Maria Castañón Moats is the leader of PwC’s Governance Insights Center and previously served as the firm’s Chief Diversity officer. In this episode she discusses the critical importance of incorporating diversity – and a clear understanding by board members of the board’s role – to achieve board effectiveness.
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“I am a woman, a Mexican-American woman, and admittedly, I did not know much about diversity and inclusion before taking the role [as Chief Diversity Officer at PwC]. I grew up in a small town in West Texas – El Paso – where everybody looked like me, so my diversity journey really started when I graduated from UT El Paso and started moving East all the way to New York. I like to share that because I don’t want people to assume that I was an expert coming into that role.”
“When I was leading diversity, we would often say that feedback is a gift because if people aren’t giving you good feedback, they probably don’t care about you very much.”
“’Why would boards really lean into this [diversity] and really give great advice to management?’ Because that’s what boards do, they give advice to management, they provide that oversight.”
One of my goals was getting the board of directors leadership to be more diverse. Our CEO was very open to not only diversifying the leadership team, but also thinking about how you get a more diverse board.
A question to be asked about board effectiveness is: how diverse is that board? How diverse are their experiences? And is that diversity and those experiences appropriate given the times we live in today with all the social changes, with climate, everything we talk about on ESG. How does that fit for the purpose of today and the future and not necessarily yesterday?
Board effectiveness really means “what’s the value of the board to an organization.” And in particular, what’s the value of the board to that management team and to that CEO? Are they really giving the CEO the right advice on strategy and the risks associated with that strategy? Are they really those trusted advisors, and then are they exercising this fiduciary responsibility to shareholders and stakeholders at large?
As you know, Joe, what investors want today is to see the numbers. I tell people when I meet with directors, it’s not that they just want to kind of understand your demographics and get a baseline, but they really want to understand the goals and where you’re going as an organization, then as a board, how you hold management accountable to those goals based on what metrics and data.That’s what investors are looking for.
Offboarding. We need to critically say to ourselves, “The feedback is telling me I probably have given all the best I could to this board, and I should now move on, and, oh, by the way, maybe I can sponsor someone to come onto this board. Maybe that’s the last big thing I can do here, and maybe it’s someone that’s not from the familiar network, someone I’ve been mentoring to get onto a board.”
What I think that’s different when you think about climate versus diversity is we’ve been talking about diversifying boardrooms and management teams for decades, and that pace has been, let’s just say, unacceptable, until recently. There’s a need to accelerate that pace of change. With climate, it’s going to accelerate much faster, people want to see change much faster. We’re not going to get a ten-year timeframe to act on climate change and related risks.
Joe: Hello and welcome to On Boards, a deep dive at what drives business success.
Hi, I’m Joe Ayoub, and I’m here with my cohost, 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 unsuccessful or successful, 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 Maria Castañón Moats. Maria is the leader of PricewaterhouseCoopers’ Governance [00:01:00] Insights Center. PwC is one of the largest professional services network in the world, and its Governance Insights Center mission is to strengthen the connection between directors, executive teams and investors by helping them navigate the evolving world of governance landscape.
Raza: Maria is also a PwC audit partner and has previously held several important PwC leadership roles, including serving as its chief diversity officer from 2011 to 2016. She has held several board roles, including with the March of Dimes, and is on the advisory board of the University of Texas at El Paso’s College of Business Administration.
Joe: Welcome, Maria. Thanks so much for joining us today on On Boards.
Maria: Thanks, Joe and Raza. It’s good to be with you.
Joe: So, I know you’re currently the leader of PwC’s Governance Insights Center, [00:02:00] but before we discuss your work in that role, I’d like to talk about your previous role as chief diversity officer at PwC, starting with how did it come about that you were offered and accepted that role?
Maria: Sure, thanks, Joe. So, took that role in 2011. My heart warms every time I remember that because that’s the year that my daughter was born and she’s 10 now, and our senior partner at the time, Bob Moritz, who’s now our global senior partner from PwC, called me and asked if I would be interested in the role.
He actually looked at the role and developmental in many ways. He came onto the leadership team of the firm. He then reported directly to him, to our CEO, and he drove a very important initiative for the firm, right?
So, he had to do a little bit of convincing, because I was a new mom for the second time, I had a 5-year-old and a baby, I was leading a large audit client in the New York Metro [00:03:00] area, and there was a lot going on, but he told me that I would learn how to lead in a different way and I would have options career-wise that I never would have envisioned coming out of that role.
We saw that role as rotational, Joe. It was to be undefined, two, three, and it ended up being five years on the leadership team, and that’s how I was selected.
And last thing I’ll tell you is while I am a woman, a Mexican-American, I did not know much about diversity and inclusion, so I learned in the role, and the reason is because I grew up in a small town in West Texas, in El Paso, Texas, where everybody literally looked like me, I think, till today, and my diversity journey started when I graduated from UT El Paso and started moving east all the way to New York. I like to share that because I don’t want people to assume that I was an expert coming into that role.
Joe: So, what is it that from a [00:04:00] subject matter point of view attracted you? What was important to you, or why did you think that diversity and inclusion mattered before you took the job?
Maria: So, while I had been serving clients and leading teams in what I knew for it, I really had not really been on the leadership team nor had I worked on strategy. I mean it didn’t take much to see that the future of the firm had a lot to do with not only the talent we brought in, but making sure that that talent was diverse. Our clients were demanding that more and more, so I knew it was an important strategic role.
Frankly, as a woman and Latina, there’s a lot of responsibility, and I knew that I would be a role model, and often you have to be able to see it to believe that you can be enrolled. So, I’d like to think that I had something to do with making people see that if I could be a leader on the leadership team, then somebody that was a staff at the [00:05:00] time, a manager, also could dream big, and so that’s why I took the role, and it was fantastic.
Joe: That’s pretty powerful, but a lot on your shoulders. One of the things we talked about when we first met was that one of the goals was getting the board of director leadership to be more diverse. So, you looked around at the board itself and saw not as much diversity maybe as might be hoped for. Talk about what it looked like and how did you have that conversation with the board and with management at PwC?
Maria: So, we’re talking ten years ago, and my comment was the leadership team needed to be more diverse. I obviously brought that diversity in terms of gender and ethnicity. Our CEO was very open to not only diversifying the leadership team, but also thinking about how do you get a more diverse board.
Now, PwC’s board is different than other corporate boards. We’re a private partnership, and so the board members get elected by the other partners. [00:06:00] So, we knew it was important that as more of our partners, hopefully more women and underrepresented minorities, move to leadership positions in the firm and were better known, then they would have a better likelihood of getting voted onto our board. So, that was the journey that we were on. By the way, the firm had already done a lot around gender when I came in, but we knew we needed to do more around blacks and Hispanics.
Joe: So, great that leadership had a very positive attitude about it. Interesting approach that it’s almost from a ground up, so you’re not telling them what to do, but you’re creating a culture where voting directors that look more diverse or are more diverse, would be something that they would do because of the changing culture. Is that fair?
Maria: That’s exactly right. When I talk about everything I learned when I was leading diversity and inclusion for the firm, I knew that we needed to get to the masses. We needed [00:07:00] to get people to believe that the right thing to do for our strategy, for our firm, our strategy to grow, to bring in more talent, to grow from a client-based perspective, what we needed to do was diversify the talent, and so the masses, the people coming into the firm, the people in manager positions, the partners needed to believe that and act on it. So, we very much met people where they were on their diversity journey and asked them to play a role.
What do I mean by that? I asked my fellow partners, many of whom were white males, to sponsor people coming up in their careers and to pick a person that does not look like them, did not go to their same school, maybe didn’t live in their same neighborhood. That’s how you start diversifying.
I say that now when that’s kind of like our normal way of speaking at PwC, but ten years ago, as you can appreciate, people were like, “Do you want us to do what? How do you [00:08:00] want me to help on this journey, Maria?”
Now, the good thing, Joe, is I’ll tell you to a person, people would come up to me and tell me that they wanted to do something. Lots of partners said, “Tell me what to do. I want us to be successful in this effort.”
Joe: That’s fantastic. So, to put things in context, when you refer to the “masses” at PwC, over 250,000 employees?
Maria: Globally. And then for the US firm, we’re a network of firms, at around 50,000.
Joe: So, a large group of people that you’re talking about when you refer to the masses, not like most companies, obviously, so a big task. How did you get engagement from the board, and how did you let them know what you wanted them to do?
Maria: Sure. So, I reported to our CEO and then the management team would meet with the board and report out to the board, and so I met often with them. One of the things we started doing is really being transparent with our [00:09:00] board on our data, and it was important that we share kind of like, “Okay, where were we when you think about number of partners and the representation of women and minorities in the partnership?” And then go to the next level, people that were a few years from partner so on and so forth. From entry-level all the way up to the leadership of the firm, which was the partnership, what did that look like? And therefore, how did we want to progress? What were the goals? What were the programs we would put in place? So we were very transparent with our board around our journey on data.
We knew that at some point we would have to basically disclose our numbers outside the firm, and we did so for the first time in 2020, last year, we’ll be putting out our second report on transparency this fall. But you see, that was ten years ago, so you start kind of as a management team reporting to the board what the numbers look [00:10:00] like and why it takes time to start to change representation and diversity, literally years. And then at some point, you get to the point where you’re actually disclosing that publicly.
As you know, Joe, that’s what investors want today. They want to see the numbers, and I tell people when I meet with directors, it’s not that they just want to kind of understand your demographics and get a baseline, but they really want to understand the goals and where you’re going as an organization, then as a board, how you will hold management accountable to those goals based on what metrics and data. That’s what investors are really looking for.
Joe: How did you get the board to be more than just passive observers for a process that they approved, to be more involved in this dynamic process? .
Maria: So, I would say that, obviously, our board is composed of partners, so it’s in all of our best interests to execute well on a strategy, any strategy. So, they had a vested interest in that, but if [00:11:00] I step away from that and just say, “How would boards really lean into this and really give great advice to management?” Because that’s what boards do, they give advice to management, they provide that oversight. I think that the first thing you have to insist on as a director on a board is the data and the numbers, and I’ve even put out there on our website a diversity dashboard with numbers and demographics and all kinds of things, and then you’re going to get really smart about the types of questions that you’re going to ask.
Joe: It must have felt good when the board did start asking those questions. They were engaged enough to really
Maria: As an example, it’s one thing to see how people are progressing within an organization, but it’s another one to get so smart, that you start asking, tell me why for this group, they progress slower than the others. How are you focusing on that? And how are you trying to reverse that trend? And by asking those questions, management will have to really think [00:12:00] about, “do we have the right strategy?”
Joe: Ask the kind of questions boards ask about important strategic initiatives.
Maria: Right. And then this is an area where you need to be bold because if you go back to external pressures on organizations, clearly people want this type of data and they want progress yesterday. We don’t have time to tippytoe around these questions, like we all need to lean in hard. So, when I was leading diversity, one thing you need to know is I did not take any of it personal in that I didn’t get offended by questions. I just said, “Okay. That is an excellent question, let’s address it.”
Joe: Well, good for you. I’m sure there are times that that was challenging, but it’s a process, as you said, and not an easy process necessarily, although it sounds like between leadership and the partners, there was a lot of support to move this forward and to be successful with it, which is great to hear.
Maria: Yes. Yes.
Joe: So, you became leader of [00:13:00] PwC’s Governance Insights Center. How did that come about? And tell me a little bit more about what the center does and how it does it.
Maria: So in 2016, I became the audit leader, so I led one of the largest business units, the audit practice from ’16 to ’19. So I got to practice everything I had been talking about from a strategic perspective and driving change across the firm on my own business unit, the audit practice. It’s not easy to do a large practice.
So, I was able to do that. I was able to put partners in leadership roles that stood for diversity and people saw them that way. They were white males, but when I appointed them to position, people knew that it’s because they had done something around sponsoring people into the partnership that were diverse and so on and so forth.
I came out of the role as the assurance leader in 2019 or so. I continued to work on clients, et cetera. But then last year, like in 2020, I was [00:14:00] asked to come into the governance role to be the leader of the Governance Insights Center this spring, and it is a position, Joe, that I’d like to tell people that I said I really wanted. I talked to our senior partner, Tim Ryan, about it. I saw great opportunity to work with terrific leaders. I mean, people that are on boards are accomplished in their own right or they wouldn’t be on a board.
I saw that in many ways I would be able to interact with the leaders about very important issues that are confronting companies and boards. So, I came in at a time where I couldn’t have asked for a better role at a better time.
Joe: So, give us an example of board effectiveness. It’s something that you mentioned in the materials and it’s in the survey as well. How do you approach that with a client company?
Maria: So, when you think about board effectiveness, it really means what’s the value of the board to an organization. And in particular, what’s the value of the board to that management team and to that CEO? [00:15:00] Are they really giving the CEO the right advice on strategy and the risks associated with the strategy? Are they really those trusted advisors, and then are they exercising this fiduciary responsibility to shareholders and stakeholders at large?
When you think about effectiveness, you do look at things like governance and effectiveness of the different committees and how transparent they are in their proxy around not only what risks do they oversee, but how they oversee those risks. That’s super important.
The other thing, frankly, and it’s been covered a lot and I think it’s true is, how diverse is that board? How diverse are their experiences? And is that diversity and those experiences appropriate given the times we live in today with all the social changes, with climate, everything we talk about on ESG. How does that fit for the purpose of today and the future and not necessarily [00:16:00] yesterday?
Joe: When you say diversity in that context, you’re talking not just about racial and ethnic diversity, but by a diversity of perspective, is that fair?
Maria: As well. I mean, so when we talk about, “Go back to board effectiveness,” and you say, “Okay, so who’s on the board, why on the board, what value do they bring? How are their experiences, prior roles and the like still relevant, and how are they relevant relative to the strategy that this company is going to execute over the next five and ten years?”
So, that board, their goal, needs to be diverse from a gender perspective, you would think, from an experience perspective. It just can’t be race for the sake of race is what I tell them.
Joe: The clients that you work with, do you find that their own board assessments are effective?
Maria: And typically you get there, but boards do board assessments and then those board assessments, they should be able to look at sincerely and say, “What are we missing here? What kind of [00:17:00] director can we bring on that will help us be even more effective?”
Joe: Because we run into, in some of the conversations we’ve had, the notion that many boards, public and private, struggle with board turnover, people are in the seat too long or their skills are no longer the right skills or a whole variety of things that leads to less effective than one would hope boards. What have you seen on that and how do you approach it?
Maria: Yeah. So, clearly, the pace of turnover, which is slow on board, and for good reason, boards need to make sure that they’re not turning over people, because if you turn people too quickly, you lose critical experience. You want to be able to bring on new board members at a good pace.
So, when you think about that, you look at assessment, you’ll say, “Okay. Let’s think about assessments in the context of how is the board really [00:18:00] thinking about critical skills that are needed and bringing them on. And how is the board doing the assessments? They’re probably doing surveys. They’re doing one-on-one interviews, a host of data, and then they talk to individual directors and then they provide feedback to the group.”
All that is to say at the end of the day, the key thing to me is, are they providing feedback to individual directors about their performance? And then whether how they’re performing really is what the board needs and what they need for the future as well?
When I was leading diversity, we would often say that feedback is a gift because if people aren’t giving you good feedback, they probably don’t care about you as much. We really said that. So, you have to be willing to take the feedback and the criticism around how you say things, how you look, how do you put, whatever, present yourself and have a thick skin.
And I think one of the things we could think about more on boards is giving [00:19:00] each other that feedback and acting on that feedback. So, if I’m a director that’s getting feedback that keeps telling me that for reasons related to the strategy of the company, et cetera, et cetera, I probably do not need to stay much longer, then I could lean in and say, “That’s fine, guys. It seems like I probably have another year or two on the board, you should start to find someone to come onto the board.”
I know that sounds like it doesn’t happen in real life, but really I think it needs to start to happen. We need to critically say to ourselves, “The feedback is telling me I probably have given all the best I could at the right time to this board and I can move on, and, oh, by the way, maybe I can sponsor someone to come onto this board. Maybe that’s the last big thing I can do here, and, oh, by the way, maybe it’s someone that’s not from the familiar network, someone I’ve been mentoring to get onto a board.”
Joe: Yeah. I think that’s [00:20:00] the highest and best hope for a board member, that when the time comes, he, or she says, “Okay, time to go. We want to make the board better.” And I love the idea of, “Boy I’ve been mentoring someone that I think is going to fill the role and has the skills and experience that’s going to really make the board better.”
I think that’s a great perspective, although I suspect that it’s still challenging.
Maria: It is, although I will tell you that more and more when I talk to directors, many of whom are white males, they actually want to sponsor more folks because they get all the calls, people call them all the time. They can’t take them to the board because they already have two or three, and so they tell me how they actively try to place somebody else and give a name, “I can’t take it, but why don’t you call Susie, or why don’t you call Jose?” I mean, whatever, so that’s how I see they’re thinking about it.
Joe: Yeah, that’s a great way to think about it. Raza, do you want to pick up?
Raza: Sure. Maria, PwC does a comprehensive annual corporate [00:21:00] director survey. From the most recent one compared to the last years, can you talk about what the things jumped out, maybe around the ESG or diversity and inclusion areas as we’ve been talking about it or any other things that kind of really are the highlights of how the governance scene is changing and evolving?
Maria: Sure. So, we’ve been doing this survey over ten years and these surveys have 800 directors, it’s been around for a long time, and we are in the field in the spring/summer, and then it comes out in the fall. So, we’re actually about to release later this fall, probably in the September timeframe the ones for 2021.
But I’ll tell you when I look at ’20 versus ’19, I mean, a lot was happening in the world with the pandemic, and so what we saw is topics like ESG, there is no question that you keep seeing directors saying that more needs to be done as it relates to their oversight of ESG year on year.[00:22:00]
I’ll give you the preview that for ’21, we continue to see that, but when you get underneath those topics and go, “Okay, that sounds right. Clearly we all lived through a pandemic and oh, by the way, there were social unrest and natural disasters and it looked like the role was ending, so you would expect these results.”
When you get underneath those and you go to each one of them, take diversity, which we’ve been talking about, while there is a clear understanding that more should be done to diversify boards themselves and leadership team, that does not exactly correlate with the pace of change of diverse people getting on board. So, what I tell directors is we’re all aligned in what needs to be done, but how hard are we all working to get it done?
Now, we go to climate, which is, I would say, the thing to talk about also in 2020 as we go into ’21 and then ’22. Clearly, investors and others are very interested in what[00:23:00] any company is doing around climate, not just those that are in industries you would think of that should be interested in climate.
So, what I think that’s different when you think about climate versus diversity is we’ve been talking about diversifying boardrooms and management teams for decades, and that pace has been, let’s just say, acceptable, until recently, there’s a need to accelerate that pace of change.
I think with climate, it’s going to accelerate much faster, like we’re talking about it and people want to see change much faster. Said another way, we’re not going to get a ten-year timeframe act on climate change and related risks.
Raza: Now, on governance, PwC also has, I’ll call it, a global perspective; what have you observed a US versus European board for this conversation of ESG and diversity and inclusion? Are they a little ahead? Is there more talk here than [00:24:00] actual progress? What have you seen from that comparative perspective of governance?
Maria: Sure. So, we’ve seen that for years. When you think about companies based in the European union to pick one in the EU that they have been years ahead when it comes to all to do with ESG, primarily because of regulation, quite frankly. So that was fine. It was happening in Europe, right?
More, more regulation, more disclosure, more transparency around climate and diversity and all the topics. And in the US, I would say we were watching from afar. What I have observed now is that people are trying to learn from the journey that companies took in Europe, because you can anticipate that there’ll be more regulation here in the US, clearly.
And you can anticipate that there is a need for more transparency and disclosure around climate risk and how the board oversees that climate risk and disclosures and the proxy, and it’s by industry. So, a [00:25:00] board of directors that are looking within an industry to Europe and say, “Let’s think about what those disclosures look like and let’s think about that journey,” are probably doing the right thing, because you can’t wait anymore and you can’t wait to see if it goes away, so to learn from that journey makes a lot of sense.
Joe: I want to go back to this one thing that jumped out. So, the surveys said that four out of five directors agree that companies should be doing more to promote gender and racial diversity in the workplace, but then it says only 34% of directors say that it was very important to have racial diversity on their board.
And that kind of strikes me as more than just catching up. It sounds a lot more like, “I hope it happens, but we’re okay where we are. We don’t really want to rush into this.” Actually, that really just surprised me a great deal. Can you comment on that? What am I missing here?
Maria: Right. No, Joe, [00:26:00] it’s a good question. I think there is a belief. It doesn’t mean it’s truth. There is a belief that racial diversity will come in time, and that there may not be a sufficiently large pool of qualified racially-diverse candidates. And I said very publicly that that’s fine to have that belief because if you look around and you don’t see anyone in your own circles that is racially diverse, then you believe that, and that’s fine. But the reality is that there are dozens, dozens, dozens and hundreds of qualified people that are racially diverse.
Now, you have to go beyond the CEO and the CFO in organizations of public companies, and people are starting to do that. So, if you’re seeing that a lot of first time directors going into Fortune 500, and this would hold to the Fortune 1000 as well, that are racially diverse, it’s their first board, and many of them are not necessarily CFOs, and of course, not CEOs, since there’s very few CEOs that are [00:27:00] racially diverse, but they have operations backgrounds; they’ve dealt with strategy, and they can learn from other board members. So, I think it’s this whole 34% only in terms of like the lack of action, it’s simply because there’s a lack of understanding that there is a pool out there of qualified candidates that also happen to be racially diverse.
Raza: In a similar manner, Maria, 38% also said that they don’t think that ESG issues actually have financial impact on their company. On the one hand, the BlackRocks of the world and the State Streets are telling organizations that this has real financial impact and their investors are not willing to fund companies that are not making progress on these issues. How do you reconcile this gap as well?
Maria: Sure. So, Raza, I would say when you think about climate or let’s say with climate, there will have to be investments in new technologies. There are [00:28:00] funds that will be used; the investment is going to happen, so you’d think about what’s that return, which is a very logical question if you’re on the board.
So, you’d then go, “Wow, when is the return coming on this investment from new technologies, different ways of operating the company if we’re going to be greener in many ways, better on water usage, all this kind of stuff?” So, what I would tell you is that one way to also look at with the financial return is to look at lenders now. Lenders are now looking at their own portfolio saying, “If we’re going to lend to companies, might get a better rate, so on and so forth, that are leaning into climate and the climate-related risks” because the reality is that will have an impact on the company, so the lenders are looking at that. So, while I think that that’s what we found in our 2020 survey, you’ll start to see that people are really now seeing that there is a financial impact if you don’t act now on all to do with ESG.
Raza: Well, we’ll look forward to the 2021 [00:29:00] survey. It looks like great work in incrementally documenting what’s important for boards.
Joe: One of the things that I saw in the survey of effectiveness was that executives are confident in the board’s overall understanding of the company’s business, but give lower marks in areas such as IT, ESG and crisis management. We’ve talked about ESG, but just to look at crisis management, it would seem to me that getting low marks on risk management is really concerning. I’m trying to square how a board member can be really engaged and understand a company and its company’s needs and its strategic issues, but not be understanding of the risks and risk identification, ultimately, risk management- maybe you could talk a little bit about that.
Maria: Yeah. So, the survey you’re referring to is for the first time in 2020, and we’re going to do it again in ’21. We actually kind of took [00:30:00] our annual corporate directors survey and related questions and we did a 180 on those and we actually asked the executives their view on those questions to see kind of what their thoughts were on the effectiveness of their boards.
So, you shouldn’t be surprised in that they kind of didn’t see that they were doing as well in these areas, like ESG, IT and cyber for a few reasons. Number one, on the IT and cyber, boards are only as effective as the quality of the reporting from management to the board. And so, one of the things the executives need to understand that is if you go and give an update on cyber and IT risks, et cetera, to the board once or twice a year, and, by the way, each time their great presentations, but their different from one another, your board probably because they’re not in it every day, probably didn’t quite understand what you were trying to convey.
So, what I tell people is this is an area where there should be more frequent reporting. The reporting should look similar instead of like wondering, “What did [00:31:00] I look at last time? What was important then? What are the key risks? What are the crown jewels? What should really matter? Where should I really get my understanding? What are the trends? If you’re always looking for Waldo in these presentations, you’re just not getting it. So, I tell the executives they need to do better reporting in these areas to the board so that the board could be effective in their readout.
Now, on crisis management. Joe, I just want to address that. The thing is not many boards had been through a crisis, and now we all have with the pandemic where our world was turned upside down, supply chain, revenue streams dried out, everything happened. So, one of the things that’s important there is, what did we learn? How can we now be better prepared for the next pick-your crisis?
Some organizations, because they had been through something before, whether it’s natural disasters in part of the country got hit by a hurricane, so that happens a lot, particularly where I sit right now in [00:32:00] Dallas, and when you think about with hurricanes coming up into Houston, natural disasters are a great way to kind of know what happens when revenue streams dry out, supply chain, all that kind of stuff, this pandemic basically happened to all of us.
So, that’s where that was going. Like the boards do understand strategy and related risks, but it’s this crisis management and what did we learn that was the finer point that we were trying to put on it in the 2020 survey.
Joe: Yeah, that’s great to hear. I’m so glad you touched on that because I was going to ask whether this pandemic did accelerate the recognition of how important it is to up your game on crisis management, let’s say, and you have been seeing that.
Raza: And for Cyber and IT, does it also sounds the reason that not only it’s just a matter of increased or effective reporting back from management to the board, but also partly is the board skill issue, because a lot of the times it’s more about financial and other [00:33:00] operating experience skills, and every company is a tech company and software eats the world so maybe that skill is not getting refreshed as well as it should be.
Maria: Yes. Well, so this is one area where there was this debate that I would say in the last few years to whether there should be a separate committee to deal with IT and cyber risk and now throw in their data privacy, and in that committee, you would put experts in.
That’s just not really what’s happening because it’s not reality. You can’t just have a separate committee and find the experts. So, I think directors are learning that everybody has to get their acumen up in this space, whether they do it by better reporting by management and supplement that with third parties coming in and talking to management and the board and getting that outside perspective, your own education by attending courses.
But we all, if we’re going to sit on the board, have to be better because of the world we live in now. I’m better at IT risks, with data privacy risks, cyber [00:34:00] breaches, ransomware, it’s all happening, so these are just risks, they’re not kind of special risks that you can put a special committee on.
Joe: What about the idea of a separate Risk Committee in boards? I know that often that has been in the audit committee, but there’s been a lot of talk. We had a guest, David Koenig, last season who talked a lot about this and started the DCRO. I don’t know if you’re familiar with them, but they are now giving certifications to people for risk identification and risk management.
What about that idea? Have you seen that? Have you seen it be effective? What are your thoughts about that?
Maria: So, you see Risk Committees in financial institutions It’s regulated industries, so you’ll see it there, and you get the question as to whether you should see it in other places as well, kind of a non-financial institutions.
The question is really can be answered by you looking at your business and saying, “When you look at what are the responsibilities of the Audit Committee, including risk oversight, which involves now cyber, which we just talked about and that’s really, is it [00:35:00] too much? And should we have a separate risk committee like financial institutions do?
And then the risk there is that how do you make sure that the risk committee is appropriately staffed so that maybe members are on the risk committee and the audit committee and there’s overlap.
I would say the same about ESG. So, they’re probably, if you think of pharma, Joe, pharma is going that way as well, because they’re heavily regulated of having a separate Risk Committee, but making sure that it’s clear what are the responsibilities of the different Risk Committees. I would tell you that they’re set still in a minority in the non-financial institutions. But it’s definitely back to skills needed on the board. Risk oversight is very, very important and really understanding the enterprise risk management process of an organization and how the management team oversees the risk is super important.
So, I always tell board members before you answer the question of whether you need a separate risk committee, how is the company organized? Do they have a separate risk [00:36:00] officer? What does the risk officer do? Like really get into that and then you can help you answer the question.
Joe: Yeah, that’s great.
Maria. It’s been great speaking with you today. Thanks for joining us on On Boards and thank you all for listening to On Boards with our special guest, Maria Castañón Moats. To our 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: Also, the easiest way is to go to our website, onboardspodcast.com. Again, onboardspodcast.com. All the episodes are available. And if you have questions, comments, or suggestions, we would love to hear from you and you can do it right on the website.
Joe: Please take care of yourselves, your families, and your communities as best you can. And Raza, you take care, too.
Raza: You too, Joe.
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