1/6/23 – Issue 7.99 – Your weekly news on all things board. 

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Twitter, Tesla, and others provided food for thought and lessons in corporate governance in 2022, but no crisis hit home for consumers more than the Southwest scheduling debacle over the holidays. With thousands stranded in airports around the country, fingers pointed in all directions. While Southwest company leadership played a huge role in operational decisions (and lack thereof) that led to the meltdown, many also questioned the board’s role in preventing such a large-scale crisis. It’s no wonder crisis prevention is top of mind for many boards in 2023. Expect to hear more about it in the coming weeks.   

In other news, Meta is fined for violating personal data collection laws in the EU, war in the Ukraine changes the rules for cyber governance, global companies increasingly tie executive pay to ESG metrics, and layoffs continue at tech companies as Salesforce and Stitch Fix both announce cuts. 

In the Spotlight

Lessons from Southwest: Should Boards Have More Say in Technology and Innovation? 

Operational decisions, including decisions on technology and processes, typically fall under the purview of company leadership. But should boards play a bigger role in advising and driving those decisions? Forbes considers the need for a dedicated tech committee on boards.

"Companies need three core assets to succeed and compete: financial assets, human capital assets, software and technology assets…Technology and innovation related issues are usually tucked into the audit committee’s charter. In our collective experience as board members, researchers and teachers about corporate governance, we believe that audit committees are frankly not up to the task…People inside the company know about [technical debt] issues (as at Southwest) but it is quite likely the board may not be aware of these problems. Even the CEO may not be up to speed…” FORBES

The Board’s Role in Preparing for the Next Crisis
Some crises, like a global pandemic, come without warning. Others, like Southwest’s situation, occur when a lack of risk management bubbles over into a full-blown issue. Either way, says Harvard Law School Forum on Corporate Governance, good crisis management isn’t just what you do in the moment; it’s having a plan before, during, and after disaster strikes.  

“Companies with a robust, fluid, and well-rehearsed crisis plan were able to respond more quickly and do so more effectively. Boards play a key role in this crisis preparedness. … You may be thinking that your company has been through a pandemic or another crisis so it knows how to deal with one. But performing a post crisis review and focusing on continuous improvement will position the company to come out ahead in the next crisis.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE

From Boardspan this Week:

Crisis Management in the Era of “No Normal”

It’s hard to anticipate change and manage risk when the new normal is “No Normal.” In this article from the Boardspan Library, The Conference Board talks about crisis management in an era marked by uncertainty and constant change, including some unexpected benefits for boards and management.

"One common definition of a corporate crisis is an unplanned event that directs a significant amount of management’s attention away from its ordinary business. But that assumes an ordinary baseline exists… This heightened level of uncertainty changes the way boards and CEOs should view, and prepare for, crisis management… The good news is that at many companies, the pandemic helped to increase the level of transparency and trust between management and the board. It brought to light the competencies of individual directors and the benefits of diverse perspectives and experiences.” THE CONFERENCE BOARD via BOARDSPAN 

Across the Board

The New Year brings new workforce shifts, as Salesforce and Stitch Fix both announce cuts, with Stitch Fix also changing leadership at the top.

Salesforce to Cut 10% of Workforce

Salesforce said Wednesday that it will cut approximately 10% of its workforce and reduce its real estate footprint…The tech sector, which was initially buoyed by a sudden and intense pandemic-fueled shift to online services, has since had to confront consumers returning to their offline lives. At the same time, the industry has been pummeled by a seemingly perfect storm of economic factors over the past year, including rising interest rates, looming recession fears and consumers and businesses rethinking expenses.” CNN

Stitch Fix CEO Resigns as the Company Lays of 20% of Staff

Stitch Fix Inc. said it is cutting 20% of salaried jobs, its second major downsizing in the past year, and that its founder would return to lead the struggling personal shopping and styling service. The San Francisco-based company said Elizabeth Spaulding would resign as chief executive after spending less than 18 months in the role. Katrina Lake, who was CEO from the company’s inception in 2011 until July 2021 and has continued to serve as a director, will run the company on an interim basis.” THE WALL STREET JOURNAL

Executive Pay: Cause or Effect of Stakeholder Metrics

More than three quarters of companies worldwide are including stakeholder-based metrics in executive compensation plans, with an emphasis on ESG progress. But the US still trails other regions on setting concrete ESG expectations. 

“Fewer US companies are linking executive pay to ESG and other metrics than those in other regions in part because there is a shorter history of them considering ESG issues in general…In terms of investor expectations, there is still a focus in the US on corporate disclosures around issues such as climate change and diversity, equity and inclusion” CORPORATE SECRETARY

Meta Fined for Violating Personal Data Collection Laws in the EU

Meta says personalized ads are an inherent part of the Facebook and Instagram social media platforms. EU regulators say that placing legal consent for targeted ads within terms of service violates GDPR laws, forcing users to accept the ads.   

“A European Union privacy regulator fined Facebook and Instagram parent company Meta more than $400 million on Wednesday, accusing the social media giant of illegally forcing users to agree to receive personalized ads based on their online activity…The ruling by Ireland’s Data Protection Commission—Meta’s primary regulator in the EU—determined the company’s placement of legal consent within the terms of service forces users to accept targeted ads…Those agreements violate the EU’s General Data Protection Regulation (GDPR), which governs the collection of personal information, according to the ruling.” FORBES

War in Ukraine and Upcoming SEC Rules Encourage Boards to focus on Cyber Oversight

Managing cyber risk will continue to be a big focus for companies in 2023. Both the war in the Ukraine and a shift to hybrid workplaces have highlighted cybersecurity risks and the need for tighter governance to reduce vulnerability to hacking and online attacks. 

“Corporate boards and cybersecurity leaders are expected to collaborate more closely in the coming year to comply with new regulations and relentless attacks from hackers looking to steal data and disrupt business operations. The war in Ukraine, which is stretching both Russian and Ukrainian resources, further elevates cyber risks and remains high on corporate agendas… Some boards now rate cyber threats on a par with trade wars and supply-chain problems among risks that could have major impact on companies” WALL STREET JOURNAL

Understanding the Top 15 ESG Considerations Influencing Strategy in 2023

A thorough look at the influencers, metrics, and regulations that will have an effect on ESG strategy and governance this year. 

"Blackrock’s voting ‘democratization’ will gain popularity & eventual adoption by State Street & Vanguard, thereby adding yet another drain on management’s investor engagement resources… Larry Fink’s 2022 letter to CEOs outlines an unprecedented systematic change to proxy voting and marks a potentially disruptive inflection point within the conventional proxy voting process.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE

The Board’s Role in Building Trust amid a Multi-Stakeholder Environment

As former IBM Chair and CEO Ginni Rometty said in the recent Teneo/EWOB webcast, The Board’s Changing Role in Culture, “Trust is built in drops and withdrawn by the bucket.” Boards play a critical role in nurturing trusting relationships between stakeholders in an organization, including consumers, shareholders, and leadership.  

"Amid social and economic disruption, the public increasingly sees corporations as agents of stability… The board’s role in creating trust is two-pronged. They must be intentional about understanding the needs of each group of stakeholders and take action to develop trust with each. But they also must understand how management is doing the same and ensure alignment.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE

Seat at the Table 

• AMC Entertainment welcomes to its board Dee Clark, former CIO of luxury skincare company Estée Lauder; and Keri Putnam, former CEO of the Sundance Institute

• U.S. electric vehicle supply company Piedmont Lithium elects to its board Christina Alvord, former President of the Central Division of construction aggregate company Vulcan Materials; and Michael Bless, former President and CEO of aluminum producing company Century Aluminum

• LED lighting company Orion Energy Systems adds to its board Charles McDulin, investment analyst at hedge fund Philotimo Fund

• Fulgent Genetics appoints to its board Reggie Groves, former CFO and COO of medical equipment manufacturer Stimwave

• Cloud based accounting firm BlackLine welcomes to its board Bruny Rios, Chief Accounting Officer at Dell Technologies; and Amit Yoran, Chairman and CEO of cybersecurity company Tenable

• Ulta Beauty elects to its board Heidi Peltz, President and COO of The Sherwin-Williams Company

• Workflow platform Appian adds to its board Shirley Edwards, former Partner at consulting firm EY

• LPGA elects to its board Stephen Mills, former President and General Manager of the New York Knicks

• IT company DXC Technology welcomes to its board Anthony Gonzalez, former Congressman, and; Karl Racine, former Attorney General of the District of Columbia
• RNAi therapeutics company Alnylam elects to its board Dr. Carolyn Bertozzi, Founder of research company Bertozzi Group

About Boardspan
Boardspan is the leading provider of digital governance solutions for boards across all sectors. Our cloud-based assessments, benchmarking analytics and governance education programs complement our board search and advisory services to deliver a holistic approach to governance. Boards of all sizes and stages rely on Boardspan to deliver analytics, insights and outcomes that improve their effectiveness and performance. Clients include KKR, The Kellogg Foundation, Ingersoll Rand, Farfetch, McAfee, Beyond Meat, Box, e.l.f. Beauty, Satellite Healthcare and the U.S. Olympic & Paralympic Committee.