For any new director, a learning curve comes with the territory. Just how steep that learning curve is can hinge directly on the quality of the onboarding process, which affects how quickly a new director can contribute meaningfully to the work of the board and its committees.
Understanding the business – its strategies, risks, financials, operations, management team, workforce, culture, competitive landscape, and stakeholder interests and expectations – is a major undertaking for new directors. It takes time to develop that understanding of the business and the external forces that impact it, as well as the priorities and culture of the board and its committees.
A robust onboarding process can greatly accelerate a new director’s integration and contribution to the board’s work, so at minimum it should include essential information and briefing materials, quality discussions with key people, and a “road map” for getting up-to-speed. Directors joining their first external board face the added challenge of understanding the unique role of a director in helping to oversee and guide the business forward, and how it differs from that of management.
In today’s business environment – rife with disruption, uncertainty, and turbulence – board members need to be ready to contribute from day one. The onboarding needs of new directors will vary from director to director, depending on a number of factors, including the director’s background, experience, and the role the director is expected to play on the board and its committees. Even if there is a formal orientation process, new directors should be prepared to take responsibility for their own onboarding plan, working with management and others to determine how best to get up-to-speed on the most important issues quickly and build a strong foundation for informed oversight.
In this article, we suggest a several considerations for new directors to incorporate in their overall onboarding framework, including:
- Suggested reading,
- Initial orientation, and
- Developing a deeper understanding of the company and the board.
Ultimately, a robust onboarding process should help position a new director to engage in a healthy, ongoing dialogue with management, fellow directors, and others with insights into the company and the business environment in which it operates.
Complexity brings opportunity
Recent events, new products, new business models, new markets, pressure to decarbonize the supply chain, localization/decentralization – all these factors bring added complexity to supply chains, all while new regulations bring increased reporting requirements.
For Daikin though, they also see opportunities – for example, the switch from combustion to heat-pump heating in private homes, a technology they are pioneers in. Decarbonization, the EU Green Deal and national authorities support this transition with incentive campaigns for end-users, thus massively expanding the market for heat-pumps. At the same time, they are preparing for their competitors to make the switch and also start sourcing parts from the same (currently) limited pool of suppliers.
Suggested background reading materials
A new director will want to review several background materials early on, including:
Information about the company
- Annual report and accounts
- Earnings releases and materials used for analysts’ calls for the past year or two (including a transcript of the question-and-answer period as well as management’s prepared remarks)
- Sustainability reports and public releases regarding the company’s ESG activities and initiatives
- The most recent materials provided to the board and the committees to which they will be assigned, as well as minutes for the past few meetings for the board and all committees
- The company’s strategic plan, as well as information prepared by management or third parties regarding customer needs, the existing competitive landscape, and emerging competitors
- Third-party assessments including analyst reports, vulnerability studies, and any communication from activist or institutional investors regarding the company or the board
- The company’s top-level organization chart and biographies of the company’s leadership team, as well as the company’s succession plans for the CEO and other key executives
- Recent reports and/or survey results assessing the company’s reputation, culture, and the strength of its brand(s)
- Presentations made to the board during the past year on risk, strategy, succession, and crisis management
- Reports on the company’s compliance program and any government investigations or significant litigation
- The company’s greenhouse gas emissions, its most recent diversity figures (if any), and its ESG-related goals, risks, and strategies
Information about the board and its committees
- By-laws and Corporate Governance Guidelines
- Committee charters
- A description of the company’s directors’ and officers’ liability insurance
- Policies applicable to directors such as the company’s Code of Conduct, conflict of interest policies, insider trading policies, and others, as applicable
Most companies provide an initial orientation session for a new director. While the length and formality of the orientation will vary from company to company, it should include an overview of:
- The business, including its products and services, customers, and competitors.
- The financial status of the overall company and its key business units.
- The company’s near- and long-term strategy.
- The company’s risk appetite and its processes for identifying and managing risk as well as the “mission critical” and other key risks facing the company, including financial, operational, legal, and reputational risks.
- The company’s culture.
Participants in the initial orientation session will vary depending on how the company’s orientation process is structured – e.g., whether the initial orientation is viewed as the first step in a lengthier process, or whether it is viewed as a more comprehensive orientation session.
Depending on the company’s approach, only a few executives might participate in the initial orientation session – e.g., the CEO, CFO, and Company Secretary – but others may also include members of the C-suite as well as key subject matter experts and external advisors.
Developing a deeper understanding of the company and the board
Regardless of whether it is part of a formal orientation process, a new director will want to have one-on-one discussions with key leaders of the business to gain a better understanding of the company – the culture, strategy, key risks, strengths, areas of opportunity and concern, etc. – and to get to know the leaders outside of the formality of the boardroom.
Initially, it may be helpful to get the “lay of the land” by meeting separately with Chairman of the Board, the CEO, and other executives. How does the company make money? What are the hot-button issues facing the company? What issues have management and the board been spending the most time on? Which governance processes work well (or not so well)? What is the culture of the company and of the board?
The Company Secretary (or General Counsel) can provide information about the board from a legal and process point of view, including the committee structure, the role of each committee, and how the committees coordinate and communicate about oversight activities. They can also provide advice on the responsibilities of a director and director independence requirements, as well as an update on significant litigation, investigations, or compliance-related matters.
In the weeks and months following the initial orientation session, a new board member may also want to meet one-on-one with other leaders in the business – CEO; CFO; CRO (Chief Risk Officer or equivalent); CIO; CISO; CSO (Chief Sustainability Officer or equivalent), leaders of sales, supply chain, operations, marketing, investor relations, and HR – to get their views on a number of key company-wide issues, including the:
- Company’s strategic direction and key risks to the strategy.
- Effectiveness of risk management processes and the overall control environment.
- Status of preparation for any mandatory climate and other ESG disclosures.
- Tone and culture of the organization, including ethics, legal, regulatory compliance, as well as whether the organization is future-focused, innovative, open to reinvention as necessary.
- Strengths and weaknesses of the management team and the board.
- Company’s acquisition strategy, including any potential acquisitions under consideration.
- Company’s capital allocation priorities.
- Philosophy with respect to investor relations, including proactive investor engagement.
- Company’s technology profile, including any recent or proposed key digital transformation initiatives.
The business leaders will also have important insights to offer on issues that are specific to their areas of focus and responsibility. Below, we have identified possible topics to explore.
Board members can get a good view of the company by going beyond the C-suite: visit the factories, stores, townhall employee meetings, etc., as applicable.
Board members can also develop insight into the culture of the board by keenly observing the board dynamics and looking to an experienced and well-respected board member as a mentor.
Other potential discussion topics
- How does the board interact with the CEO and other officers?
- How are important decisions made – both the formal and informal processes?
- What are the toughest issues facing the board/committees?
- What is the board culture, including the openness and candor of communications and debate among management and the board, and among directors?
- What potential conflicts of interest have been identified?
- Do we have a crisis management process in place? Did it work effectively in the past?
- What are the pressure points with the executive?
- What are the expectations and role of the committee members?
- What is the current composition of the committee (skills, backgrounds, experience, and expertise)?
- What are the most difficult/challenging issues facing the committee?
- What is the scope of the committee’s oversight responsibilities?
- What is the strength of the committee’s oversight processes?
- What were the results of the committee’s last two self-assessments?
- What are the committee’s interactions with the full board?
- What are the expectations? Any implied allocation of technical domains amongst the members?
Network modeling enables companies to understand the costs, timings, risks and benefits of the different strategies, to make improvements in the design, and to tactically allocate capacity and create flexibility in sourcing. The ability to integrate strategic considerations, such as ESG factors, into network modelling and perform several scenario simulations, makes it a strong tool to effectively and proactively diminish supply chain risk, allowing companies to optimize their network modelling according to their strategy, specific situation and expected occurrences.
Chief Marketing/Sales/Strategy Officers
- How does the company define its target customers and what methods does it use to understand and develop products that address the customers’ needs?
- What is the company’s approach to innovation?
- How does the company monitor and leverage evolving competitive, social, economic, and political trends?
- What is the strategic planning process, the frequency with which the strategy is reviewed, the process by which external trends are assessed with respect to their implications for company strategy, and the measures and metrics used to track progress?
Chief Operations Officer
- How does the company perform and monitor its supply chain due diligence?
- How does the company leverage its supply chain for strategic advantage?
- What are the company’s business continuity and crisis management plans, and immediate challenges?
Chief Sustainability Officer
- What are the company’s philosophy, goals, and results with respect to ESG issues, in terms of both substantive policies and degree of transparency?
- How are the ESG objectives translated into the company strategy?
- What is the robustness of the non-financial reporting process?
Chief Human Resources Officer
- What is the company’s remuneration philosophy, overview of compensation programs, and linkage between compensation incentives and both long-term and short-term strategic goals?
- How does the company attract, motivate, and retain top talent and the diverse mix of skills, experiences, and backgrounds needed to design and implement company strategy?
- What is the history of key challenges, including discrimination and harassment issues?
CFO and Chief Accounting Officer
- What are the company’s earnings trends?
- What is the company’s disclosure philosophy, including level of transparency, approach to earnings guidance, and use of non-GAAP metrics?
- What is the adequacy of the company’s control environment, including fraud controls, pressures, and vulnerabilities?
- What are the company’s capital allocation processes and degree of alignment between short-term and long-term objectives?
Head of Investor Relations
- Who are the company’s key shareholders and what is its positioning in the market (e.g., growth or share value)?
- What is the company’s investor engagement strategy, and is there any history (or current issues) involving activist investors?
CIO and CISO
- How does the company leverage technology for strategic advantage?
- How does the company manage data security, data ethics, and other “defensive” IT risks?
- What is the nature and frequency of CIO/CISO communications with board, audit and/or risk committee?
- What are the company’s programs and resources to identify, protect, and respond to cybersecurity threats?
- What are the company’s policies and practices for data governance, use of social media, and adoption of emerging technologies?
CRO (or equivalent role)
- What is the CRO’s view of the company’s risk awareness, “appetite,” and “tolerance”?
- How does the CRO view the tone and culture of senior management?
- How do the company’s risks compare to others in the industry?
- What are the strengths and weaknesses in the board’s and management’s risk oversight processes?
- What is the degree to which the risk organization has a seat at the table and input into significant business decisions?
- What are the vulnerabilities? Any potential litigation?
- Are there any significant issues, opportunities, or concerns identified during your discussions with other business leaders?
- What does the CEO view as the top opportunities and challenges for the company?
- On what issues does the CEO expect to spend the most time over the next few months?
- What keeps the CEO up at night?
How can the skills and background of the new board member – and board members, generally – be best leveraged for the benefit of the board and the company?
No “one size fits all”
Ultimately, onboarding is not a “one size fits all” process and may vary considerably depending on the company and the background, experience, and areas of interest of a new director. While management obviously plays a key role in shaping the onboarding program, every new director needs to take charge of his/her own onboarding to make sure that it is properly tailored and focused.
A good onboarding process should provide information about the company that will enable a director to add value based on their own unique experience and perspective. Furthermore, the learning process should never end. Continually seeking out relevant information (from internal and external sources) and a deeper understanding of the business, the competitive landscape, and emerging opportunities and threats, will be essential to providing effective oversight and bringing insight and foresight to the boardroom dialogue.
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