The standard definition of an activist is “a person who campaigns to bring about political or social change.” As a result, most people associate the term with corporate outsiders calling for fundamental reforms to the capitalist system, not the suites paid to oversee how money is made for shareholders.
But like a lot of things in this turbulent day and age, the above definition of activist is being disrupted.
Today’s activist class includes a growing number of people who follow company dress codes issuing calls for change from inside the boardroom—where the role of directors is no longer easily defined.
So, what does the role of an activist director look like? This was one of the timely topics of discussion in a recent address to The Empire Club of Canada by Rahul Bhardwaj, president and CEO of the Institute of Corporate Directors, which is presented below.
Changing Times = Changing Leadership
The Empire Club of Canada, Feb. 26, 2020
Rahul Bhardwaj, President and CEO, Institute of Corporate Directors
Good afternoon and thank you.
There is little doubt that we are living in turbulent times.
Whether it is teachers’ strikes, regulatory uncertainty, railway disruptions, or simple road construction delays—how often have you heard the refrain “can’t we just get it done? Where is the leadership?”
One of my favourite leadership maxims comes from the comedienne Lily Tomlin, who said: “I used to always say that somebody should do something about that. Then I realized I was somebody.”
Well, I want to talk to you today about a group of somebodies that I work with every day and who are in a great position in our country to do that “something.”
When you think of Canadian leaders, your mind may not turn immediately to these leaders.
They come from all sectors of the economy. They oversee trillions of dollars of market capitalization and institutions that impact the lives of nearly every Canadian.
They approve the strategies of our wealth-creating companies and make the capital allocation decisions that set the direction of our economy.
I’m talking, of course, about Canada’s board directors.
Of course, being a director isn’t what it used to be. In fact, being a director will never again be what it used to be. Odds are, it won’t ever be what it is now.
Of all those sectors that have been disrupted beyond recognition, the staid, predictable world of corporate governance is having its moment today.
So, for those here who still view a directorship as a bit of a comfortable pew, I’d advise us to recall what the Navy SEALs say: “The only easy day was yesterday.”
This is not just because of the extraordinary social, political, technological, and commercial upheavals of the past few years—nor just because of the radical transformation in corporate governance and shareholder sentiment; nor just because of the rise of amoralism and the decline of trust—though all of them are factors in what has shifted from disruption to revolution.
No, this is also because the very nature of why organizations exist is now being called into question.
Last month, the Edelman Trust Barometer—which polled 34,000 people in 28 countries on how much they trust core institutions—revealed that for the first time, most people believe that capitalism is doing more harm than good. If that isn’t an existential crisis, please tell me what is.
It’s one thing to have Larry Fink, the CEO of BlackRock, the world’s largest asset manager, say that society is demanding that companies, both public and private, serve a social purpose. But that was eons ago—in 2018.
Fink has since made the stunning claim in his recent annual letter to CEOs that climate change has brought us to “the edge of a fundamental reshaping of finance” and “in the near future… a significant reallocation of capital.” BlackRock has committed to “place sustainability at the center of [its] investment approach.”
Fink also made it clear that they will be “increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.”
With this kind of change disrupting the world outside the boardroom, it’s little wonder we’re seeing major disruption inside the boardroom.
The discussions around the boardroom table are changing completely. If issues such as climate change aren’t on your board’s agenda, they need to be.
Directors have traditionally been “nose in, fingers out.” That is, they could enquire about anything, but they didn’t have to do anything. This may be better described as “hands-off.”
It’s still viewed as bad form at many board tables to be a director who’s also a lawyer and ask awkward questions about company-making issues like patents, intellectual property, or class action lawsuits. But that too is changing.
Fiduciary duty used to mean “keep the money safe” and make sure the organization remains a going concern in the future. But the meaning of fiduciary duty has had to change in order to be effective in an age where we simply don’t know where the next threat is coming from, let alone what it is. No one talked about coronavirus this past Christmas, because it didn’t exist.
“The average tenure of a Canadian CEO is six years and falling. The average tenure of a Canadian corporate director is closer to 10 years. So, who do you think has a better chance of getting the long view of the company’s strategy and prospects right?”
This is why I believe directors are entering a new era. By necessity, we now live in the age of the activist director. In fact, this is a time when all directors must be activist directors. Not just the gadflies and the green-mailers. But all directors. No activist director in the traditional sense has ever been accused of being “nose in, fingers out.” Their job, their worth, came from being the opposite.
To be clear, I’m not advocating for boards to be in a constant state of revolution against management. The average tenure of a Canadian CEO is six years and falling. The average tenure of a Canadian corporate director is closer to 10 years. So, who do you think has a better chance of getting the long view of the company’s strategy and prospects right?
What I am advocating is that all directors should be more “nose in, fingers in”… where appropriate.
No director should view their special talents and professional skill as something they leave outside the board meeting, as they do their cell phones. The expertise that got them to the boardroom means nothing if it isn’t put to use in the boardroom.
Let’s take the issue of diversity. This is a very big thing in Canada. In fact, it’s viewed as our competitive advantage around the world.
There are now federal rules on diversity issues that go beyond gender and language. Like Indigenous representation, disability, and ethnicity.
One way to view diversity is as a compliance issue. This is to check all the boxes, hope you don’t fall offside, and constantly be seen to be praising the virtues of “total diversity,” whatever that means.
But there’s another way to view diversity: as a competitive issue and a matter of lasting advantage. This strategy understands that the real benefits of diversity come not just from having different people around the table.
They come from getting those different people to act together in ways they wouldn’t have if so many different backgrounds and viewpoints weren’t at the table and weren’t asked to insert their own unique experience and background into the conversation.
In other words, unless diversity is actually doing something other than making us all feel better about one another; unless it’s being actively employed to improve an organization’s operations, performance, and future; then its potential and our potential as a nation is being stunted.
The same goes if you appoint a big-time IT person to your board.
They need to be freed to liaise with your own IT people—not just to politely ask questions about IT at a board meeting, but to activate the very expertise for which you brought them on to the board in the first place. They need to be more directive, more prescriptive. More activist.
Why? Because IT has moved from the back room to the front line.
Our latest Director Lens survey reveals that two of the biggest issues facing Canada’s directors today are data security and artificial intelligence.
I’m certainly not advocating that board members should cross the line and become senior management. CEOs and their teams have to be able to do their jobs without undue board interference. But the dramatic changes beyond the boardroom’s walls are forcing equally dramatic shifts in what’s normal inside the boardroom.
This makes being the chair especially challenging because he or she (and, sadly, in Canadian public companies only 5 per cent of chairs are “shes”) will have to lead the redrawing of lines between board and management, freeing directors to speak their minds.
This is easier said than done. If you’re a friend of the CEO or you owe your appointment as a director to him or her, are you going to call them out for bad behaviour? Surprisingly, the answer more and more seems to be “yes.” Just ask the CEO of McCain Foods, Michael McCain.
He made headlines six weeks ago when an Iranian missile brought down Ukrainian Airlines Flight 762 just after it left Tehran Airport. There were no survivors. On board were 63 Canadians, including a McCain employee and his daughter. A few days later, McCain took to his Twitter account to lay blame for the tragedy. His target was Donald Trump.
As Maclean’s noted the next day, McCain’s tweets “mark an astonishing departure from the extreme caution and controversy-avoidance that usually characterize corporate Canada.”
According to the results of the Edelman Trust Barometer I cited earlier, 82% of respondents want CEOs to speak out on societal issues. I’d say that by crystallizing the new leadership role that corporate leaders are beginning to play, McCain was ahead of his time.
I was astonished. I’ll bet you were, too. But as the CBC commented after we’d all caught our breath: “The tweets sparked a broad conversation not only about the tragedy and where culpability lies, but also the role of a corporate leader, who is responsible to shareholders, using the company’s extended platform for his ‘personal reflections.’”
So, let me ask, has anyone here stopped buying Maple Leaf Foods? Either their bacon or their shares? Is Michael McCain being shunned in the corridors of power? I don’t think so. He may pay a price for attacking Donald Trump. But I believe he’s crystallized a new leadership role and it’s one I believe directors must take on.
When the sightline of a politician is rarely more than one election cycle ahead, when “unknown unknowns” are not the exception but the rule, who better to think how companies and Canada itself can compete and win in 2030? No, directors didn’t sign up for this. But here we are.
We at the ICD have come to view this shift not as an unwanted task, but as an unprecedented opportunity—to step up and play a greater role in the direction of Canadian business and the direction of Canada.
We believe it’s time for directors to move into a leadership space they—you—have not occupied before—and likely won’t feel comfortable occupying, at least for now. Because the pummelling changes happening everywhere today all have profound long-term effects.
It took just six months for #MeToo to change the power dynamic in the workplace. It took just a year for the perilous downside of social media to reveal the hidden power of surveillance capitalism; just a year for Indigenous issues to move to the top of so many corporate agendas; a year for climate change to shift from distant peril to clear and present danger; a month for an open-air market in China to wipe out lives, industries, global growth.
So, let me ask you this: Who has the experience, the perspective, and the judgment to know and manage the long-term implications of these explosive changes in what constitutes “normal” or “customary”? Not by design, but by default, I believe it’s directors.
What Canada urgently needs are leaders who will steer Ottawa and the provinces away from the corrosive short-term thinking that replies to trade challenges with tariffs, answers depressed resource prices with finger-pointing, and defines the workplace of the future as a work-at-home option.
If the past four years—the time I have been the CEO of the ICD—have shown us anything, it’s that short-term challenges, as acute and painful as they may feel, have been met largely by short-term answers.
But no enterprise can spend its entire life in the ER. These are not solutions.
We have in this room an outsized opportunity—and responsibility—to drive better decision making. Not only in our boardrooms, but in our companies and also across our country and its dealings with the world beyond.
I mentioned earlier that our competitive advantage globally is our diversity. But I think it’s time we worked to create another competitive advantage. It’s one that will secure and sustain our future as much as does our diversity. That idea is national unity.