By Gary F. Grates

To coin a phrase that would do proud that renowned master of the malapropism, Yogi Berra, the only consistent thing about business is that it’s always changing.

In the first decade of the 21st century alone, the task of running a corporation has been permanently transformed by new technologies, new media, a growth in outsourcing, “green awareness” and, increasingly, an expectation that companies should be more open and transparent in their dialogue with the public and employees. Of course, that doesn’t even begin to take into account Sarbanes-Oxley and the government oversight that has come into play.

That’s no doubt an incomplete list of the changes we’ve seen. That’s why it’s not hyperbole to refer to 21st Century Corporations: they are, in many ways, fundamentally different from their 20th Century counterparts, with different needs and different challenges.

Despite this, one thing glaringly hasn’t changed: board of director composition typically remains firmly rooted in 20th Century standards and conventions. When companies select new board members, they generally look to the same criteria as they would have 10 years or even 25 years ago.

Granted, the basic elements of what boards are expected (and required) to do remains pretty much the same: review financial performance, protect the company mission, ensure regulatory and bylaw compliance, and monitor the CEO. And, certainly, it’s critical that lawyers, accountants and other traditionally experienced, professional-service oriented executives remain board fixtures. Faced with a financial or other crisis, wouldn’t you want them around? I know I would.

But, as the environment in which corporations operate has changed—and as the demands on corporations have changed accordingly—boards have not kept pace. Today’s boards must be able to do more than their predecessors did. Yet, instead, they more often than not reflect the past rather than the present or future.
The 21st Century Board: Pursuing Shareholder “Truth”

Beyond the traditional, 20th-century board functions described above, today’s boards have additional responsibilities.

Pursuit of shareholder truth is the new game plan of directors, superseding for the time being, seeking shareholder wealth. But truth, that hoary old Horatio Alger maxim, can’t of and by itself, rebuild confidence, especially among employees, the venue I am immersed with.

Truth doesn’t necessarily explain the “why”, and knowing “why” a particular decision was made, why good ideas get short shrift is critical to “trusting” leadership, value in short supply these contentious days in corporate America.

Does Cerberus’ decision to bring back Robert Nardelli, fresh from his Home Depot debacle, to chair its Chrysler business, really build the kind of “trust” or seek shareholder “truth” necessary to compete effectively in an ever complex world?

  Today’s boards must not just “oversee” the operations and strategies of an organization, rather, they now need to offer insight and perspective on more relevant areas such as how social media impact how companies communicate today, and how stakeholders get and process information. They must be more creative and perceptive on how to participate in – and influence – the social conversation and dialogue that, like it or not, all companies are a part of today. They must be more adept at gauging public perception and modifying direction as a result – or explaining actions in the context of that perception. They must be far more attuned to how the company’s technology strategy influences every aspect of how it does business.

  They must also demonstrate a new kind of openness that is unique to the transparent age in which we live. Stakeholders are no longer content for companies to share whatever information they must: they expect companies to also share how decisions are made, and how those decisions influence or reflect any number of “hot button” issues of the day, be it healthcare, the environment, or something else.

  All of these responsibilities require a different kind of mindset and experience base than most boards currently have. It’s a mindset that views the world from the outside in, rather than the inside out. It’s an experience base that understands how to connect companies with their communities, and how to anticipate and identify trends before it’s too late to shape them.

Where to Begin

Directors may want to begin such a process by reviewing how leadership communicates management and the employee workforce. Directors may need to look over employee communication with a careful eye to the accuracy of the information, especially numbers. Doing so can provide a fresh sense of how the company is being managed – an insight that is at the core of governance.

  I urge directors to look between the lines, note what is and isn’t being said. Are strategies really explained or just arbitrarily served up? Is information really being shared or censured versions only? Are people being asked to engage in the business or treated as mere spectators?

  Given a random selection of a months worth of internal presentations, memos, intranet posting, e-mails, broadcasts, and videos, by senior management, on issues major and minor one can pretty much construct a reasonable profile of the company’s management model or DNA. Preposterous? Not really.

  Such communications, by words, phrases, organization, content, context, timing, relevance, and breadth are a widow on leadership’s soul exposing intent, sincerity, engagement, and most of all respect!

  Now, how does understanding the way a CEO or leadership team communicates internally—beginning with management—morph into assessments of management style or even effectiveness? It starts with the rhythm of the message, which in and of itself suggests a stilted bureaucracy or a more open, learning environment: its formative style, telling or listening (by which I mean is it what management wants to say or what employees need to know?) speaks volumes to the internal relationships; the content, meager or meaningful, indicates either willingness to hare or a reluctance: in this context, a director can sense genuineness in offering perspectives helpful to gaining employee support or simply communicating as little as possible because it is an onerous duty; timing is, of course, critical to the quality of communications, implicitly giving evidence of what level or responsibility motivates the CEO and finally, the tone reflected, is it explaining squarely or justifying authoritatively?

  Sounds like a great deal to extract from a review of internal communications – the often forgotten realm of organizational reputation. Naturally, the analytical process is not totally definitive as to management’s quality of communications. But it is one direct way to gain a greater sense of how management interacts with its most precious resource: employees.

  Take a look at the aforementioned Home Depot. Under Nardelli’s stewardship, input, timely information, and employee engagement were treated as diseases, to be warded off and defended against. The infamous shareholder meeting that lasted less than an hour with no board representation and shareholders timed for their questions to a minute, was not just a disgrace in corporate governance, but displayed a lack of respect for all things human.

  As far as directors go, there is no five or 10 point checklist in this regard. This is an intuitive judgment you instinctively make based on experience. But, directors, need to ask themselves, does the communications reflect an inflexible bureaucracy? Is it patronizing? Elemental? Helpful?

  At the end of the day, the CEO needs the benefit-of-doubt – the space employees and shareholders provide the boss when making policy or explaining a situation. The building blocks for the trust given him/her by employees and stakeholders lie in communications.

  I have little doubt there are skeptics among you who believe that, first and foremost, the job of the board boils down to maximizing the financials while staying true to the law and preserving the company’s good name. Many of you likely view the issues raised here as “soft” ones.

  It might surprise the skeptics that, when it comes to the first part, I essentially agree with you that those functions are—and must remain—the core functions of the board. I would disagree vehemently, however, with any contention that the issues addressed here are soft, or of secondary importance. To the contrary, in the 21st century, these are the matters you must focus on, and understand, in order to remain profitable and competitive, and to preserve your good name.

  Companies that don’t recognize this will learn the hard way, either through jolts to their revenue, their reputation, or both. No less than Jack Welch—a stalwart of 20th century business leadership and best practices— has observed that the soft stuff is the hard stuff when it comes to business growth. Certainly, anything of relevance to a business’ growth should be of relevance to its board of directors.

  If you sit on a board today, or are responsible for choosing board members, ask yourself: does our board represent the past or the future?

  Even if you don’t ask yourself that question, you can bet your shareholders and employees will.

Gary F. Grates is president and global managing director of Edelman change and employee engagement, the organizational communications practice of Edelman. Prior to Edelman, Grates was General Motors’ vice presidentof communications/North America, and global leader for internal communications covering over 300,000 employee.