Mary Ann Cloyd, leader of PwC’s Center for Board Governance, recently talked with Noreen Doyle, director of Newmont Mining Corp., Credit Suisse, and QinetiQ Group Plc, and Jim Nevels, chair of The Hershey Co, about a variety of issues including shareholder communication, risk oversight, and board diversity.
Mary Ann Cloyd, leader of PwC’s Center for Board Governance, recently talked with Noreen Doyle, director of Newmont Mining Corp., Credit Suisse, and QinetiQ Group Plc, and Jim Nevels, chair of The Hershey Co, about a variety of issues including shareholder communication, risk oversight, and board diversity. Here are highlights of that discussion:
Cloyd: What are your views on director-shareholder communication?
Doyle: I have two views since I sit on boards on two sides of the Atlantic. Over here in the U.S., I think the CEO should be the primary spokesperson and the director interaction should be limited. However, in the UK, it is very common for the board chair and the chair of the remuneration committee to have direct communications with top shareholders.
Nevels: A very important point is that the prism by which the company reflects itself is the board. Let’s not lose sight of the fact that the CEO is part of the board.
Cloyd: What is a key point you would share when a director has to face activist stakeholders?
Doyle: At Newmont [Mining], we set up a committee of the board where we met with NGOs [non-governmental organizations] to address social and environmental issues. If you ignore them, they often punch above their weight. If you engage them, you have a better chance of getting your message heard and understood.
Nevels: Investor activists and NGO activists are distinctively different. One is litigious and one is PR-driven. In one instance, we set up a committee. Did we talk to the litigant? Yes, but with strict rules set by the attorneys.
Cloyd: What are your views on combining vs. separating the roles of chair and CEO?
Nevels: Quite frankly, it’s not “one-size-fits-all.” I am a non-executive chair. I am not an employee. I don’t participate in day-to-day management. That role belongs to the CEO and the senior management team. The more interesting point regarding separation is where it is apropos.
Doyle: I am a great fan of separation, coming with the perspective of being on a board in the UK. It gives the CEO a sounding board and can be a more effective balance between the board and management.
Cloyd: How have your boards dealt with risk oversight? How do they allocate this responsibility among the board and its committees? Do you have a separate committee?
Nevels: One of the things that happened very early on at Hershey was that we determined that risks generally fell within the framework of the audit committee. We evaluated and proffered to the board separating broader, more general risk and audit responsibilities. So we created a finance and risk management committee. We were ahead of the curve on creating that committee.
Doyle: Our ERM [enterprise risk management] program at Newmont was developed over the last six years. It’s a function that is reviewed by the audit committee. However, risks belong to the risk-takers, not the risk-minders.
On the bank board, we have a separate risk committee. The risk and audit committees regularly meet together for certain items that concern both financial and non-financial risks. This way they communicate effectively. The chair of each of these two committees also serves on the other committee.
Cloyd: How do you get the information you need to perform your risk oversight role?
Doyle: You meet regularly with risk management people. You try to get to know several levels in that organization. You need to get the risk-takers in the room, too, so they can exchange views with the board.
Nevels: One of the interesting conversations we have is with the insurance people. We ask them what are the risks and the contemplated risks. What keeps them up at night? The internal audit function becomes a fascinating place to begin in respect of the business. When you think about risks in respect of the FCPA (Foreign Corrupt Practices Act), one of the places to start is the internal audit function.
Cloyd: What advice do you have for boards that want to become more diverse or are feeling pressure to become more diverse?
Doyle: Most important is that the chair and CEO think it is important to look for diverse candidates. I would say that you should make the search firms work harder. Go beyond the usual sources for directors. It’s harder to find people [of color and women] at the top. You have to look harder. They are out there.
Nevels: I find it hard to believe that there are only a handful of chairs of African descent on the S&P 500. I would say you have to bring suggestions to the search firms. Everyone knows a diverse board candidate. It becomes an issue of seeking a critical mass of women and diverse board members in the boardroom.
Cloyd: Final words of advice on this topic?
Nevels: Overall, I would say the CEO and chair need to be people that reflect the will of the board.
Doyle: The board should recognize the strengths and weaknesses of the CEO – and determine how to compensate for those weaknesses in order to make the company successful. It’s important for the board to have a successful CEO.