On April 9th, CFA Society Chicago’s Distinguished Speaker Series Advisory Group welcomed Sheila Penrose at The Metropolitan. Penrose is Non-Executive Lead Independent Chairman of the Board at Jones Lang LaSalle, a global real estate services company, and also serves on the Board of Directors for McDonald’s. Penrose retired from Northern Trust in 2000. In her 23 years at Northern Trust, she served as President of Corporate and Institutional Services and as a member of the Management Committee, where she was the first woman to serve. Subsequently, she served as an Executive Advisor to The Boston Consulting Group from 2001 to 2007. She has been on the boards of Entrust Datacard Group, eFunds Corporation, and Nalco Chemical Corp. She has also served on the advisory board of the Gender Parity initiative of the World Economic Forum, the board of the Chicago Council on Global Affairs, and as a founding member of the US 30% Club, a group whose initiative is to achieve female representation of at least 30% on corporate boards.
After detailing some of her credentials and experience, Penrose highlighted three topics she wanted to explore:
- What issues are boards of directors discussing the most?
- How are boards of directors handling the evolution of the business environment?
- How do a group of highly ambitious, competitive and capable people, all of whom are used to leading others, form a functioning team that can effectively oversee a company?
She emphasized that in each topic, boards are fiduciaries for both shareholders and stakeholders, and need to understand how to balance the needs of both groups. She also emphasized that individual board members should be listening and learning all the time, while contributing and remaining objective.
Penrose expounded upon the recent transformation of the business environment as it relates to the board of directors. Recently, boards have become less dominated by the executive. The CEO/Chairman dual role that was so common in previous years is now no longer as accepted as it once was. This was spurred by Sarbanes-Oxley, but also investors and employees who now have more of a voice shareholder activism has increased. Digital disruption has also been a major category for boards to tackle, and relatedly, managing corporate reputation in an age of social media, where all voices have access to the public. Diversity on boards, and not just different kinds of people, but different viewpoints, has also been an important topic. Boards have been seeking to find people who have different types of experience and different types of expertise, as opposed to finding a group of CEOs for the board. Boards need to develop consensus, not groupthink. She brought up the dilemma of cybersecurity. Boards must wrestle with the questions of how much cybersecurity is enough and how quickly the company can react in the event of a breach. Boards must also consider the impact of global events, as almost all large corporations are now global in reach. Lastly, and importantly, she discussed the issue of talent and corporate culture. Boards must grapple with the future of work and the changes in expectations of their employees. Companies assume they will be able to find the skills they need in the labor market, but they are not doing much to develop those skills in employees and not moving quickly enough to develop people whose jobs might be redundant in the future.
Boards also have to understand how best to find directors. With the changing business environment, new skills are often necessary, and boards have begun looking for people who have those skills, such as digital experience, to help them stay current.
The composition of the board, its dynamic, and its leadership are all critically important. The board should be “collegial but not clubby”, and board decisions should be made in the room, not in private meetings. Board members should maintain a healthy balance of both listening and contributing.
Individual board members should have what Penrose called “The Four Cs.”
During the Q&A portion of the event, Penrose described how she believes someone can become a member of a board of directors. She said the individual must have a good reason for why they want to join a board, should be strongly curious and constantly learning, should have experience trying to manage a business on some level, and should be wary of joining a board too quickly. Joining a board too quickly usually means that board is likely of lower quality, and the first board you join dictates one’s future opportunities.