Advisory Council Spring 2024 Summary

Insights from F500 Boardrooms

With nearly half of 2024 already behind us, the world is still in a wait-and-see posture regarding the economy, according to Ben Harris, vice president and director of Economic Studies at the Brookings Institution. Later this year, major elections will take place in the United States and around the globe— “there will be more than 70 elections in 2024 in countries that are home to around 4.2bn people—for the first time, more than half of the global population.¹ And with war expanding in the Middle East and Europe, it comes as no surprise that geopolitical and economic uncertainty is front of mind for Fortune 500 boards. Ben’s remarks were just one of the briefings as NACD convened F500 lead directors, committee chairs, and chief legal officers in Washington, DC, as part of the Spring Advisory Council meetings to discuss hot topics and strategies to navigate what comes next.

National security and business increasingly intersect

We are facing a hot cyber war, and many companies are in the front lines—especially where the norms of conflict behavior no longer hold. In this context, the need for public/private sector partnerships to sustain the conditions for a vibrant and secure economy and society are more critical than ever. But this issue isn’t just limited to cybersecurity, as IP theft and risks of espionage are also on the rise.

This was one of the clear messages across a series of discussions, including a visit to the US Federal Bureau of Investigation (FBI) headquarters by Fortune 500 Lead Directors. Led by Bryan A. Vorndran, assistant director, Cyber Division, FBI leadership updated the directors on critical issues confronting US businesses and US national interests, including emerging and ongoing cyber risks; the threat of foreign states targeting US corporate intellectual property, including tactics pressuring executives and staff; ande merging financial fraud and other financial risks, including the growing threat and sophistication of ransomware.

The cybersecurity theme and the value of an integrated intelligence response at a national level wasfurther emphasized by Laura Galante, cyber executive and director of the Cyber Threat Intelligence Integration Center, US Office of the Director for National Intelligence. Galante noted that improved interagency collaboration enables the public sector and the Cybersecurity and Infrastructure Security Agency (CISA) to capture, assess, and share risk management and threat information with the private sector. While acknowledging the challenges with disclosure, she stressed that companies making effective and detailed disclosures to relevant agencies on the anatomy of attacks allow these agencies tobuild and share back greater security intelligence.

These disclosures, it was noted, need not only be through regulatory filings, but also through law enforcement reporting tools such as the Internet Crime Complaint Center (IC3), “the Nation’s central hubfor reporting cyber crime.”

The director’s voice is more important than ever

Slightly less dramatic, but equally important to robust markets, the Audit Committee Chairs Advisory Council heard from Erica Y. Williams, chair, Public Company Accounting Oversight Board (PCAOB) on their priorities for the coming year. Willams outlined how the PCAOB hopes to work with the audit committee chair to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports.

Ensuring regulators hear the director’s perspective is a key role of NACD, and we continue to educate policy makers, through proactive engagement, on the key issues that directors and boards face in their work to create sustained value across their enterprises.

Amid significant failures and poor transitions, leadership gets another look

The question of leadership and the importance of selecting leaders was also a key theme throughout the sessions with a talk by Gautam Mukunda, lecturer, Yale School of Management, and also in the visit made by chief legal officers to the Pentagon to hear more about leadership and culture in the United States Navy. These sessions highlighted starkly different processes to identify and develop leaders. Drawing on examples from his book, Picking Presidents, Mukunda outlined the concepts of “filtered” and “unfiltered leaders” and how to consider these factors in CEO succession planning where boards may be searching for a “transformative CEO” or a “turn the page CEO.” Noting common leadership red flags, Mukunda advised that simply asking prospective CEOs, “what is your plan and how do you want to apply resources to achieve that plan?” can reveal an individual’s approach to risk. Mukunda challenged the directors to think critically about current CEO selection processes. Provocatively, Mukunda asked, “Isn’t CEO succession really more of a process to select who won’t be the CEO?”

Regardless of how a leader ends up in the chair, the importance of shared mission and a shared understanding of the culture are paramount in an environment where uncertainty will continue to affect all levels of the organization.

The board agenda continues to expand, and demands are diverging

Applying the leadership questions to the boardroom, roundtable discussions turned to succession planning for the boardroom. It remains a challenge, and boards need to focus on the pipeline for committee chairs. The role is demanding, with chairs from across the committees noting that the work load for the chair is generally twice the work load for other committee members, and increased scrutiny on board performance is placing all committee chair roles under a bright spotlight. This theme will be picked up in more detail at the Fall 2024 Advisory Council meetings in New York.

One of the key challenges for committee chairs is allocating the expanding board agenda across the committees to enable multi variant perspectives on risks and opportunities facing the organization. Few topics fit neatly and solely within a single committee’s mandate, and in this context, chairs stressed theneed for clear priorities on questions for management teams and the information to be reported to the board, thoughtful agenda setting to enable effective committee read outs, and full board engagement and robust dialogue on committee reports. This last point stressed the need for committee chairs to take a leadership role in providing discussion-supporting committee reports on topics that are tagged as “full board” issues.

The nominating and governance committee chairs in attendance had the opportunity to discuss emerging issues in shareholder engagement and the evolving views of investors, as well, with an institutional investor. From the impact of universal proxy to the shifting focus by investors to target votes against committee chairs, investors’ expectations around board-shareholder engagement are increasing. Of particular interest to investors is how board composition aligns with corporate strategy and skills gaps and the board’s responsiveness to core policies like over-boarding and board diversity.

Throughout all these discussions, the theme of artificial intelligence was front of mind, impacting discussions on strategy, risk, human capital, and leadership. Those discussions will continue this fall atthe Advisory Council meetings in New York City.

If you are a Fortune 500 lead director or an audit, compensation, nominating and governance, or risk
committee chair and are interested in learning more, please submit this form to request an invitation to
our next meetings, or visit the NACD Advisory Councils page.

1 “2024 will put a spotlight on the global state of democracy as more people than ever head to the polls,” The Economist - https://www.economistgroup.com/group-news/the-economist/2024-will-put-a-spotlight-on-the-global-state-of-democracy-as-more-people, accessed May 13, 2024.