heightened scrutiny, has brought us back to focus on the fact that being on a board is a job and it’s a difficult job and a serious job and actually a time-consuming job.
I think that realization is good for a number of reasons. One of which is people need to understand that and take it seriously. Another of which, which you alluded to earlier, is that the people on nom/gov committees are looking differently or should be looking maybe more carefully at who they bring on to the board, and the other aspect is – I think it’s having the effect of widening the net. We’ve talked about the fact that for years it’s been somewhat, not everywhere, an old boys network or a family network or the people you know, and not out of [00:20:00] any sense of trying to exclude people, but just because it’s more comfortable. You know the guys you know, and they were guys for a long time, and that made it easier.
The reality is that to get the best people with the expertise and the experience and the other attributes you’re looking for, you have to go beyond that limited network that you or other board members may have, or people that were former CEOs and have served on boards, and that I think is a positive as well.
Ralph: I agree. I think you’ve raised some really terrific points there, and that’s another advantage, I think, of sort of taking a boardroom sabbatical for the last year for the board, getting out, because from experience, no matter how good or effective a board wants to be on diversifying, adding new talent, when Joe, a member of the board who’s been around for a while, says, “I’m retiring, so over the [00:21:00] next year, we’ll need to look for adding something,” the first thing most boards do is look around the room and say, “Who knows someone who would be good here?”
Not bad. It’s good networking, but if you’re not sitting around the room when that happens, then suddenly you’ve expanded the universe a little bit. We can look around outside of who knows who at the table. We can look at some younger people. We can look at more women who are rising in the organization. We can look at more people of color. We’re more likely to go out and tap some of the great resources out there in the various organizations that are putting together lists of good director candidates that are more diverse, more women, people of color and all of that. We can go to recruiting headhunting firms that we’d talked to to hire our top talent, “Hey, do you know anyone who could be on the board?” “Yeah, we know some great people.” So, it’s good. The sabbatical in the boardroom. I think, we’re going to end up finding out to really refreshed our [00:22:00] governance in ways we never anticipated.
Joe: Interesting. I think if you ask the question, is it a good idea to avoid “groupthink?” Everyone would kind of give you the right answer. Of course, we don’t want “groupthink” in our board or in any kind of group of people that are making decisions. And yet, the diversity of perspective in a boardroom is something that’s only really coming in to its own now.
So, I think everyone would agree that a diversity of perspective probably makes a board stronger in almost every instance, but that wasn’t the case for a long time, and now, if someone doesn’t have board experience, but might be “board ready” for other reasons, those people are going to be considered, and in many instances, will make great board members. It just going to take a more robust process.
I’ve said to clients of mine, “If you are hiring a new CEO, you wouldn’t go around the room and say, ‘Anyone know [00:23:00] someone that could be the next leader of this company.'” You’d have a process and you’d have a job description and you’d have interviews and you’d have a series of interviews and you might have a search firm. You would take it very seriously, and the reality is, that boards need to take bringing on new board members as seriously as that.
Ralph: Yet another great point here, because you have mentioned all of the things about hiring. Yeah. Yeah. Kudos to you. If you hire a CFO for the company, you don’t ask the current CFO, “Do you know somebody?” You look at job descriptions, you look at experience, you look at education, you do a whole lot of vetting.
Who goes on the board of directors of most enterprises? It’s because someone knows someone and you like their title. You don’t do that much background vetting. There certainly isn’t any training or education to do it. And particularly, there isn’t any for leading a board or being a board chair, which I think is one of the most amazing scandals of corporate governance. The real, [00:24:00] very pinnacle of the corporation, the chair of the board of directors is there because they’ve been around a while, they’re the founder, they’re family, they made a proper investment. Do they actually have to have any training in running effectively a board of directors? No.
Ralph: No one seems bothered by that, which I think is amazing.
Joe: Yeah, I’m going to push back on that a little. I there’s a lot of training for board members. There’s all sorts of good training out there. I mean, in the NACD, we’ve had the President of the local NACD on our podcast a couple of times, but there are many sources for good board education out there. Now, is everyone availing themselves of those opportunities? No, but I think that’s changing.
I do take your point about board chairs. I think more emphasis on training those people to do the job is really something that would make a lot of sense. I do know that some of the best and most effective boards have [00:25:00] coaching for their future CEO. So, if someone’s a vice chair, they start the coaching in that year or two before they assume the chair.
Or if there’s someone that’s in the pipeline to become chair or like they would a CEO, they get training, they get coaching. Now, I think that is starting to happen, so I think it would be a mistake to say there’s none of it, but I think paying more attention to it, as again, you would with the future leader of your company, is something that we all need to pay attention to because it’s not a hobby. This isn’t something you do in your spare time and make a few extra bucks. Whatever the size of the company, no matter how small or whether it’s a Fortune 50 company, the job is really important to the company and to the stakeholders of that company.
Ralph: I have to kind of disagree with you on board training. I’m sorry, but my experience has been from the various MBA business school programs, the major national organizations [00:26:00] on governance, they do a pretty good job of covering the basics, things that people probably learned in their business school training on what is a corporation, what is a board of directors, what does it do, and then you come out of it with a certificate saying, “I know how to be a director.”
From what I’ve seen, it’s kind of like the wizard of Oz giving Tin Man a certificate saying that he has a heart. Well, he had a heart to begin with, but now he’s got a fancy thing that says that he does and that’ll get attention when it comes board time. I definitely encourage people to network through these groups and to get education, how much real world value it does to make them better in a board, I’m not sold.
Raza: Ralph, I actually want to go back to what we were talking, this pandemic year pushed the boards five years ahead or ten years ahead where it would have been in terms of all boards went into virtual meetings, and we talked about it a little bit. Do you see that that is there to [00:27:00] stay post pandemic or in the future, something hybrid?
I think you talked a little bit about the drip version or the more continuous work on a board. What do you see as the future is, is it still going to be Zoom meetings or are people going to miss the board room?
Ralph: Every director I talk to says some equivalent to “I miss the boardroom and I want to get back into their meetings there.” I am not sure how well that will shake out in the long term, because we all remember a year ago we were told that we were going to have to shelter in place for a few weeks until we got a handle on COVID. Well, we’re going into the second year here now, and most of us are still having to shelter.
In-place board meetings, I’ve done some writing here recently on, “Well, how do we know we’re ready?” And there are a few steps and checklists you can go on to say, “Okay, it’s practical to look at this. But I don’t [00:28:00] think we’ll ever get back to where we were a few years ago with in-person board meetings being the primary default and having a few Zoom and teleconference meetings just to fill in and to handle some quick committee work because people are going to realize, “I had to fly god knows where. I had to knock out two days out of my incredibly busy executive schedule to deal with this here and now I’m going to have the added travel hassles and lodging and all the other hassles here. But on the other hand, I like the conversation with people. So, I’ve got that on one hand. On the other hand, I’ve got, you know, I can zip into my Zoom meeting. We can handle this in half an hour and then I can go off for lunch. I like the conversation. I also like being able to zip out for lunch and not do all that.” So, it’s going to be more of a case-by-case thing, but the benefits have been great.
Raza: I do think the future is hybrid, and especially new relationship [00:29:00] forming tends to work better in person. Once you have the relationship, other meetings or incremental meetings can go on virtual as effectively or even more effective because of the reduced cost of travel and other things.
Ralph: I have found board members tend to talk a big game a lot, and one of the most common things is whenever there’s a corporate scandal where the board was asleep, every director I talked to says, “Well, that wouldn’t happen on my watch. By God, we ask tough questions and blah, blah, blah, blah, blah,” and they’re probably the company that’s going to have the next scandal, and they’re saying, “You know, I really want to get together and network with everybody and talk with them.” They probably do, but how hard they’re going to push that long term, I don’t know.
But one thing I would say is that if we’re just looking at this at meetings of the board going to the virtual world, we’re missing one aspect. The last year has really pushed boards to make better use of their board portals for online information [00:30:00] sharing and updating, and it’s really made a big difference because you can do a sort of a drip feed process. Instead of having to get together this massive book a week before the board meeting, you can send out bits and bits of pieces. You can update your information regularly. You can have more links for the director. They can actually spend more time preparing for the board face to face than they actually do in the board meeting itself. And they’ve discovered, “Wow, there’s this great world of tools out there that can make getting ready and knowing what’s happening a lot easier.
Raza: And it’s a single place for all secure communication and everything related to the board is in one place.
Joe: Yeah, given the incredible emphasis on cyber security, the increased use of board portals is critical. It really covers a couple of things. It’s a far more secure way to communicate, but it also kind of eliminates this notion that we put together, as you say, [00:31:00] this big board book. It really is a regular source of being able to inform your board members, and I think that’s all for the better. I agree with what you said earlier, Raza, we’ve jumped five or ten years ahead in one year. That’s happened in some good ways or some bad ways but in many ways. But in terms of boards, I think what Ralph was saying is true, and I think the term of the phrase you said, that the future is hybrid, I think it’s absolutely right.
Ralph: Probably, if you have your board meeting remotely, and even in a hybrid situation, the ideal would be if the company gave every member of the board their own iPad loaded with the software they needed with every bit of patch for security, and then told them, “Use this for all business related to our board. If you want to send messages, use this, use our internal messaging system. If you want to ask a question, do it through this system. Don’t use your phone. Don’t [00:32:00] use your own personal text messaging. Anything having to do with the business, do it through this media because it’s being captured. We’ve got it. We’ve got it secured. It’s all in one place. If someday we get sued, we’re not going to have someone going and subpoenaing your company’s internal servers to chase down text messages and things you sent us. That’s the ideal. I don’t know how well they’re meeting up to that yet, but that would make everyone’s life much easier.
Joe: It’s a small price to pay to secure the communications in advance.
Raza: On the other hand, it provides hackers as one place to go and hack the whole thing, and it provides the subpoena one place to get the whole thing as well.
Ralph: It is, but then you’ve got a good gatekeeper managing everything. Whatever destruction schedule they have for information is being well kept up to there. And boy, if I had my board members sending text messages through the portal system on their own dedicated [00:33:00] iPad versus sending something through whatever they’re doing on their iPhone or sending a Gmail, I know which side I would worry about hacking a lot more on.
Joe: I totally agree, Ralph, and I’ll just say this, Raza, it won’t make it any easier for people that are issuing subpoenas. It’s easy to issue subpoenas for everything. So, text messages, work computers, et cetera, are all fair game. = Knowing that you have a disciplined board, who’s putting it all through an iPad and through a portal, I think it should make people rest a little easier and it’s going to be a lot easier to protect the information as well. Cybersecurity, it’s not just transparency that we’re worried about, but it is also security.
Raza: Ralph, I want to switch topics. You may have worked or observed family businesses, and is that worse than working as a marriage counselor, or what’s your experience?
Ralph: Marriage counseling [00:34:00] is a pretty good thing here. That’s one reason why I don’t do a lot of hands-on advisory with the family business. You’ve got to do a lot more sensitivity on who knows who, what the issues are, what their relationships are. This gets into what I mentioned earlier here is building in the infrastructure of governance though, because these are things that benefit a small family business. They will benefit Joe’s Tool & Die Incorporated, They will benefit Exxon. All of them can do well by putting in all of these fundamental nuts and bolts things; better minutes, better board information packages, better agendas, smarter thinking through of the whole thing, being able to do more board work in less time. Everyone can benefit from that.
It gets back to the broken windows thing. If you have all of this infrastructure building you to just do a good business, like maybe bureaucratic, but in the positive sense, job of [00:35:00] governance that lifts the level of everyone in the boardroom, and I think in family businesses, that helps too, because it imposes a layer of formality that some family board situations could probably use instead of having an agenda, being something the owner jotted on the back of the envelope five minutes before the board meeting.
Joe: Okay. Well, two things, first, I do a lot of work with family-owned and operated businesses, and I think your perception of them is pretty one-sided. Yes, there are families that operate like that. There are a lot of family businesses that don’t. There are massive family businesses that run better than other private companies, that run better than some public companies, so I think it’s not fair to kind of stereotype family businesses that way.
I would also say that family businesses, in my view, are the backbone of the American economy. We know from statistics that there are fewer [00:36:00] public companies now than there were ten years ago and more private companies.
Ralph: They’re the backbone of every economy around the world, and especially if you start getting into Asia, the Middle East, Europe a lot, then you’re talking even more concentration of family-owned businesses, as you mentioned, really are run well. So, I don’t want to put them down here, but any tools I can give them to help them, so much the better.
Joe: Well, I absolutely agree that it’s a worldwide phenomenon, but the other point you made, I agree wholeheartedly with, which is that the tools that we’re talking about, including, but not limited to the type of board members you’re looking for and how you go and find them, will help every company. It doesn’t matter if you have a board of five or you have a board of twenty five, who you pick and how you put that group together and how people think about that job is changing, and I think that’s a good thing.
Ralph: I think it’s the things like committee structures on the board, because in some smaller companies, it can be more [00:37:00] informal. I say, “No, put in committees, put a committee charter together, take the time to do this because you’ll be happy you did. It raises the level of your governance.” You can focus on audit and finance issues. You can focus on compensation. You can focus on risk.
Risk is a big problem now. Most companies tend to shovel risk oversight and management into the audit committee. The audit committee is kind of the kitchen junk drawer of the board, “Well, this needs to be done. I don’t know who does it. Well, let’s shove it off into the audit committee. They can do it here and.” And that’s wrong, that weakens their role and it makes the oversight less effective.
Raza: We’ve had great conversations with both our guests, James Lam and David Koenig, about separate risk committees and why they’re important. And Joe, to your point, maybe then the marriage counseling goes to the family council part and not the board for a family-owned business.
Joe: I would say that the work done [00:38:00] in every company has its challenges. Family businesses have some challenges that others don’t, but they also have some strengths that others don’t, and the kind of culture and loyalty that a good family business can generate is something that makes some of these family companies just incredible businesses.
It’s hard for a non-family to do it. I see companies that are founder-owned and led that really aspire to be like family-owned businesses in terms of the loyalty that they can generate from their employees, which is something that family businesses have been traditionally better at for reasons that I think we all probably understand, but they get a bad rap sometimes.
Ralph, it’s been great speaking with you today. Thanks for joining us.
Ralph: Thank you. I look forward to meeting again someday here.
Joe: So, do I, and thank you all for listening to On Boards with our special guest, Ralph Ward. To our [00:39:00] listeners, we have a request. If you enjoy our podcast, please take a moment to review and rate it on Apple iTunes. It really helps others find and discover this podcast.
Raza: Our website is www.onboardspodcast.com. That’s onboardspodcast.com. All episodes are available right on the website, and you can even contact us with comments and suggestions.
Joe: Please stay safe and take care of yourselves, your families and your communities as best you can. Raza, you take care.
Raza: You, too, Joe.