Month: August 2010

It has often been said that there is no place in the boardroom for a director who does not understand the business. Now we need to consider if there is room for one who does not understand internet enabled connectivity.
Directors need to understand both the risks and the opportunities presented by the internet in general and social media in particular.

The Impact on Business

The days when a corporation’s website was simply an online brochure are long past. Most companies now offer some degree of interaction. World class companies have specific communication strategies and communities that ‘meet’ using the company as a focus for their interests.

At its most basic level the internet is a source of threat or opportunity for the business. Transactional friction is reduced, customers can communicate across time zones and geographical boundaries, supply chains become ‘transparent pipelines’, employees can collaborate on projects and spread best practice, the possibilities are huge. These opportunities are asymmetrically spread and new competitors can use technology to gain an apparent overnight advantage on established companies. The need for capital is dramatically reduced as new players cooperate to mimic the reach of large multinational companies without incurring the bureaucracy or cost structure. Many an industry leader is watching new competitors scoop the choicest morsels from the market by targeting prospective niches, or simply hijack the revenue stream by delivering an alternate method of satisfying demand.

The Impact on Boards

Technology is also changing the face of the boardroom. Many directors now access secure ‘virtual board papers’ rather than receiving voluminous printed material. For some this is simply an emailed file that mimics the old paper-based pack; for others it is web-enabled environments where directors can self serve their requests for more information by drilling down or through layers of data behind the official board packs.

Meetings themselves are changing with boards opting for web-conferences, virtual presentations, and internet enabled ‘visits’ from external experts. Gone are the days when a director hanging onto a crackling phone line and listening in missed out on vital clues as to his or her colleagues feelings about the issues under discussion!

The Impact on Directors

Directors are also embracing new technology to avail themselves of opportunities to network with their peers, learn when and where it suits them, and research potential new board seats. The number of director-related groups on LinkedIn is growing almost daily and these groups range from select ‘close networks’ of directors who all know each other or serve on the same board to large international communities of interest where a director in Saudi Arabia can comment on proposed regulations for corporate governance in Latvia that are put out for comment by a Danish national and read from Australia to Zimbabwe.

There are a number of places where anonymous requests for advice can be posted and, whilst some of the responses are less than well researched, many of the respondents are well recognised governance experts in whose advice the poster may feel reasonably confident. There are also places for whistle-blowing on unacceptable practices and for keeping up to date with the latest regulatory changes.

Astute directors are reading what their investors (and some traders) are saying about the company and its board in chat-rooms. Others are using these as another vehicle for communicating with shareholders.

The internet ‘Genie’ is definitely well out of the bottle, what will happen next is almost anybody’s guess. The only thing I know for sure is that change is coming and my businesses, boards and director friends must all be ready to meet it.

What do you think?

Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website and LinkedIn profiles, and get her book Dilemmas, Dilemmas: Practical Case Studies for Company Directors.

The speed of the announced departure of Hewlett Packard CEO Mark Hurd was in and of itself newsworthy. At first blush it would seem that an action by a leader to warrant such fast response from a board must be quite nefarious; if not fraud, then at least a juicy sex scandal. Instead, as was reported in the Wall Street Journal:

H-P said Friday that Mr. Hurd, 53 years old, didn’t violate the company’s policy regarding sexual-harassment but submitted inaccurate expense reports that were intended to conceal what the company said was a “close personal relationship” with the contractor.

Expense Reports? One CEO friend of mine mused that it would be one thing if Hurd had claimed personal expenses as business expenses in order to hide a liaison from his wife. That would be fraud, even if it was a small amount. But mere false categorization? “That’s absurd,” he said, “to fire a successful leader for not mentioning this contractor on his expense reports.” However, nothing can be farther from the truth.

I give tremendous kudos to the HP Board for taking such swift action on something that might seem so small.

Unlike opportunities for major fraud, which really can only be carried out by a small number of people, expense report violations is something that is within the domain of thousands and thousands of HP employees. False expense reports may seem minor, but it is often the place where larger crimes start, and can serve as a convenient hiding place for many varied violations.

Several pharmaceutical companies have recently paid hundreds of millions of dollars to settle claims by the FDA of kickbacks to doctors. The place where these violations appear: expense reports.

Moreover, there is no more powerful negative influence on a workforce than perceptions of unequal treatment of senior leaders. If a junior manager could be disciplined or fired for the kind of violation that mark Hurd engaged in, and if he was only given a slap on the wrist, the reverberations of inconsistent treatment spread like wildfire. Employees are willing to make sacrifices for the company and to even look out for the company’s interests over their own, but only when they feel they are being treated “fairly.” Once an event occurs that gives them grounds to perceive they are being “suckered,” then all that commitment vanishes in a flash. It’s back to looking out for #1.

The Board did the right thing, signaling to all HP employees that no one, even the CEO is exempt for holding to the stated standards of business conduct.