For Corporate Ethics you Can’t fill Boards’ meeting just with Compliance
As Aristotle famously said, “We are what we repeatedly do. Excellence, therefore, is not an act, but a habit.” Virtues in turn permeate the broader organizational culture and define “the way things are done around here.” That’s a force that’s a lot stronger than a narrow focus on following the rules.
At companies across the globe, the layers of compliance mechanisms are growing. At first blush this seems to make sense: Perhaps the most obviously straightforward method of preventing unethical or damaging behavior is increasing the number of rules designed to curtail it. However, one of the more unsettling and unintended consequences of a singular focus on ethics-as-compliance is a checkbox mentality that gives the illusion of reducing risk without really doing so. Moreover, unless an organization is careful, a compliance-focused approach to eliminating unethical behavior can stunt a company’s efforts to innovate and to take intelligent risks.
So what can a company do to excel ethically? Instead of focusing on the poor choices you want employees to avoid, focus on the positive virtues you want them to exhibit.
Plato emphasized a virtue-based system of ethics 2,400 years ago in his Academy. The philosopher believed that virtues were best encouraged through questions and discussions rather than through statements and proclamations. In other words, we learn ethics in conversation with others.
So rather than getting together with senior managers to craft a “values statement,” corporate leaders should instead foster a series of structured conversations between leaders at all levels and their teams. The goal of these conversations should be to develop a common language to help frame examples of how people live out the organization’s values or classical virtues. This is inherently a social process — virtue is learned, not inherited. Leaders are already teachers of their culture, whether they are aware of it or not, so they should ask themselves how they can teach it better.
Here are questions for each of the seven classical virtues that companies can use to shape these conversations and shift their focus from complying with the rules to excelling ethically.
Trust: confidence in one another.
When has trust made us faster and more agile?
How can we restore trust?
At our best, how do we earn and deepen trust?
Compassion: an understanding of another’s challenges.
How does compassion support our business goals?
How does compassion increase engagement?
When have acts of compassion improved our business results?
Courage: strength in the face of adversity.
When have you witnessed courage in our company?
Who is effective at encouraging people to be courageous?
How can we help people to be more courageous?
Justice: a concern for fairness.
As a company, when did we go out of your way to help a coworker?
How can we further empower our people so they are more engaged in setting their own performance criteria?
When have we been our best in serving the needs of each of our stakeholders?
Wisdom: having good, sound judgment.
What have been our wisest decisions?
When faced with our most difficult decisions, when did we choose the best course and have strength to endure?
How can we be more intentional about integrating wisdom into decision making?
Temperance: having self-restraint.
How can we balance two competing rights, such as concern for the company and concern for the individual, or compassion and justice?
How can we help people practice self-control?
When have we been our best at encouraging life-work balance?
Hope: a positive, optimistic expectation of future events.
What are the parts of working for our company for which you are grateful?
What do we do well, and how could we do more of it?
When was our culture at its best?
Leaders can assess how well they’re modeling virtue-based ethics by asking employees five questions about how the company is exercising its moral muscle:
How well are we teaching character in our company?
How might character development benefit our company?
What is being done to encourage or discourage character development in our company?
How does character development reduce risk?
How does character development promote growth?
The goal isn’t perfection; organizations are neither completely virtuous nor completely free of virtue. The goal is for companies to be better than they have been and for leaders to teach virtuous behavior by example.
We suggest that it is strategically smart for an organization to make sure that stories about the practice of virtue are actively and intentionally shared throughout the organization. Character is the result of daily actions — planning meetings, quarterly reports, RFPs, customer interactions, and so on.
As Aristotle famously said, “We are what we repeatedly do. Excellence, therefore, is not an act, but a habit.” Virtues in turn permeate the broader organizational culture and define “the way things are done around here.” That’s a force that’s a lot stronger than a narrow focus on following the rules.
Coworking spaces are on the rise, from Google’s “Campus” in London to NextSpace in California. Much has been made of these shared workspaces as a brand-new idea, one that barely existed 10 years ago. But the way they function reminds me of a very old idea: the Renaissance “bottega” (workshop) of 15th-century Florence, in which master artists were committed to teaching new artists, talents were nurtured, new techniques were at work, and new artistic forms came to light with artists competing among themselves but also working together.
The Renaissance put knowledge at the heart of value creation, which took place in the workshops of these artisans, craftsmen, and artists. There they met and worked with painters, sculptors, and other artists; architects, mathematicians, engineers, anatomists, and other scientists; and rich merchants who were patrons. All of them gave form and life to Renaissance communities, generating aesthetic and expressive as well as social and economic values. The result was entrepreneurship that conceived revolutionary ways of working, of designing and delivering products and services, and even of seeing the world.
Florentine workshops were communities of creativity and innovation where dreams, passions, and projects could intertwine. The apprentices, workers, artisans, engineers, budding artists, and guest artists were interdependent yet independent, their disparate efforts loosely coordinated by a renowned artist at the center — the “Master.” But while he might help spot new talent, broker connections, and mentor younger artists, the Master did not define others’ work.
For example, Andrea del Verrocchio (1435–1488) was a sculptor, painter, and goldsmith, but his pupils weren’t limited to following his preferred pursuits. In his workshop, younger artists might pursue engineering, architecture, or various business or scientific ventures. Verrocchio’s workshop gave free rein to a new generation of entrepreneurial artists — eclectic characters such as Leonardo da Vinci (1452–1519), Sandro Botticelli (1445–1510), Pietro Perugino (c. 1450–1523), and Domenico Ghirlandaio (1449–1494).
What can those who want to create more innovative and collaborative workplaces today — whether that’s a better office in a traditional organization, a coworking space, a startup incubator, or a fab lab — learn from the workshops of the Renaissance? The bottegas’ three major selling points were turning ideas into action, fostering dialogue, and facilitating the convergence of art and science:
Turning ideas into action. Renaissance workshops were not just a breeding ground for new ideas; they helped ideas become reality. Likewise, today’s innovative workplaces need to be equipped with everything people need to turn their insights, inspirations, and mental representations into new products and ventures. Coming up with new ideas is hard enough, but the real challenge for many organizations is figuring out how to exploit them and turn a profit.
Fostering dialogue. Ferdinando Galiani, a Neapolitan economist of the 18th century, argued that markets are conversations. The quality of the network — that is, the combined intelligence of people and organizations with different skills and abilities — plays a critical role in innovation.
In Renaissance workshops, specialists communicated with each other consistently and fluidly, facilitating mutual understanding. The coexistence of and collision among these diverse talents helped make the workshops lively places where dialogue allowed conflicts to flourish in a constructive way. The clash and confrontation of opposing views removed cognitive boundaries, mitigated errors, and helped artists question truths taken for granted.
Today, we often recognize the need for these kinds of illuminating conversations without really making space for them in our organizations, either because organizations are too afraid of conflict or because people are simply too busy to try to expand their understanding of each other. But Renaissance workshops offer proof of how important it is for collaborative workplaces to draw on sources of opposing ideas and controversial opinions.
Facilitating the convergence of art and science. While often remembered as primarily artistic today, in truth the Renaissance workshop was transdisciplinary. This helped create a holistic approach to creativity, which stands in opposition to our own organizations, in which people in different specialties are often separated into silos.
For example, during the Renaissance nature was seen as a convergence of art and science, as in the famous “Vitruvian Man” drawing by da Vinci. Many of today’s most exciting business opportunities are similar meetings of technological advances and aesthetic beauty. Bringing these disciplines together fosters mutual learning through experiments that lead to business opportunities.
Whether you are running a coworking space or trying to get your own organization to be more creative and collaborative, think about some of the ways you might follow the example of a Renaissance workshop.
With the US consumer sector changing at an unprecedented pace, retailers and consumer-goods manufacturers are actively reshaping their business and strengthening their presence in new and fast-growing markets and channels. To help fund their efforts in these new growth areas, companies are on a seemingly constant quest to cut selling, general, and administrative costs—and many of these cost-cutting programs involve reorganization. Indeed, according to our analysis, approximately 60 percent of companies in the S&P 500 have launched large-scale cost-reduction and reorganization initiatives within the past five years.
Yet our research shows that only 26 percent of those companies have successfully prevented costs from creeping back up. Worse, many consumer companies are failing to reallocate resources even as their strategies change: their budgets remain skewed toward mature, low-growth brands rather than newer, high-potential brands, or they continue to invest heavily in traditional capabilities such as retail real estate while underinvesting in newer capabilities such as digital marketing and data analytics.
How can companies capture—and sustain—the impact of their cost-cutting and restructuring efforts? We believe part of the answer lies in jettisoning widespread but outdated beliefs about organizational redesign. Our extensive work with leading retailers and consumer-goods companies has shown us that, in many cases, companies would be better off doing the opposite of what conventional wisdom tells them to do. In this article, we outline five new rules of organizational redesign. By following these rules, companies can simultaneously cut costs and drive growth—and do so for the long term.
Rule one: Shake up the core of the organization.
When embarking on cost-cutting programs, many consumer companies adopt a hands-off posture toward what they consider strategic functions—those they see as core to the business, such as marketing and merchandising—and focus instead on finding back-office efficiencies. Companies have repeatedly searched for savings in their cost centers and support functions by implementing lean techniques as well as through more transformative changes such as automation and outsourcing. The core functions, on the other hand, remain full of unexplored opportunities. For example, even companies that have shifted a considerable portion of their media budget from print to digital media continue to retain their print-marketing infrastructure.
The entire organization—no exceptions—should be in scope when contemplating a cost-reduction effort. In our experience, when companies assess the savings potential in all their departments, they identify twice as much savings in the core functions as they do in back-office functions.
Looking at interactions across departments can surface even greater savings potential. Many companies—particularly those that have been in belt-tightening mode for several years—have already tapped into the most obvious savings opportunities within departments or business units, but they’ve yet to examine inefficiencies in cross-functional, cross-channel, or cross-regional activities and processes. One example of a cross-cutting activity is retail promotions, which typically involve the marketing, sales, and merchandising departments and require coordination across channels (stores, catalogs, and online).
A global beverage manufacturer had been hesitant to even consider trimming its market-research budget, as the company had always viewed market research as central to its success. But, as part of a broad cost-cutting effort, the company decided to review market-research spending line by line: who had commissioned each piece of research, for what purposes, which suppliers conducted the research, and how the results were used across the organization. The company found that its market-research spending was more than twice the industry average and that its supplier base was highly fragmented, consisting of more than 50 providers. Based on its findings, the company made several changes: it redesigned and simplified cross-functional work flows, consolidated its vendor relationships, and created rate cards for standard research types. These changes lowered the company’s market-research costs by 20 percent without adversely affecting revenues.
As this example suggests, a cost-cutting program—which companies sometimes view as a necessary evil—can actually help a company become more effective and more agile. Reducing costs, especially in core functions, can be a catalyst for creating a leaner, faster, and ultimately healthier organization.
Rule two: Play favorites.
Every part of the business must be fair game for cost cutting, but that doesn’t mean that every part of the business should have identical cost-reduction targets. When it comes to budgets, management would be smart to play favorites.
An equitable mandate—for instance, “All business units must cut costs by 10 percent”—may sound sensible and wise; after all, it’s much easier to get buy-in from across the organization when everyone sees that the burden is shared equally. But such an approach misses the point of a reorganization. Setting across-the-board targets is counterproductive if the goal is to reallocate resources from low-growth to high-growth areas.
Some companies already play favorites, but in a way that doesn’t support their strategic priorities. For example, at a global specialty retailer, the bulk of the merchandising department’s staff and budget was dedicated to mature brands as opposed to newer, high-growth brands (exhibit). This situation persisted even though the company’s strategic plan had called for greater investment in the newer brands. We’ve seen the same kind of misalignment at several other consumer organizations, from food manufacturers to household-products companies.
A better approach is to set different cost-reduction targets and investment levels based on a business unit’s growth and efficiency potential. Leaders should also define the capabilities that are critical to growth and invest in those capabilities while “leaning out” other areas to free up funding.1For example, a global retailer reduced head count in its copywriting team by having copywriters work in both print and digital media instead of exclusively in one media channel. This consolidation helped fund new positions in digital analytics.
Rule three: Ask for bad ideas.
An ambitious cost-reduction initiative will have the best chances of success if people in the organization are empowered to think creatively and to make bold—even outlandish—suggestions. Role modeling by senior leaders goes a long way here: when leaders aren’t shy about offering up ideas that could be controversial or unpopular, they embolden others to do the same.
One hindrance to idea generation is a territorial profit-and-loss (P&L) owner. Conventional wisdom prescribes that the person with P&L responsibility also take charge of a cost-cutting program, because that person will be the most motivated to make it successful. The flip side is that the P&L owner has largely brought about the current state of affairs and therefore may not have an objective view. He or she may find it difficult—even impossible—to envision different ways to structure the work or different roles for individuals he or she hired. The P&L owner might concede to incremental moves but resist a fundamental rethinking of the organization, which in some cases is what’s needed.
One proven approach for ensuring objectivity is to form a steering committee comprising the functional leaders and at least two C-level executives. The steering committee’s role is to make decisions for the benefit of the entire company rather than just one business area.
Committee members should regularly challenge the status quo and push for a “no sacred cows” mentality—for instance, spurring the business unit to consider options that it may have previously viewed as off-limits (such as automation and the use of third-party providers). What might seem a terrible idea to the P&L owner could be an intriguing idea to committee members. Even rejected ideas shouldn’t be permanently discarded, but instead kept on a running list to be revisited in the future.
At a US multicategory retailer, the steering committee asked to be informed of all cost-reduction ideas—even those that the business unit had considered and rejected. One such idea was to do away with the gift boxes given to shoppers during the holidays. The business unit felt the move was too radical and would annoy customers who had come to expect retailers to provide free boxes for their holiday-gift purchases. The steering committee implemented it anyway, and the result was $2 million in annual savings. The retailer’s chief competitors soon followed suit, eliminating their own practice of giving customers free gift boxes.
Another way to ensure the objective evaluation of ideas is to appoint a neutral “cost-category owner” who can ask tough questions and bring a fresh perspective. At a packaged-goods company, the head of supply chain served as the category owner for marketing co-op funds. This executive was able to discover maverick spending that marketing executives hadn’t been aware of.
Rule four: Move beyond benchmarks.
Managers either love or hate benchmarks. Those in the former camp see benchmarks as valuable metrics for understanding the competitive landscape and for triggering important internal discussions; they believe companies should strive to meet or exceed benchmarks. Those in the latter camp argue that every company is unique and that it’s therefore unhelpful and illogical to compare one company’s decisions, structure, and head count to another’s.
Both camps are right, to some extent. Organizational benchmarks can tell a company, for example, the average number of employees its competitors have in each department. But that information is meaningless without deeper insights into what those employees actually do. Thoughtful leaders use benchmarks not as default targets, but rather as indicators that shed light on areas in which a company’s investment differs markedly from competitors, and then as a starting point to generate ideas for how to operate more efficiently.
Leading companies complement benchmarks with a thorough diagnostic, encompassing internal quantitative and qualitative analyses (such as time-allocation surveys that highlight the activities to which employees devote most of their workdays). Done right, a diagnostic will surface what should change: Where are the bottlenecks in core processes? Are employees using cutting-edge tools, or are manual processes limiting their productivity? Are they spending too much time on low-impact tasks?
Through benchmarking, a retailer saw that its marketing team was 45 percent larger than the marketing teams of several competitors. Instead of reflexively cutting head count, the retailer dug deeper and discovered that its marketing team produced more than twice the number of catalogs as comparable retailers did. These findings led to data-driven discussions about the retailer’s marketing investments. It decided to discontinue its least profitable catalogs, reduce the number of in-store events, and consolidate all marketing-analytics functions—previously dispersed across the company—into centers of excellence. These moves helped shave 15 percent off the company’s baseline marketing spend.
Rule five: Skip meetings and stop writing reports.
A reduction in force won’t necessarily lead to a reduction in work. Leaders must spell out exactly which activities should cease, which ones should change, and which should continue. Otherwise, those critical decisions will be left up to lower-level employees, and costs will quickly creep back up.
We’ve found that, in many companies, certain activities take up an inordinate amount of time but yield little benefit. One example is the often dreaded meeting. In general, meetings occur too frequently, last too long, involve too many people, and often don’t end with clear next steps. When a US apparel retailer administered time-allocation surveys among members of its product-development team, it found that designers were spending an astounding 70 percent of their week either preparing for or attending meetings. The survey results were an eye-opener and became a powerful case for change. The retailer reduced the number and frequency of meetings as well as the number of meeting attendees, in part by allowing team members to give certain approvals via email or online instead of in person.
Another way to reduce work is to examine a company’s decision-making processes. Many companies find that they can halve the number of people involved in making certain strategic decisions. Typically, after an organizational redesign, about 80 percent of decision rights are obvious; only 20 percent—we call them “pinch points”—are murky (in many cases due to shared responsibility) and thus need senior-leadership attention. As part of an effort to increase organizational effectiveness and agility, a global retailer identified its “high-value, high-pain” pinch points—cross-functional decisions that had far-reaching financial or strategic implications but that were widely perceived as slow and painful. A clean-sheet redesign of three pinch points led to faster, simpler decision making. In each of the pinch points, up to 20 percent of process steps were eliminated, and the duration of one monthly process was reduced from ten days to five days.
Like meetings, business reports can be time wasters. At a global food-and-beverage company, the finance function was constantly churning out financial reports. After close investigation of who was requesting the reports and how frequently, how long they took to prepare, and how they were being used, the company eliminated the laborious but low-impact reports. In total, the finance staff stopped producing 25 percent of the reports, thereby freeing up time for more-valuable activities such as deeper financial analysis.
There may be other activities, beyond meetings and reports, that companies can either de-emphasize or stop doing entirely. Leaders could come up with a list of such activities by asking questions such as, “What tasks are being done purely because the company has always done them? What tasks are employees constantly complaining about as not being worth the time and effort? Are there operations that we could shut down without major repercussions?” The answers may prove surprising.
An organizational redesign won’t “stick” without thoughtful change management.2One aspect of change management can be compared to a marketing campaign, aimed at making the case for change and inspiring and motivating the organization—perhaps through frequent CEO missives and heartfelt testimonials from leadership. Another is more like a military campaign, concerned with adjusting budgets, establishing checks and balances, and monitoring progress. Retailers and consumer-goods companies that pay close attention to both these hard and soft aspects of change management—while keeping in mind the five rules outlined above—will be well on their way toward building an organization that can continually control costs while also, crucially, building new muscle for growth.
Everyone knows that large companies share board members, but it’s hard to appreciate just how enmeshed global governance has been for decades until you see the connections. I partnered with Meindert Fennema of the University of Amsterdam and William K. Carroll from the University of Victoria to show how companies’ boards interlock and to study the implications for when a crisis hits. We plotted shared directorships among 176 large companies in 1976 and 2013, two years that followed a major global economic crisis
In 1976 more than four out of five of these large companies shared board members. Each node represents one company. Lines represent a shared board member between the two companies the line connects. Straight lines inside the circle are transnational connections, while outside arcs are regional links. In total, these 176 companies shared 368 board connections. Most links — 82% of them — are regional, as seen in the thick nests of gray links, particularly in the European Community (EC).
The 1976 network is also characterized by people we call “super connectors.” Just 23 of these people form 114 of the links — that’s 31% — in the graphic. Most of these super connectors are regional. Some companies, especially in the EC, shared dozens of board members. For example, as the graphic below shows, leaders at Volkswagen were deeply enmeshed with other EC companies.
Notable examples of this dense network include Peter von Siemens, who was chair of the board of Siemens from 1971–1981 and also served at Deutsche Bank, Mannesmann, and Bayer; Hans Lutz Merkle, who was CEO of Bosch and sat on the boards of Volkswagen, Deutsche Bank, AkzoNobel, and Shell; and Sir David Barran, who was on the boards of Canadian Imperial Bank of Commerce, Shell, Midland Bank, and British Insulated Callender’s Cables.
One reason large businesses linked up regionally was to build resilience against global economic threats, namely the oil crisis and recession. The oil crisis also spurred the creation of a small but well-defined international network of board connections. About 18% of interlocks were international in 1976, and most of those were transatlantic links in finance and energy — two of the first industries to begin globalizing because their production process is inherently international. Companies such as Shell, visualized below, had become global governance players because they started to connect their boards to international industrial finance companies around the globe.
Fast forward to 2013 and we see a remarkable change — try toggling between the two years in the graphic below. We again used 176 large companies, but the total number of links dropped 37%, from 368 connections to 233. (Some companies have changed from the 1976 version, but we kept the same sample size and global distribution of companies.) The average links per company dropped from just over two to just over one.
In 1976 the business elite focused their energy on building deeply enmeshed regional networks. The response to the recession in 2008 wasn’t the same.
Regional networks did not form in reaction to the 2008 crisis. In fact, they’ve dissipated, while global connections have grown stronger. Even though there are 40% fewer total board links today than in 1976, there are more transnational links; international connections now make up a quarter of all links. Companies such as UBS, visualized below, build resilience against weak economies and increase their global business scan by sharing board members internationally and influencing decisions collectively.
Notice that in both 1976 and 2013 Japan and Korea, as well as companies from other Asian nations, have remained outside the interlocking network. There’s a distinct cultural approach to boards in these regions. The business networks in Asia are typically organized in business groups that include keiretsu (Japan), chaebol (Korea), guanxi qiye (Taiwan), and qiye jituan (China). The board interlocks we studied connect a few companies in these business groups but do not connect companies between them. Hence, Japan (in blue) has remained mostly outside both regional and transnational governance networks.
What the 2013 data reveals is that global governance is more diffuse than in 1976, with many more companies having none or few connections, and only a handful of companies having more than three connections.
The number of influential super connectors, too, has fallen precipitously: Just five board members were super connectors in 2013, accounting for 12% of all links (compared to the 23 people who accounted for 31% of links in 1976). Demands of the position and increased regulation mean executives don’t like to or can’t sit on as many boards as they used to.
Some people have argued that consensus among the global business elite during the 2008 crisis helped keep the world financial system intact, much the way the dense network of regional links staved off an earlier economic and energy crisis in 1976. But because today’s board network is less interconnected in structure, companies have a harder time working together to reach consensus about the proper response to a crisis.
There’s no question that the network of interlocking board members is becoming thinner, less centralized, and less oligarchic in structure. Some research suggests that fragmented networks will be ill-equipped to respond to major shifts and economic breakdowns. (This argument is best developed in Mark Mizruchi’s book The Fracturing of the American Corporate Elite.) Rather than concluding that the system of interlocking boards worked following the 2008 financial crisis, we acknowledge that the dissipating, less linked governance structure survived. But for how long will it continue to do so?
Are overextended corporate board members costing investors money?
Credit Suisse maintains limiting board seats can boost returns for investors
Should a corporate director be a one-company board member?
There’s one question shareholders are asked every year: Who should sit on the company’s board of directors?
It’s a matter many smaller investors may ignore, figuring that their vote won’t carry any weight, given that they hold relatively few shares. But there is strength in numbers: If all shareholders take an interest in the makeup of the board that oversees the company they own, the result could be much better long-term results.
And the number of board seats held by each director just may offer clues about how the stock will perform. A team of analysts at Credit Suisse led by Julia Dawson say their analysis suggests the best answer may be just one board.
This is hardly a consensus view, beginning with whether one seat is the optimal number. Indeed, only 5% of S&P 500 companies limit their board members to serving only two boards, and none restrict them to just one board, according to Lori Ryan, director of the Corporate Governance Institute at San Diego State University.
Institutional Shareholder Services Inc., which provides proxy advisory services to investors, takes a more expansive view. It recommends shareholders vote “no” to the election of directors who serve on more than six corporate boards, or to the election of directors who are CEOs of public companies and sit on more than three boards.
Moreover, the Credit Suisse findings may show a coincidence, rather than cause and effect. Credit Suisse didn’t crunch data showing, for example, how companies fared where directors were limited to serving on two boards.
There’s little arguing that the performance data is real, but there’s an obvious epistemic leap between observing that and concluding that interlock equals overboarding.
You’ll find below a list of stocks rated “outperform” by Credit Suisse whose directors only serve on one board. But first, a look at two key questions.
Overboarding and interlocking
The term “overboarding” is used to describe a situation where a director sits on many corporate boards and may not have enough time to do a good job for each.
Being a member of a board of directors “can be much more than a part-time job,” particularly if several companies require special attention simultaneously, said Kevin Petrasic, a banking partner in the Washington, D.C. office of White & Case LLP, and head of the Firm’s Global Financial Institutions Advisory practice, during a phone interview on Thursday.
According to a survey by the National Association of Corporate Directors, members of boards of publicly traded companies worked for an average of 278 hours per company on board-related business during 2014 — essentially the equivalent of seven 40-hour weeks — up 46% from 190 hours in 2005.
By contrast, interlocking refers to a company that has some board members also serving on the boards of other companies in related industries. They generally aren’t direct competitors — that could raise legal issues beyond the obvious potential for conflicts of interest.
This is because the Clayton Antitrust Act of 1914 “implicates antitrust violations if a director serves on the board of two or more competing companies,” according to Daniel R. Richey, an associate in the corporate department of Dinsmore & Shohl LLP in Cincinnati.
“Despite this, enforcement has not been robust, with an estimated one in eight directors serving on boards of ostensibly competing companies,” Richey said in an interview.
But Richey also said interlocked directors aren’t all bad. Interlocking boards can facilitate M&A activity, for example. That’s increasingly a central strategic focus of boards and investors, according to ISS.
“Board interlock can lead to a healthy transfer of market and regulatory intelligence between companies.” he said.
The Credit Suisse report
Citing data provided by MSCI, the Credit Suisse team said in a recent report that 39 companies among the S&P 500 SPX, -0.06% have a board full of directors that only serve on one board, down from 55 in 2013.
The Credit Suisse team calls sitting on more than one board “overboarding,” a far tougher standard than that of ISS. It maintains that if your directors are only directors of your company, they will have more time to focus on expanding sales and hopefully profit margins.
‘Overboarding’ is a negative for both corporate performance and investor returns.
“Since 2011, S&P 500 companies whose directors hold just one board seat have outperformed by a [compounded annual growth rate] of 43 [basis points],” said Dawson, the team’s leader.
This may not seem very significant, but it adds up over time. Achieving solid returns on equity and investment over a long period can also translate to very strong performance for a stock.
This chart from Credit Suisse shows the superior returns on equity over the past two years for S&P 500 companies whose directors only serve on one board:
Cash flow returns on investment have also been better over the past five years for the S&P 500 companies whose directors only serve on one board:
Credit Suisse covers 27 of the 39 S&P 500 companies whose directors only serve on one board and rates 11 of them “outperform:”
More disagreement about Credit Suisse’s conclusions
“There’s little arguing that the performance data is real, but there’s an obvious epistemic leap between observing that and concluding that interlock equals overboarding,” according to Frank A. Mayer III, partner and chair of the Financial Services Regulatory & Enforcement Group, Dinsmore & Shohl LLP in Philadelphia.
Indeed, several outsiders maintain it can be good for directors to serve on more than one board.
“Having experience in other businesses could allow for better informed directors, with greater experiences preparing them to make decisions,” said Petrasic, the White & Case partner.
Ryan, of San Diego State’s Corporate Governance Institute, pointed out that the definition of overboarding used by the Credit Suisse researchers meant “the CEOs’ attention was focused solely on their own companies.”
Maybe that’s even more important than limiting the number of boards non-CEO directors serve on.
“Companies clearly believe that directors are not stretched too thin if they serve on two or three boards, and many appear to believe that directors actually benefit from serving on more than one,” she said.
She also pointed out that the average age for an S&P 500 director is 63. Retired executives “who serve on two or three boards now can invest much more time into them than those who served on just one in the past while working full time,” she said.
Whether or not you agree with the conclusions of the Credit Suisse analysts, their work is a reminder that it’s in your interest as an investor to read the biographies of everyone on your board of directors, and to consider whether there is anything that might impair their ability to work for you.
To keep things fair, we chose jobs with only six or more salaries reported on the jobs site, plus a few odd-jobs here and there that are worth spotlighting:
Software Architects design Microsoft’s tools to meet the needs of its customers. They make $179,535, or $256,933 with total compensation, which includes things like stock, bonuses, or profit-sharing benefits.
Microsoft Senior Researchers have one of the coolest jobs going: They lead scientific discovery into new technologies, like the Microsoft HoloLens goggles. They can make $183,540, or $292,455 in total compensation.
Microsoft’s Principal Directors of Program Management help coordinate the teams of engineers working on products and features. They make $185,083, or $303,959 in total compensation.
Across all business units, which might include functions like Sales or Accounting, a Senior Director title usually carries a $190,201 salary, with $308,470 in total compensation.
A Senior Director of Marketing works under CMO Chris Capossela to spread the good word of Microsoft. They make $195,882, with $339,327 in total compensation.
Chris Capossela, Microsoft’s chief marketing officer.
A Product Unit Manager leads up a specific product team, like Xbox Live or Visual Studio. They make $195,946 in base salary, or $310,865 in total compensation.
Microsoft is an engineering-focused company, so a Director of Engineering can make $196,677 in a year, or $346,247 in total compensation.
Senior Directors of Business Development can make $203,452 in base salary, or $339,014 in total compensation. It’s their job to help lead partnerships, investments, outreach, and other ways of working with outside companies. Peggy Johnson (below) leads that function at Microsoft, although not all of these employees would report into her group.
Business Insider/Michael Seto
A Director of Development is a senior manager helping oversee the creation of any new Microsoft product, like the Surface Book laptop. They can make $205,297 a year, with $426,689 in total compensation.
Big companies like Microsoft need plenty of well-paid General Managers to keep things humming along. A GM makes $224,928 in base salary, or $464,005 in total.
Outside of the engineering organization, Microsoft pays its other employees well, too. With a new lawsuit against the US Department of Justice, and lots of fingers in other pies, Microsoft needs top attorneys. That’s why a Microsoft Senior Attorney can make $194,308, or $286,470 with total compensation.
Brad Smith, Microsoft’s president and chief legal officer.
Similarly, Human Resources is vital in a company as big as Microsoft. HR Directors can make $175,242, or $241,361 with total compensation.
And, of course, it’s good to be the boss. Microsoft CEO Satya Nadella earned $18.3 million in total compensation in the last full fiscal year. But his risks are tied to the rewards: If Microsoft doesn’t hit sales targets, he stands to lose millions.
If Work Is Digital, Why Do We Still Go to the Office?
What early digital commentators missed is that even if we can work from anywhere, that does not mean we want to.
We strive for places that allow us to share knowledge, to generate ideas, and to pool talents and perspectives. Human aggregation, friction, and the interaction of our minds are vital aspects of work, especially in the creative industries. And that is why the quality of the physical workplace is becoming more crucial than ever — bringing along watershed changes.
We have already witnessed the transition from the mid-century warren of cubicles, ridiculed in filmmaker Jacques Tati’s Playtime, into more sociable, open, dynamic, and flexible spaces. More recently, coworking has gained traction, demonstrating the value of sharing a space with a community of like-minded people. Like traditional university parlors, often credited for world-changing discoveries by the Oxbridge crowd, these spaces are open to different disciplines and promote vibrant interaction and ideation.
Innovative companies such as WeWork provide offices “where and when we need them,” giving professionals the opportunity to be part of a curated network and to share intellectual and physical tools. They also bring to the table a solid financial argument (highlighted by WeWork’s multibillion-dollar valuation), as they can maximize profit per square foot by trading one big tenant for many small ones. Drawing an analogy to banking, they rent long and lease short.
Tra vent' anni sarete più delusi per le cose che non avete fatto che per quelle che avete fatto. Quindi mollate le cime. Allontanatevi dal porto sicuro. Prendete con le vostre vele i venti. Esplorate. Sognate. Scoprite. - Mark Twain