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Adding Value

Six ideas for bringing out the best in your board
By Raj Gupta, APTIV PLC and Avantor Inc.

On April 2, 2009, at the depth of the financial crisis, the all-cash deal for Dow to purchase Rohm & Haas closed. The deal nearly didn’t happen. I know because I was Chair and CEO of Rohm & Haas at the time. And while I would like to take sole credit for closing the deal under the most challenging of circumstances, I know that without the active and strong role that the board played in the nearly 16-month process, the deal would never have happened. I take that lesson with me every day on the boards I sit, and other boards can learn from the care and mindset.

For the past 25 years, I have served as a director and chair of public and private boards across different industries and company sizes. I have encountered boards that operate differently, each with their own culture and dynamics. Today, in business and society, we face incredibly complex challenges. Globalization and technology are two tectonic forces radically reshaping our economies and impacting our businesses in ways we’ve never experienced. At the same time, investors have become more active and engaged, driving new behaviors like board outreach to shareholders. How we respond may well be the difference between prolonged global recession and the further rise of populism or revitalized communities and global prosperity.

For companies to succeed in this new environment, boards must add more value. What follows are six aspects of the board’s role that can truly make a difference, informed by my experience with the boards of Rohm & Haas, HP, Delphi, Tyco and Vanguard, to name a few.

1. Select the right CEO: The Vanguard Group is a case study in CEO succession. Three internal successions, including one founder/CEO transition, is an impressive record for any company. At Vanguard, each successive CEO was the right choice to deal with the challenges and opportunities ahead. Vanguard’s success is no accident. It was the result of a strong corporate culture sustained and nurtured by the board. But a board’s role isn’t simply picking and transitioning the CEO. Boards must act swiftly when CEO change is necessary due to changed business circumstances or lack of performance. I have been fortunate to have been a part of boards that get this.

2. Take time to make the right decision: “Bold” decisions in business are neither easy nor straightforward. But at times, external pressures on boards can create artificial time constraints on decisions. I recall times in board meetings where we let external factors, such as investor pressure, reporting deadlines or other corporate announcements, drive our timelines. This was, at times, counterproductive and some argue led to suboptimal decision-making. Those experiences affirmed to me that boards need to ensure they have the time and resources to gather all the pertinent information and then debate the decision before them. Boards should have the courage to say no at times, even if the CEO is pushing hard. As mentioned, the Rohm & Haas deal was successful precisely because the board insisted in setting the schedule, hiring the best advisors, getting all the facts and staying fully engaged.

3. Focus the business: I served on two fantastic turnarounds: Tyco and Delphi. At Tyco, Ed Breen engaged the board in a six-month process of simplifying its portfolio. He and the board made sure the business case was solid, execution risks were well-managed and we had the resources to staff three public companies without losing talent and customer focus. The result was a 10x increase in value over the course of his tenure. At Delphi, we took the company out of bankruptcy and, in a collaborative effort with the management team, split the company into two highly focused companies six years later. In those six years, the share price increased fourfold and it was the sixth-best-performing stock in the S&P 500.

4. Public company boards don’t have all the answers: We often hear that public company boards are sophisticated. The regulations governing public company boards certainly help perpetuate this view. But public companies can learn from their private counterparts, such as those like New Mountain Capital and its Avantor Company where I serve as Chairman. In particular, private boards are often strong in pay for performance, the alignment of priorities is clear between managers and owners, and thorough analysis upfront followed by rapid execution is the operating standard. Related, the private boards I sit on have developed clear performance metrics and a long-term orientation. And I see it in the public companies where executives have come from private equity, too, like Ed Breen at Tyco and Kevin Clark at Aptiv.

5. Talent truly matters: When technology reduces barriers to entry and globalization makes it possible to produce anything anywhere, talent is the differentiator between success and failure. A board’s primary talent decision is the CEO and senior management team. But the CEO must ensure that the company recruits, develops and promotes the best, diverse talent at all levels.

6. Culture and values are not soft: We have recently read high-profile examples of where culture and values failed the company. But culture and values are not just about downside risk like in the cases of Volkswagen or Wells Fargo. They also create upside potential. Look, for example, to Microsoft or Vanguard, who have not had a single major crisis, scandal or disruption in nearly four decades of operation.

For boards to move from “oversight” to “partnership” it will require them to focus on long-term value, creating activities such as succession and talent, bold strategy development, capital allocation, risk mitigation and execution while relying on committees to focus on compliance and oversight. There needs to be open and vigorous debate in the board room, and directors must educate themselves outside the boardroom. This can only be accomplished when there is a true partnership with the CEO. This is the imperative that boards face today.

Raj Gupta currently serves as Chairman of Aptiv PLC and Avantor Inc. and is a member of the board of Arconic Inc. He is also on the Advisory Committee of DuPont and the founder of the Raj & Kamla Gupta Governance Institute at Drexel University’s LeBow College of Business.

Issue 29: Outlook 2019

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