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2022 Virtual Summit Fireside Chat

Byron Loflin, Global Head of Board Engagement at Nasdaq, introduces David Lawrence, RANE Founder and Chief Collaborative Officer, who interviews Frances Townsend, Executive Vice President for Corporate Affairs at Activision Blizzard.

To begin, Lawrence asks Townsend to refer to her experiences as a member of a public company board as well as not-for-profit board, to provide insight into the roles and responsibilities of board members.

Townsend explains that the role of board members has continued to evolve and the regulatory environment is also changing. “Right now, we have an incredibly aggressive SEC that’s making demands and has expectations of public companies and public directors that are both difficult to comply with and also unclear,” she says. She alludes to the topic of ESG and explains that there is a discussion around what specific KPIs or other measurable indicators will be used to track ESG goals. “In some ways, it's going to defeat the purpose as companies will be less aggressive in the goals they set to ensure they don’t miss them,” Townsend says. She explains that in the current environment, companies must go beyond compliance with disclosure obligations and boards of directors must have a greater understanding of ESG, cybersecurity, and other issue areas.

Lawrence then notes that many companies had to scramble to comply with sanctions after Russia’s invasion of Ukraine, which involved moving people and closing operations. Referring to global disruptions impacting company operations, Townsend asks Townsend to discuss her role in pandemic planning while working in the Obama Administration.

Townsend explains that she initiated an inter-agency process, with the goal of creating an overall plan that could be used in the future. “It may not happen during our administration, but we should have a plan in place to be prepared.” She says this pandemic plan was eventually changed over time with the Ebola crisis, “but the initial plan became the foundation for subsequent administrations and health crises.” Townsend notes that pandemic planning is akin to thinking through a supply chain or other operational disruptions, such as a war or natural disaster where businesses must build their resiliency.

Next, Lawrence asks Townsend to discuss board responsibilities and how to plan for large existential events.

Townsend explains that while working in government, her first priority was to define who was responsible and accountable. She says that the “first mark of a crisis is the confusion and chaos around it” and defining who’s in charge and who will have primary responsibility is necessary to avoid such confusion. When applying this to boards, she says it’s a similar conversation where expectations and accountability must be outlined as well as what tools and resources are needed to execute that responsibility. “When is the board going to be informed, what’s the board’s role, what outside resources will come to bear, such as legal help, regulatory notification, or crisis communication; you’d rather work this out now than in the middle of the crisis,” she says. With this outlined, Townsend notes that this will allow management to understand the board’s expectations and ensure that they are both meeting their regulatory obligations and fiduciary responsibilities.

Townsend also says it’s important to have an enterprise risk management system that the board can have confidence in. “Some risks are more consequential than others and you can’t spend capital against every single risk you want to prioritize, so it’s important to have a strong enterprise risk management system,” she says.

Lawrence then asks Townsend to discuss the importance of tabletop exercises.

Townsend says it’s important to reassure everyone involved that the tabletop exercise is meant for learning purposes. She notes that typically, facilitators are hired, managers are assigned responsibilities, and there is a scenario that’s disseminated in advance to ensure that employees can come prepared with ideas and questions. “Facts will move and change dynamically during the exercise so people react in real time and ask questions,” she says. While each tabletop exercise may not anticipate every possible scenario, it does introduce a thought process for how to work through problems and ask the right questions. “Everyone doesn't have the same agenda in mind, when it comes to notifying the board and what the board should do upon being notified, and so it’s important to sort those expectations ahead of time as this will have a huge impact when facing a future crisis,” Townsend explains.

Lawrence points out that oftentimes, management may not be available should a crisis occur on a holiday or at another inconvenient time. He then asks Townsend to share her insights on how to incorporate contingency planning when important decision makers may not be available.

Townsend explains that in this situation, “you don’t have your entire team and the expertise you thought you were going to rely on and so it’s important to have decision authorities laid out, to determine who can make decisions and under what circumstances.” She says that normally, lawyers will create this type of “bump plan” for a public board. “This is not something you wait to make up as you go along, the board needs to have confidence that there is a process by which these decisions will get made because they too, are going to be held accountable for how a crisis is managed,” she says.

Lawrence points out that shortly after the Financial Crisis of 2008, the Federal Reserve required banks to create a “living will” that explained what would happen if financial pressures caused it to go under. In referencing company-specific risks versus wider industry risks, he asks Townsend to discuss how boards can work more effectively with management teams to understand the actual risks that the company faces.

Townsend says events like the Financial Crisis are of high consequence and low probability. She refers back to the notion of having a strong enterprise risk management team which can examine these risks, “because the board itself doesn’t have the time or ability to identify them.” She says that typically, enterprise risk management teams will converse with the finance, legal, supply chain, and all other departments in the business to identify risks and develop a system of rank ordering for highest consequence, worst impact, low probability, and high likelihood. Townsend explains that each risk will have a different consequence, some more financial or reputational, but all risks should be understood and informed to the board. “The board also needs to understand what are the potential consequences to each of these risks, what's being done to mitigate them, and how these mitigative efforts are lessening the potential consequences,” she says.

● In referring to the Financial Crisis of 2008, Townsend says each CEO and bank handled its communications differently. She suggests that “first, you must identify the bottom and identify it quickly and spend the money upfront for whatever expertise is needed to define what the bottom looks like.” Next, she says it’s important to define specifically what the ‘bottom’ is. “During the Financial Crisis the bottom kept falling out, someone would define it but it would continue to get worse and this loses public credibility,” she says. Last, Townsend says it’s important to provide a measuring stick by which success is defined in response to this crisis. “Telling people what the attributes are for getting to the other side of this crisis and being very specific and transparent gives your customers, your consumers, your shareholders confidence that you, the CEO, know what the true dimensions of the crisis are and have a plan in place,” she says.

Next, Lawrence asked Townsend to provide insight into how board members can effectively coalesce their individual responsibilities and manage their group dynamic for better partnership with the management team.

Townsend says that in her experiences, “it comes down to transparency and being able to speak freely and openly and ensure that what is said in the boardroom, stays in the boardroom.” She explains that trust, cohesiveness, and transparency must exist prior to a crisis, in order to avoid a fracturing of the board. “Activists know how to fracture the board by picking at the leadership, such as the chairman of the lead independent director or the head of compensation and so if the board is not sort of cohesive to start with, it crumbles quickly,” she says.

Townsend explains that another responsibility of the board is succession planning, to ensure resilience in management. “Aside from spending time with C-suite, it’s important to see who are rising executives to build a relationship with the current management team ahead of a crisis,” she says.

Building on that topic, Lawrence then asks Townsend to discuss how board members should be directly reaching out to other members as well as executive management.

● Based on her experiences in Washington, D.C., Townsend says she would always call attendees, agency heads, cabinet members, or deputy secretaries in advance of a meeting to understand what their position was. “This allowed me to know where the divisions were and to know where to focus attention on areas with disagreements to broker consensus,” she says. Townsend explains that it’s important for the chairman of a committee to address the other members, regarding the agenda of the meeting to ensure that everyone is invested in a successful meeting outcome. “You need to ask the members what their particular view is if it's a controversial issue because you don't want to have those conversations for the first time when you’re all in the room together,” she says.

Townsend also says companies should take a risk-based approach to their business as this is ultimately “a formula for hindsight analysis when a company gets into trouble with regulators, it’s because they didn’t take an adequate risk-based approach.” She explains that as a board, it’s important to rely on a risk-based approach to understand what the issues are that the company is confronting.

Townsend says that whether it’s cyber compliance or enterprise risk management, management has to think about the most effective way to communicate this vast amount of material to the board of directors. “A great way of communicating is through a dashboard that highlights topics as red, yellow, or green,” she says. With the dashboard prepared for the board members in advance of the meeting, this will allow them to focus on topics that they find important that management may not have highlighted. “These dashboards become living documents that can be modified and developed overtime that management can prepare and present, and the board can then press on,” she says.

Following up, Lawrence notes that boards should be attuned to industry-specific events that are happening to competitors. Based on this, he then asks Townsend to share with the audience the importance of keeping ears and eyes open.

Townsend says it’s important not to discount open source material. She says it’s the responsibility of the public policy arm or government affairs department to identify changing policy dynamics and understand a proposed rule from regulators. She notes that at the board dinner, the public policy arm will often present about the changing dynamics or geopolitics and how it might impact the company, its supply chain, or its operations. “It’s really the function of a public policy arm or government affairs team, which should not just be lobbying, but they ought to include identifying these dynamic policy changes,” she says.

Lawrence then asks Townsend to explain how board members should be thinking about resiliency, in terms of preparing for, preventing, and managing an event to protect all stakeholders, including clients, employees, and shareholders.

Townsend explains that companies and boards are thinking differently as capital investment is not limitless. She says that while you can’t spend money to mitigate every threat, the pandemic highlighted the importance of resiliency. “Many companies have nearshored as a result, and it’s because they don’t want to have singular dependencies,” she says. In relating the concept of resiliency to the board level when anticipating potential retirees, Townsend says the best companies recruit board members in advance of needing them to ensure there are nominees in the pipeline in the event of a crisis. “It’s important to have board resiliency and to have people in the pipeline who agree and are available to serve in advance of the need so that you don't have empty board seats or empty committee chairs,” she says.

To conclude, Lawrence notes that despite preparation, sometimes the anticipated event may not occur. As such, he asks Townsend to discuss the benefits of increasing business resilience through preparative exercises, even if those events do not occur.

Townsend notes that oftentimes, board members and management can learn lessons through these preparative exercises that may apply to other areas of the business. She explains that even if the money invested in preparing for a particular risk doesn't come to pass, the value that is learned as a result of the preparation – even if not apparent in that moment – will apply more broadly to the company, its capabilities, and potential vulnerabilities. “You will discover strengths and weaknesses and you will have learned about potential vulnerabilities in the business that you were otherwise unaware of, which is valuable for anticipating any future risks,” she says.

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