December 2021 | 

Transforming Boards for Today’s Challenges

Transforming Boards for New Challenges

Nasdaq’s new board diversity rules, which begin phasing in next year, were designed to “improve corporate governance at listed companies and reflect similar movement in the market.” Based on extensive research that makes clear the link between diversity and substantially better oversight and business outcomes, the “comply or disclose” rules follow the lead of California’s board diversity statutes and companies like Goldman Sachs, which this year instated diversity rules for every company it helps take public.

But the increasing demand for directors with a range of talent and experience is just one of the ways boards are changing. Wharton management professor Mike Useem, along with Korn/Ferry’s Vice Chairman Dennis Carey and world-renowned business consultant, author, and speaker Ram Charan, wrote Boards That Lead: When to Take Charge, When to Partner, and When to Stay Out of the Way in 2013 to advocate for a new governance model that calls for increased engagement and shared leadership with senior executives.

Useem then helped develop the Boards That Lead: Corporate Governance That Builds Value program to share the latest thinking from some of the world’s most knowledgeable boardroom veterans on how directors can best make a leadership difference. Taught with Carey, Charan, and Wharton management professors Emilie Feldman and Harbir Singh, the program includes an evening panel of prominent, highly experienced executives and directors who share their insights and discuss specific strategies and approaches.

Kathee Rebernak, CEO of management consultancy Framework LLC, said after attending, “I’ve already applied insights from the program in a recent board meeting I attended, during which we discussed candidates to fill two board positions. We discussed how board members not only must have the right skill sets and areas of expertise; it’s important to understand what kind of board culture you want to cultivate. Wharton’s program underscored how important it is for board members to have an open and collaborative relationship with each other in order for the board as a whole to be an effective leader."

Navigating New Risks

For a deeper examination of emerging challenges and risks affecting large companies, Wharton offers the Corporate Governance: Essentials for a New Business Era program. Co-directed by Useem and Professor Mary-Hunter (Mae) McDonnell, it helps current and prospective board members better understand what constitutes successful board service in the current environment.

The program includes governance perspective on company and legal issues related to diversity and inclusion, shareholder activism, climate change, global trade, disease epidemics, and social responsibility. Guest speakers, who engage in dialogue and Q&As with program participants, include Janet Foutty, Deloitte’s executive chair of the board, and Bill McNabb, former chairman and chief executive officer of Vanguard.

Understanding Activist Investors

While most of the press about shareholder activism centers on how to deter activist investors, Wharton finance professors Bilge Yilmaz and Kevin Kaiser offer a more nuanced approach. Aimed at directors, senior executives, and investors, the Shareholder Activism: Activating Change for Value Creation program considers the possibilities for both benefit and detriment from this activity. It familiarizes participants with the competing perspectives and develops an understanding of the various tactics available to both shareholder activists and corporations targeted by the activists.

Musharaf Anwar, vice president and portfolio manager of RBC Wealth Management, says the program was “excellent. Professors Kaiser and Yilmaz take you backstage to experience how activist investors pursue corporate boards to create value. In the past, most investors might run away from investing in a company targeted by activist shareholders. However, after taking this program, one can better understand the ways in which you can capitalize on these investment opportunities and create value for your clients.”

Women on Boards

Research by Credit Suisse reveals that companies with more women at the board or top management level have higher returns on equity, higher valuations, and higher payout ratios. That compelling business news is being heard: women made up 29 percent of U.S. board directors in 2020 (up from 19 percent in 2014). With the addition of the new Nasdaq rules that begin to take effect next year, the opportunities for qualified women to serve on boards are expected to skyrocket in 2022.

The most recent addition to Wharton’s board programs, Women on Boards: Building Exceptional Leaders, helps prepare women to take advantage of these opportunities by providing an in-depth look at the process of recruiting and selecting directors, among other pressing governance issues. Director Mae McDonnell says, “Diversity of all kinds increases the depth and breadth of discussions and monitoring. When you have people approaching the same question from different perspectives, you're more likely to see the problematic angles of an issue that you wouldn't have otherwise seen. When people share backgrounds and even demographic identities, they tend to coalesce around things that they have in common instead of thinking about things from a more complex vantage.”

The program is taught by Wharton experts on leadership and board governance, including Dean Erika James. In addition to developing a greater understanding of board service and today’s most pressing corporate challenges, it helps participants build their personal brand through strategic use of social media; the right speaking engagements; networking; and putting together a board bio, CV, and LinkedIn profile.

“A good board member can anticipate challenges that could arise,” says McDonnell. “Directors must be able to look for blind spots and help tackle the looming next generation of board issues that companies are going to face: climate change, increased wealth disparity, political instability. In the program we are training leaders to tackle these non-market issues with more diverse profiles and experiences.”