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Corporate Boards in a Time of Change, Uncertainty, and Rising Expectations

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I was recently interviewed for Accountability for their CR Leaders Corner by Marcy Murninghan and Bill Baue. With their permission I am sharing the interview, "10 Questions for Lucy P. Marcus".

When Stephen Davis of Yale University's Millstein Center for Corporate Governance and Performance presented a "Rising Star of Corporate Governance" award to Lucy P. Marcus last June, he called her the "charismatic Anglo-US head of Marcus Venture Consulting, which works with venture capital and private equity funds, institutions and corporations." Marcus represents a new breed of standard-bearers, advancing a 21st century version of virtue politics where governance doesn't simply broker competing interests, but rather transcends them. A reflective practitioner, Marcus takes her director role seriously, linking ethics and civic accountability to commercial enterprise. She also is non-executive chair of the Mobius Life Sciences Fund and non-executive director and chair of the board audit committee of BioCity Nottingham.

Lucy P. Marcus speaks regularly on board dynamism and director obligation, and her writings appear in the Harvard Business Review, Huffington Post, and CSRWire. In February, The Independent ranked Lucy as 43rd in their 100 Most Powerful Britons on Twitter. A Fellow at the University of Cambridge's Judge Business School focusing on Leadership and Innovation, Marcus recently was named to the shortlist of the 2011 Thinkers 50, a biennial ranking of the world's most influential living management thinkers (final announcements will be made in November).

As one Millstein Center nominator wrote, Marcus is "a breath of fresh air, introducing fresh perspectives on leadership and accountability within a global context." Said another: "Lucy's experience, combined with her writing talents and vision, have the potential to make her a recognized name in the field of corporate governance throughout the world for years to come."

We caught up with her the other day, and asked what it means to be a director these days in an environment filled with change, uncertainty, and rising expectations.

In your recent Harvard Business Review blog, "Independent Directors Need to Step Up or Step Off", you say the landscape of board service is changing, which also is the message in the latest edition of the Corporate Director's Guidebook, published last spring by the American Bar Association's Committee on Corporate Laws.

Yes, I said that boards are no longer black boxes shrouded in mystery and untouchable by press, investor, and stakeholder enquiry. It is similar to the way venture capital was viewed when I first started working in it - at the time it too was a mysterious world that no one outside of the venture world really understood. Both are arenas that wield influence, but not a lot is known about what is happening behind closed doors.

I think it is vital to bring transparency to what happens in the boardroom. There are many reasons that this is beneficial, but one of the big ones is that if we are to rebuild trust in companies, we must be seen to be doing the right things and not be perceived as a closed off and untouchable place. To achieve that we must hold ourselves as directors to account.

What's the biggest misperception that people have of boards?

Before I joined my first board, I had, like many do, a picture in my head of a kind of King Arthur and the Round Table gathering: wise people assembled behind a closed door, sitting around a table, thinking well-intentioned chivalrous thoughts, having deep discussions about the present and future of organizations, and speaking in a special "thee" and "thou" language. And then the door opens and they venture forth to create value for all the stakeholders. When I went in that room, I realized that they do speak in a funny language, but that the balance of the discussion was off, with a lot of short-term thinking and not any "star gazing" or balance. I also noticed that the agenda items boards are discussing are not moving with the times. By that I mean looking beyond current limits to achieve more and better results for all stakeholders, while also making sure the company is managing its risk, playing by the rules, and behaving as a good corporate citizen.

Because people don't always understand what happens in the boardroom, people who go into the boardroom don't always know how to communicate with those assembled there. Directors are a busy and focused group, and one key to getting information across to them is to understand how the board works and how to make a good board presentation. People need to know how to communicate effectively to and with the board.

Why do you think the News Corp. scandal is a failure of governance, in addition to a betrayal of news values?

The News Corp. scandal magnifies board culpability because its board is dominated by inside directors, with little independence. There are big questions over the real independence of the non-executive board directors. In theory, independent directors should be a check on poor decisions or a broken decision making process, but in practice this isn't necessarily true. When you look at News Corp, your mind does two things: first, you think, "They must know what's going on"--and if so, that's inexcusable". Or, you think, "They don't know what's going on"--and that's inexcusable, too.

What about independence?

To have board member Tom Perkins start speaking, about how the News Corp. board fully supported Rupert Murdoch, about his faith in Rupert Murdoch, how he's a such great guy, he's a friend, about how he worried about him, physically, because they're the same age--that infuriated me. Perkins is 79 years old and has been on that board since 1996. Board members were handpicked by Murdoch, and are either family or friends--they include an opera singer with no experience in business or journalism. That's not independence. It is an excellent recognizable case study for what goes wrong with poor governance and is a case that people can understand and relate to, which is why I wrote about it.

Often boards are too comfortable, too chummy - sometimes a factor of having board members remain on boards for too long. Point #5 of my article "Board Members: Rocket Fuel or Rocks?" is "Know when to go." One of the biggest problems witnessed and heard about from fellow board members is that there are members of boards who have outstayed their time for independence, or perhaps the needs of the board and the business has changed and new fresh voices and expertise is needed. Boards have a hard time knowing how to usher these board members out. As the UK Corporate Governance Code notes, nine years is when independence has waned.

What are the most important things board members can do?

There are a number of actions they can take, especially independent directors. One is that we need to be asking the right questions, not only about the company but about ourselves, too. We need to hold ourselves and those around us accountable for behavior in the boardroom. As I wrote in HBR, we need to continually ask ourselves if we are doing enough, asking enough questions. We can't shy away from asking hard, uncomfortable questions and holding ourselves to a high standard. If we can't do this, then it is time to get off the board.

It does a board no good whatsoever to have the greatest minds in that sector, if none of them are willing to ask the hard questions, or the so called "dumb" questions, or if we are unwilling to challenge the company or one another.

Another important quality is that directors need to be fully engaged and active. We have to dig deeper if we're not satisfied with the answers we're given. Depending on how the organization is run, this is often hard to do, but it is important to make a real effort. This gets to the issue of layers within the organization, but our liabilities, and more importantly, our responsibilities are no less if we are willfully ignorant of the actions of the institution. In News Corp.'s case, they blamed "very bad people at low levels of the organization." That wasn't fair. Not only that, once they were made aware of what was going on, they didn't act in a decisive and transparent manner--which made it worse.

Independent directors need to know that there is never a wrong time for doing the right thing.

Speaking of doing the right thing, what does it take for ethical board leadership?

When you take on a job as a board member, you need to realize it's not about you. It's not about the prestige or the money. When I went to a gathering of nonexecutive directors recently, I was a bit taken aback by some of the conversations. The conversations sometimes seemed focused too much on the board members themselves rather than the reason they were chosen to serve. It's not about us, really.

I feel strongly about the importance of integrity and commitment. In the end, in the boardroom, as in all of business, it's about people, and authenticity. It's people who innovate and create value, it's people who create businesses--it's all about being authentic, about how one wields the privilege of being in a decision making position with wisdom and integrity.

It comes down to the chair and the board as a whole to have to ask the question, Why are we here? The reason we gather in the boardroom is not to keep Bob or Frank from having to spend all his time on the golf course. We're not here to make money for ourselves to support our retirement. That's not the reason we're here. The reason we gather is to help build value. We are simply caretakers, and our seat on the board is not a named chair, but rather only ours for as long as we are making a concrete, active, and future proofing contribution.

For me, above all else, ethical leadership is about having an internal sense of right and wrong and to know how that fits in a boardroom setting. I think of it as an internal sense of "True North," and a longer time horizon. I have always felt a strong and unwavering sense of True North, and when I step back and look at a situation, that strong sense of right and wrong usually steers me to where I need to go, even if it means making a difficult decision.

Many people consider you a deep thinker. What are the Big Ideas that influence you? What's their source?

I studied political philosophy, as an undergraduate at Wellesley College and then as a graduate student at Cambridge University. This time was deeply impactful and the things that I thought about then are not so far off from the things I think about now: our obligations as leaders, and how this applies to business versus political systems. The questions I asked then continue to puzzle and intrigue me, and drive me to think differently rather than settle for the status quo.

One thing I learned from studying political philosophy was a way of approaching problem solving and inquiry. It's about rigorous questioning of even basic principles: turning off the computer, the phone, (and Twitter!) sitting quietly, be it in the garden or in an airport lounge, and taking things from their most fundamental. Throwing away all assumptions and "that's how it has always been done". Then rebuilding the construct, creating a hypothetical scenario and asking questions about whether, or if, this whole new way of looking at things will work. It means pushing hard at all facets of a new construct and seeing if it is possible.

For all of the writing and speaking I do about best practice in the boardroom and future proofing companies, I strip back the concept to its essence and think about what these institutions are really for and what they can accomplish. I don't want to accept the status quo, as that is simply not working.

What are your thoughts on diversity and board composition?

I define diversity in the broadest way: it is certainly about gender, but also about color, age, international perspective, and more. Boardrooms that don't represent the stakeholders of the business and the environment in which companies operate are not able to do their jobs as capably.

It's about bringing fresh thinking to the boardroom and an understanding of the current and future challenges of the boardroom. What we're talking about is creating an environment for robust conversations. It's about different perspectives, and not getting stuck with groupthink. And it's being mindful that the only time diversity on the board doesn't work is when there's no respect for the diverse perspectives in the room.

Also, I think it is important to refresh the skills and composition of the board. Time passes very quickly during board service, and it's easy to get comfortable with one another and settle into a rut.

No one person in the room is, or should be, indispensible. For all of us, our effectiveness, and independence we bring to the job and our aptitude for critical thinking and star gazing decrease over time.

I'm not talking about wholesale change of the entire board at once, but rather a planned process for board members who have served a period of around nine years to step off and allow new people to join in an orderly manner. I do think that term limits are a very effective way to achieve this. Term limits also address the unspoken concern about appointing younger people to the board and the fear that they could stay on for many years. We have term limits for presidents, too, and for good reason.

How can boards keep their finger on the pulse?

Part of this is about education and part is about being on "receive and transmit" all the time.

It is our obligation as board members to constantly inform and educate ourselves, both about the role of being board members, as well as the sector expertise for the companies on whose boards we sit. There are a number of ways to do that. One effective way to do this is bringing in experts, from outside or inside, who can address the specific needs of the group. It helps focus the mind of the directors, as well as improve board chemistry and interaction among board members.

Also, we live in a networked world, so I find that social media provides another way of keeping me informed about issues affecting the corporations I serve, and changes in corporate governance. It's also a way to gather information. To proactively seek knowledge I use social media like Twitter, LinkedIn, and Google alerts, and now, Google+.

What's your sense of the future of corporate governance?

I'm struck by the differences between Europe and the US in corporate governance and who's being served. At this year's Yale Governance Forum, the plenary on "What is Corporate Governance For?" was a real light bulb moment for me. It became clear that there really are different philosophies underpinning the way people and governments around the world look at boards, board reform, and legislation. What emerged is, on the one hand, a European perspective predicated on the idea that to build strong economies, we need strong boards - a more communitarian-based philosophy. Then there's a different ethic--it's a more libertarian approach that can often be found in the US, which is predicated on the primary role of the board focused above all on increasing shareholder value. These are two fundamentally different philosophical interpretations about why we gather together in the boardroom. I take a much more communitarian approach to the role of boards. One in which shareholder value is of vital importance, but that it is balanced with all of the stakeholders and a greater good in companies as an engine for growth.

I think the most exciting and important development is that there is greater public awareness of corporate governance and boards, which is vital. It's no longer a black box, or a mysterious room. When things happen with companies now, questions are being asked much more quickly about what the board is or isn't doing, and those questions are being answered in more public, open, and accessible forums. There is a growing body of people writing, thinking, talking and tweeting about these questions, and board members themselves are coming to understand that the world has fundamentally changed. The more we talk about governance and board responsibilities in a mainstream way the more we will all benefit from stronger companies that can withstand the challenges of doing business in a fast paced and dynamic global marketplace.

This interviewed originally appeared in Accountability's CR Leaders Corner