Directing disruption

In June 2016, the Institute of Corporate Directors (ICD) appointed Rahul Bhardwaj to lead the national association for board directors through its next phase of growth and development.

An accomplished executive and director with a long and successful track record in the business, community, and not-for-profit sectors, Bhardwaj moved with his family from London, England, to London, Ontario, when he was six years old. An avid sailor and basketball fan, he began his career as a corporate lawyer at Meighen Demers Barristers & Solicitors, now part of Norton Rose Fulbright. Bhardwaj subsequently served as a vice-president for Toronto’s 2008 Olympic bid. Prior to joining the ICD as President and Chief Executive, Bhardwaj—who holds a B.A. (Honours) from the University of Toronto and a law degree from the University of Windsor—served for nine years as President and CEO of the Toronto Foundation.

As a board member, Bhardwaj currently serves as a director of Metrolinx (chair, governance committee), the Rideau Hall Foundation (chair, governance committee), and the executive committee of the Global Network of Director Institutes. He previously served as chair of Community Foundations of Canada, the 2012 Ontario Summer Games, and the Toronto Downtown Jazz Festival, and as co-chair of TO2015 IGNITE (Toronto 2015 Pan Am / Parapan Am Games) and vice-chair of George Brown College, among others. He has completed the Ivey Executive Program at Western University’s Ivey Business School, where he serves on the Leader Council at the Ian O. Ihnatowycz Institute for Leadership. He has also completed the ICD-Rotman Directors Education Program. Bhardwaj’s commitment to city building was recognized in 2012, when he received the Queen Elizabeth II Diamond Jubilee Medal. He has been named one of the “50 Most Influential” people in the city by Toronto Life magazine and was recently named to the Quadrangle Society at Massey College and The Ultimate List of Social CEOs on Twitter. His vision for Toronto and Canada has made him a popular presenter and speaker locally, nationally, and internationally, particularly on issues relating to leadership and governance.

Bhardwaj was attracted to the ICD position because he believes better governance leads to “better enterprises, better outcomes and ultimately a better Canada.” But his appointment came as disruptive forces, ranging from artificial intelligence and digitalization to nationalism and populism, are creating unprecedented levels of uncertainty in markets, politics, and society. The self-proclaimed “governance geek” recently sat down with Ivey Business School Professor Gerard Seijts to discuss what boards need to do to successfully help organizations navigate turbulent waters.

Gerard Seijts: Let’s start with the state of governance. Long before the global financial crisis, we had monstrous governance failures at companies like Enron. But even after the failure of Lehman almost collapsed the world economy, we still find dubious leadership, blatant fraud, and cases of harassment happening at major companies. So, my question for you is, “Has governance really improved?”

Rahul Bhardwaj: Keep in mind the average executive puts something like 3,000 working hours into an organization annually, while the average director serves around 400 hours. So, there will always be governance failures and missteps because the asymmetry of information and depth of knowledge between directors and management can be significant. Complex financial products and new technologies add to the challenge, especially if someone is perpetrating fraud. That said, boards have generally been doing a good job in Canada as they expand competencies and improve independence. And if you look beyond the headlines, things have clearly improved, which is why we aren’t seeing as many governance failures as we did in the dot-com period.

GS: How else have boards evolved?

RB: Looking back at Enron, the big fallout for boards was recognition of the need for more qualified directors, people who know what they are looking at and looking for—essentially, asking the right questions. Following the more recent failures at Volkswagen and Wells Fargo, the need to be more careful about what you reward has been brought to the forefront of governance thinking. There is really more board focus on corporate culture today than ever before. So that’s why I think things have changed and continue to change for the better.

GS: Since the financial crisis, Ivey Business School research has identified the need to have a greater boardroom focus on leadership character. Do you see this as a significant step toward further improvements in governance?

RB: Leadership character clearly ties into the growing focus on corporate culture because organizational culture is heavily influenced from the top. Think about the issues around CEO harassment of employees. In many cases, we have seen accusations aimed at highly successful CEOs, executives who had acquired board-member confidence. Learning someone you supported has done something so contrary to corporate policy—not to mention decency—has hit many directors personally. These are professionals not used to being gullible. That, of course, is just part of why the leadership character work you’re doing is so critical today. Tone at the top never mattered as much as it does today.

GS: What is the state of governance in Canada?

RB: Canadian companies are actually the most trusted in the world. Our country is one of the few jurisdictions with accreditation for directors. The ICD has over 13,500 members who are committed to good corporate governance. But our level of trust stems from a whole Canadian ecosystem of governance, which is comprised of company directors, management, shareholders, stakeholders, and regulators. Our governance is actually quite efficient.

GS: What do you consider the biggest public misconception of a board’s governance role?

RB: That it’s a cushy job. That is just not true. Whenever someone tells me that they would like to serve on a board, I make a point of warning them to be careful what they wish for. There are ups and downs in the workload. But directors are frequently extraordinarily busy. While other people relax on summer weekends, they are doing homework. The information they have to read and digest just to keep informed should not be underestimated. Members of a bank risk committee, for example, often get briefing packages that can be larger than 600 pages. And if a director is involved in something like an M&A deal, their external life can essentially end up on hold thanks to board activity. Your daily schedule becomes consumed by briefing documents, special meetings, and conference calls, often late at night. Dealing with a crisis can be even worse. And this isn’t just true for corporate boards. I can tell you that the last holiday season was not completely merry for board members of the Soulpepper Theatre Company, which was consumed by a public scandal related to harassment allegations. Instead of quality time with family, the not-for-profit company’s directors were attending 16-hour meetings trying to figure out what happened and what to do.

“It used to be fairly common for a director to serve on four or five boards. Today, that appears hard to justify.”

GS: What advice do you have for aspiring directors hoping to serve on boards in the Age of Disruption?

RB: Well, first and foremost, I’d advise them to take as many courses as possible from the Institute of Corporate Directors. That’s meant to be funny, but only half a joke. To serve on a board today and do it well, you obviously need a solid understanding of the business you want to serve, along with the industry that it participates in and the market forces in play. But it takes more than that because you’ve got to keep informed as things change. This requires passion for your chosen industry along with a healthy level of curiosity that supports a real commitment to lifelong learning. The need to understand that you are signing up for an endless journey of discovery and development should not be underestimated. To serve a board well, you’ve also got to have a real connection to your organization’s vision and mission. If you don’t, you’re not going to be fully engaged and you really need to be fully engaged.

GS: What about the role of the board chair?

RB: Well, I’d offer all of the advice that I offer aspiring directors, but I’d add the need to embrace mentorships. That leads to another shameless plug for our chair’s video learning series, which offers many valuable lessons from very experienced board members. Learning from people with previous board experience is more important today than ever before because the role of board chair is more important than ever before. Aspiring chairs must understand the job is much more than just running meetings. It’s about effectively engaging with executives to ensure the board clearly understands management’s strategy, challenges it, and in the end supports it. That requires ensuring the right conversations are happening at the executive and board levels. It also requires paying attention to board construction, meaning making sure that the conversations happening within the organization are benefiting from diverse views. Board members can’t just be well-known people. They must bring diverse value and experience to the table. There is no one-size-fits-all way to run a board. But doing the job right isn’t easy. You need to digest enormous amounts of information and determine what is relevant and what isn’t. That requires real commitment and curiosity, not to mention contextual wisdom. You are constantly dealing with issues that impact people, so you need patience and empathy. To effectively battle groupthink, you need the ability to really listen. To make fair judgements, you need to be open-minded and ethical. When facing uncertainty, you’ve got to be courageous enough to make 50/50 calls and live with the decision.

GS: Why is the chair role more important than ever before? Is it the waves of change driving disruption across industries?

RB: That’s an interesting question. I recently talked about the impact that the digital age was having on the role of boards with a long-time fellow of the Institute of Corporate Directors. He is in his early nineties and retired, but still sharp as a whip. When I asked what he thought, he shrugged and said, “Directors have always had to deal with change.” I pushed back a little bit, asking: “Don’t you think things are qualitatively different today than in the past?” His answer was, “Not really.” I found his perspective quite interesting. I started asking myself, “Are we drinking the Kool-Aid on the impact of change?” And to be honest, I still don’t know if I was listening to someone extremely wise pointing out that the role of directors has always been about helping organizations deal with uncertainty by being prepared for change, or if I was talking to someone somewhat disconnected by retirement from what’s happening in the field. I do know a lot of things are changing quickly and dramatically, and not just because of technology. Not long ago, I moderated a panel on cannabis boards. That’s not something I imagined doing when I became head of the ICD. But while many boards are facing unprecedented change, it is true that the job itself hasn’t really changed all that much because it is indeed about helping organizations deal with uncertainty by ensuring they are prepared for change. However, the context has shifted dramatically.

GS: OK, but doesn’t the increased pace of change and the magnitude of changes taking place across both markets and society at the same time mean the governance job is more challenging?

RB: There is no question that it can be, which is why the chair role has never been more important. Boards essentially exist to provide oversight and sign off on strategy. And while a lot of companies today are comfortable with strategies designed to take them three to five years out, more than a few of them will have to suddenly change course after running into disruptive winds and waves. It is like sailing. At the helm of a boat, you don’t always need a captain with extreme weather experience, but sometimes it is critical.

GS: Especially in a race, right?

RB: Absolutely. I like to race. And I can tell you that when you captain a racing vessel, you are constantly facing uncertainty. You know there will be gusts and shifts in wind, but you don’t know what the new wind strength or direction will be. The challenge is trying to predict whether a shift in wind will work for you or against you on the course you set earlier. Depending on what happens, you may not have to change directions all that much. But deciding when to stay the course or order the crew to tack is everything. And knowing when to tack in a sailing race is a lot like knowing when to react—and how not to overreact—to changes in the marketplace. In heavy seas, this really requires wisdom and mental agility. And today’s market conditions are not calm.

GS: What does this mean for boards?

RB: It means you can’t set your sails and go down below to make coffee. You need a greater focus on predicting the next shift in winds because uncertainty requires re-evaluating strategy. I don’t want to call it crisis management, but the future focus of boards is going to involve more than traditional oversight. You’re going to see real collaboration between board members and management on strategy refreshment, which ties into the need for greater diversity and better skills alignment.

GS: Do you see this happening?

RB: There certainly appears to be a growing focus on strategy evaluation. When we did our Canadian Director Lens survey in the fall of 2017, 52% of directors surveyed were optimistic about the Canadian economy over the short to medium term. This was post-election in the United States, so the future of NAFTA was uncertain. Brexit was also in the air. Nevertheless, 52% were solidly optimistic that the strategies in place were the right strategies for the next three to five years. Fast-forward to March 2018, and that 52% plummeted to 32%. That’s how quickly confidence in strategy can change today.

GS: The complexity of board issues has also increased as the concept of corporate social responsibility has evolved, right?

RB: No question about it. Strict corporate law dictates keeping the governance eye on the company, not the societal stuff. But you’ve got influential people arguing for a significant paradigm shift. In a letter to CEOs this year, BlackRock’s Larry Fink insisted that public expectations of corporate responsibilities have never been greater. “Society is demanding that companies, both public and private, serve a social purpose,” he wrote, adding: “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.” That understandably has some very experienced directors noting: “That’s not what I was elected to do. I was elected to focus on return on equity and return on investment and making sure 30,000 employees have jobs in six months.” But these directors are human beings with families and they can see the disruptions taking place across industries and societies. So, they are being drawn in to this broader conversation that is clearly making the role of boards more complex. In some ways, the rules of corporate governance and public expectations can be at odds. And this has caused a certain amount of boardroom discomfort because some people see social license as a natural evolution of governance and others, frankly, see it as somewhat of a hindrance. That said, nobody wants to stand up at an annual general meeting and say, “The only thing we’re focused on is a single bottom line.”

GS: What specifically do boards need to do when facing the challenges of the Digital Age?

RB: In addition to embracing diversity and skills alignment, I’d say they need to make sure directors have the time to focus. Given the increased complexity of the role, the speed with which a crisis can develop, and the challenges created by technological and political disruption, the level of engagement required to do the job has increased dramatically. It used to be fairly common for a director to serve on four or five boards. Today, that appears hard to justify, which is why more and more institutional investors are withholding support for directors who appear to be on too many boards.

GS: What else?

RB: Boards need to be bold about innovation and self-disruption. The theme of our annual national conference this year was “Boldness in the Boardroom: Preparing for the Next World Order.” We didn’t pick the theme; it chose us because bold decision-making is what will be required for Canadian firms to maintain competitiveness.

GS: Can you elaborate?

RB: In our Directors Education Program, we use an acronym known as NIFO, which stands for “nose in, fingers out.” This speaks to the membrane that exists between the board’s fiduciary duty and the operational responsibilities of management. Traditionally, the rule of thumb for directors is “use your nose to smell around but keep your fingers out of management’s business.” With everything that is going on today, however, many people are questioning whether this rule of thumb is actually the best way to foster innovation in the midst of disruption. I am not hearing calls for intervention. But increasing boldness in corporate decision-making might require a deeper collaboration between directors and executives, one with a more active board role. The foresight of a board stacked full of experience and relevant competencies can be an enormous value-add when it comes to strategy development.

GS: When you think about legacy and impact, what do you hope to achieve?

RB: I’d like to see lasting recognition of our governance community’s contribution to Brand Canada. As I mentioned earlier, Canadian companies are the most trusted in the world. But that’s not just because we set a high bar for governance met by committed and talented directors. The reality is that trust in companies from other nations has fallen. So, Canadian governance—and I actually gave a speech about this earlier this year—is now a competitive advantage.