Teneo’s Kevin Kajiwara sits down with Teneo Senior Advisor and current Chairman and CEO of VEON, Ursula Burns and Teneo Senior Advisor and current Chairman of Hewlett-Packard Enterprise, Pat Russo, to discuss life in the C-Suite, diversity, and the changing role of boards within a company.
Kevin Kajiwara (KK): The world is experiencing momentous change geopolitically, economically, socially, and technologically. How do you both, sitting on top boards and having spent years in C-suites, see the evolution of management and the evolution of boards (basically, the evolution of governance) to meet these challenges?
Pat Russo (PR): Over the course of my career, I have seen a significant change as boards have evolved, with a new normal around governance. Clearly boards have become more engaged, not in managing the company, but governing driven by a number of circumstances. Some has been greater scrutiny on how boards do their jobs by investors, advisory firms and the government. And there is a great deal of technological disruption that is going on in a number of industries where careful strategic navigation is required. That is certainly the case in pretty much every company I am associated with. So, I see a lot more involvement, engagement, and a lot more openness around the boardroom. And I see board refreshment happening at a more rapid rate.
KK: Ursula, same set of questions. How has the role of the board changed? And how have the expectations of boards changed? How are boards keeping up with these changes?
Ursula Burns (UB): The answer to that is different than what it was 10 years ago, or 15 years ago, when I went on my first board. Today, boards have become more strategic. They think about strategy, they think about succession, they think about political pressures, they think about overall risk in a more mature way than they did before. But in some ways, boards have become too detail-oriented; so there has to be a balance.
And it is important that we fully know the management teams that we put in place. We have to know who they are, what experiences they have, and whether we can count on them to do their jobs. That leaves space for us to address the complex elements of governance in a time of geopolitical risk.
KK: Focusing on activist investing, how has the role of boards engaging with activist investors changed? What do you think are the responsibilities of the board in these instances?
PR: A change from the past is the level of shareholder engagement. When I was a CEO, I wasn’t anxious to have my board talking to investors. But now, there is a lot more interest by investors in talking about issues of governance, executive compensation and strategy. Boards have to find a way to hear from investors. It doesn’t necessarily have to be without management, but boards have to find a way to hear “is something going on?” That includes listening to activist investors and hearing out their ideas.
One of the things I learned over the course of my career is the do’s and don’ts of outside advisors. When you have multiple advisors in a situation where you need to be quick and responsive, you can actually be slowed down.
UB: I agree and would add a word on the importance of CEOs and board members achieving a broad perspective on the challenge. Perspective is everything. For example, it is easier for me to govern, and to be the CEO of VEON than it was at Xerox. I loved Xerox and after 30 years, I found it difficult to close that part of my life. As for the gunslinger CEOs, they are hired into a company that they may have never heard of. If you are fixated on financial issues as the only problem, you can destroy a lot of history, culture, relationships and the general community of things that may have nothing to do with the immediate bottom line. You need to have someone who watches you and can tell you to “slow down a bit.” Being careful with a company’s history makes the job of a new CEO more difficult but I think also more rewarding.
KK: Pat, you led Lucent, through the merger that ultimately led to Alcatel- Lucent. Take us through that process and how you maintained the proper focus for yourself and for shareholders.
PR: I became Lucent’s CEO the year of the telecommunications crash that wiped out $1.3 trillion of market value in the telecoms industry space by year’s end. In the first quarter of my tenure, the revenue started dropping like a rock. Spending was cut in half, most of our customers went bankrupt except for the big service providers like AT&T, Verizon, BT and the like. We were running out of money. Our stock dropped to $0.57. We were about to be delisted from the stock exchange, and I could go on and on.
And so, you realize in a crisis like that, which was largely market-imposed, that you have to focus on the things you can control. And in a situation like that, perfect is the enemy of the good. For me, I had to distinguish between what was managing and what was leading. Managing was getting a plan in place quickly to drive costs out of the business as fast as we could. We stopped washing windows. We didn’t cut the grass. We unscrewed every third light. We turned the heat down, the air up. We just basically said, “This is all about survival.”
The leadership aspect was how do you keep peoples’ heads in the game? How do you keep people focused? How honest should you be about the severity of the crisis? Who are you showing up as, as the leader of an organization?
And so, we got through that. Fortunately, I had a terrific CFO. I think every CEO in a crisis needs somebody by their side that they can vent to and fret with. And there were many nights when we’d sit in my office and I’d say, “Well, what else could happen to us?” I had three firms tell me the only choice we had was bankruptcy. I said, “That will be over my dead body. We have 125,000 retirees and 95,000 additional dependents. They’re counting on us.”
Long story short, we got the business back to break-even and then to profitability. I said to our board: “This industry structure is not sustainable. There are too many companies competing for shrinking capital. We either have to get bigger and become more relevant or we’ll be gone.” And we took the first step with a cross-border merger, that was not without its own challenges; I ended up running that company out of Paris for a couple of years.
KK: In the technology sphere the concentration of market power by five companies is generating calls for new regulations, including calls for antitrust action. What are your views on the evolving market power structure and what should be done about it?
UB: I am not certain about how to fix the problem, but I know that the way we’re doing it now is not the right way. So, we need universities and consultancies to sit around a table and create fresh approaches.
PR: We have to be clear about what is the issue. Is it a privacy issue? Is it a “You ought to be in control of all your data” issue? What is it?
One issue that may become more prominent is industrial policy. We are suffering from not having an industrial policy in this country for a long time. And China has been very long-term, focused, and very clear about how they’re going to evolve their economy and where they want to play, and where they want to dominate. We have been fortunate that our market system and its innovations have resulted in leadership rankings. But make no mistake, China thinks about industrial policy differently.
KK: Do you think increasing competitiveness with China will prompt industrial policy and align corporate action in the United States?
UB: I hope so. I think that the current geopolitical environment is not a safe place for politicians to be, and it’s not a safe place for companies to be either.
KK: Both of you broke through the glass ceiling in spectacular fashion. But I’m wondering, now that you’re on the other side, you are looking…
UB: Are we on the other side now?
KK: You are definitely on the other side!
UB: Okay, good. I’m glad. I was going to kind of keep looking for it.
KK: As you look at a lot of policies and things that are being put in place to increase diversity on boards, in the C-suite, and just the pipeline of talent that is coming up, what’s really working and what isn’t? We pat ourselves on the back that we’ve got more women CEOs in Fortune 500 companies than ever, but it’s less than 7%, and 25% of seats, maybe, on the boards. Most of it’s the two of you.
UB: We account for 50% of the 25%.
KK: What are we doing right, and what is lagging? And what’s not working?
PR: To diversity, I want to add inclusion. Because to the question of what’s working, I think we are making some progress. I look at the companies I’m associated with, and clearly there are more diverse people in the pipeline, more diverse people coming into the companies. One of the things I think needs real attention in addition to recruitment is inclusion and retention. How do you keep the people you bring in, because they are by definition in a minority? And one of the things that inclusion is about is how do you make sure people feel comfortable? How do you make sure they feel included? And that just doesn’t happen naturally. There has to be some things that are proactive, that are thought through, that are managed so that diversity and inclusion really is diversity and inclusion. So, I think there’s a lot more work to do, but I do see evidence of progress.
And the only other thing I’ll say is I’ve seen the most progress when people’s pay inside a company is tied to the work they’re doing around talent management and becoming a more diverse workforce. When companies say: “We’re going to measure you and pay you, as part of your compensation, on how effective you are at creating a diverse environment.” I have seen that produce different better results faster. And there is no question (as we all hopefully know) that you have much better discussions and debates with better business outcomes when you have diverse thinking around the table.
UB: I agree that there’s progress. But I think we should be embarrassed at the pace; it is slow.
PR: That’s fair.
UB: It’s really slow and it’s also kind of odd in many ways, right? I do understand that you have to give birth to people, train them; I get that. Therefore, at the beginning, progress would be slow because women and minorities, underrepresented minorities in particular, did not have the right training or background to be on track to be in the leadership suite of companies. But that’s no longer the case; for example, at Columbia University (which I’m very close to) 50% of the people who enter the engineering schools are women. And more than 50% of the people who graduate are women. So, we can no longer say: “Okay, we’re not really creating these people.”
PR: I agree – there can’t be an excuse that there is not a pipeline.
UB: So now it’s about, I think, the playing field. The playing field, the rules, the referees, are all men. And they’ve been playing the game for a very long time. So, part of what they do is kind of in their DNA. You can’t even feel it. You can’t identify it uniquely, but it is clearly there.
And we enter, women and under-represented minorities enter, and it looks like, “Fine, everything is the same,” right? I understand the playing field, I understand the rules, we all have the same offices, but somewhere in the activities and judging in these companies--all of them--we actually have a different set of rules, different field rules and referees, for women and for under-represented minorities, than for men.
The best way to speed this up is to start putting different types of qualified people into board seats. Every U.S. company that I’m on (and Nestle, which is not in the U.S.) have at least 50% of the board is women or minority. Go down to the management rank and the number falls. We may have to get to the point of imposing a number and doing so immediately.
KK: What are the issues that are really keeping you awake at night now? Is it the China-U.S. trade relationship? Is it the U.S. position in the world? Brexit? Of all of the above, what’s really keeping you up? And are your companies preparing for a significant economic downturn, within, say, the next 12 to 18 months?
UB: What keeps me up? Geopolitical uncertainty. And I don’t mean from a war perspective. I mean the entire landscape around trade, movement of people, and talent and goods; populism is defining a lot of what we’re going to set as policy in the future. Populism may get some people elected but it may not be a good foundation to be on.
Secondly, the environment and climate are big issues for humans, specifically for companies. Americans should do something more, as we are the holders of the vast majority of the capital in the world.
KK: And what is your outlook for the economy?
UB: Every single company is actively is planning for a significant downturn in the short to medium term. The economic expansion has gone on too long. We would love it to go on. What I mean is that hyper-profitability, growing profitability, interest rates that are ridiculously low. And money being not as valued as it was before. So, risk is not taken because you can just sit on it. This current environment has to change, and we are planning on it.
PR: From a board perspective, I would say that the geopolitical risk, the tariff and trade issues, the China negotiations, all create a wait-and-see environment. Some of the regulatory questions, in the pharma industry, for example, create a level of uncertainty that can be distracting…and cause delays in investment decisions because you want to see how things are going to turn out. I don’t think that’s good for business. So, as I think about the practical impact of the uncertainty, it’s really about, ‘What does the CEO do?’ and ‘What does the board support?’
We do scenario planning on all the boards on which I sit. There is no projection right now of a severe recession. You can see a little bit of slowing. But I think there’s an expectation that if this uncertainty continues, there will be somewhat of a self-fulfilling prophecy that will in fact create more downside than anybody would like to see.
