What can independent directors learn from CEO communication?

 The purpose of this article is to explore how tenets of CEO Communication can assist independent directors (IDs) to perform their role as watchdogs, voice of reason, and the conscience of the board.

Let’s face it: the role of IDs, in the best of circumstances, is a tough act. Having to balance the interests of many different stakeholders, while protecting and enhancing shareholder value, is by no means a cakewalk. Could a few lessons from CEO Communication help IDs to discharge their duties better? Let’s give it a shot.

By ‘CEO Communication’ I mean a combination of communication approaches and skills that will enable a CEO to engage with her diverse stakeholders and bring out the best in all of them to drive sustained corporate success. In the context of this article, I will apply features of CEO Communication to the job of an ID.

Let me focus on six lessons, and a caveat.

Listening

Warren Buffet believes that IDs must be ‘business-savvy’: IDs are expected to know something about their industry. However, most IDs do not come from the same industry as the boards on which they sit. How do they get to know their business and the industry? It will be almost impossible for IDs to have the same depth of business knowledge as their management teams. This is the reason IDs focus on and pay close attention to systems and processes that ensure good governance in their organisations. 

How can IDs ensure that systems and processes deliver good governance? One could say through raising pertinent questions and, very importantly, actively listening to the responses. ‘Active listening’ are the key words to note here. The truth be told, most of us are very poor listeners: that’s why I started with this skill. If you have any doubts about your own listening skills, ask your spouse, close friend, or colleague. If you do listen to them carefully, you will learn the bitter truth!

I emphasise ‘listening’ as the mother of all comm

unication skills in every course I teach – at all levels of corporate Sri Lanka. It is a powerful tool in the hands of IDs who have to listen intently not only at Board Meetings but at all other forums and to media as they attempt to get a deep appreciation for and knowledge of their business.

A friend once told me that he was listening to his company’s customer satisfaction process being explained to the Board by a senior manager. Listening intently to the briefing, he was not sure whether the senior manager was referring to his company or some other firm: the process sounded as if the company had attained customer-satisfaction nirvana – when he knew the reality was not quite so rosy. 

Employees are, after all, ambassadors of their organisations. They will paint their companies in the best possible light, so the onus is on the IDs to ask penetrating questions and listen intently to the answers. As Peter Drucker cautioned us, “The most important thing in communication is hearing what isn’t said.”

Listening to employees and customers of the company can be instructive. I recall as an undergraduate at Berea College, Kentucky, USA how the college’s Board of Trustees made it a point to meet with students at every board meeting they attended. This was the Board’s attempt to get firsthand information of student issues and concerns. The Student Government Association would make a formal presentation to the Board, and this would be followed inevitably by fellowship where Board members and students would mingle. 

Fellowship offered Trustees the opportunity to hear the unvarnished truth about the state of the College. I am not aware of Sri Lankan boards offering this type of open forums with customers and employees for IDs. Perhaps IDs can initiate such forums in their company boards to get a better handle on their business and its issues. This will also let them know, first hand, whether the systems and processes in place are actually delivering the goods.

Storytelling

A relevant and engaging story is one of the most effective way to communicate because the habit of listening to stories has been etched deep in our DNA from our childhood. Such a story hits the bull’s eye – every time. It has impact. Think about case studies taught in the world’s finest business schools: they are all stories – with a moral. 

Why do stories have great impact on listeners? The reason is that when we relate a story, the audience’ guard comes down. They switch their minds from analytical mode to enjoyment mode. Their minds open up, the message goes in. Quite simple, really. Given the power of stories, it is ironic that stories are not used more often in the corporate world. Perhaps battlefield-tested CEOs believe that relating a story is an invitation to appear a sissy.

I believe otherwise.

Storytelling can be a very powerful tool in the communication armoury of IDs. Even the most battle-hardened CEO will relish a good story. Another benefit of a story is that it is not a frontal attack on our audience. Therefore a well-told story can achieve an ID’s communication objective without making her any enemies on the board. Religious leaders have been the most eloquent and impactful storytellers of all time – so has Jack Welch. He would not hesitate to share a story to drive home a point. If storytelling worked for Welch, should it not for IDs?

Personal brand

One objective of CEO communication is to inspire confidence in a CEO’s ability to lead. Similarly, IDs can benefit by building a ‘positive’ personal brand as a group of people who are there to protect and further the interests of all stakeholders to ensure the success of their organisation over the long haul. In other words, IDs can make sure that they are viewed by their management teams as ‘value-adders’ to the company: positive people who can add value to the company and its stakeholders – not as troublemakers.

One way to do this is to be perceived as people who have a favourable, positive and balanced view of the enterprise. To this end, IDs could grab every opportunity to commend the management team for their right or laudable actions (positive reinforcement), so that when they do challenge or criticise certain management actions (negative reinforcement) they and their ideas will be received more positively. In other words, IDs could work hard to create a ‘positive brand account’ with management, so that they can make ‘withdrawals’ when their voices happen to be in the minority when critical decisions are made.

Another technique taught in public speaking is the CRI model: to sandwich challenges or criticisms between two positive statements. CRI stands for Commend, Recommend, and Inspire. Commend positive actions. Recommend changes. Inspire management that they can do it, and will profit from doing so. It is a tried and tested method that works when both parties are sincere in what they are doing. This method will backfire if it is used as a manipulation technique.

Advocate of values

CEOs are chief advocate officers of company values. IDs are the conscience of the board; they are advocates of sound governance values in the boardroom. Both groups play the role of advocate of values.

Perhaps the fate of Enron and WorldCom would have been quite different if there were IDs looking critically at systems and processes, and advocating values to their boards? One cannot overemphasise the critical importance of sound values – and of course someone to advocate them. As a good manager will insist, a bedrock of solid values is the entry ticket to business. Enough said.

Crisis communication

CEOs are expected to have a cool head when their companies are in a crisis: to say and do the right thing – at the right time. Unfortunately, whether it is a mammoth global company or a small Sri Lankan firm (all Sri Lankan companies are SMEs by global standards), companies have proved that they are pretty bad at managing crisis communication. There are countless examples of companies that lost millions in shareholder wealth due to stonewalling government investigations, premature denial of any wrongdoing or complicity, attacking government agencies, etc. You do not have to be a Ken Balendra to appreciate the folly of such action. Yet that is exactly what most companies do, bringing misery to all their stakeholders – not to mention destroy shareholder wealth in the process.

In this, IDs, as voices of reason, have a major role to play in the boardroom: to bring a cool head, sanity, and value- or principle-driven responses in crisis situations. One of the ways in which IDs can add value is to ensure that their board listen to many different perspectives on the crisis. The general tendency is for boards to listen to their legal teams. Lawyers, in general, do only one thing: give counsel to minimise ‘legal damage’ to the company arising from possible lawsuits. 

In such instances, the damage to a company’s reputation (which should be a board’s pre-eminent consideration in this social-media-driven age) does not even enter the conversation, resulting in devastating consequences for the company’s future, let alone the share value.

In the aftermath of the 2015 ‘Maggi’ noodle crisis in India, Wharton Business School shared a 5-point action plan for companies in crises to restore credibility: “One, acknowledge that there is an issue that needs to be examined carefully. Two, buy time to get the facts. Three, do not deny involvement/responsibility. Four, do not attempt to estimate the magnitude of the problem. And five, commit to a speedy but thorough investigation.”

The responsible manner in which Cinnamon Grand and Green Cabin initially responded to their recent food-related crisis situations gives us hope that Sri Lankan companies are moving in the right direction as far as crisis communication is concerned. As the voice of reason, IDs can advocate a similar approach to their boards.

The textbook best practice in handling crises comes from Johnson & Johnson and how they handled the Tylenol crisis in 1982: Seven people died after taking Tylenol capsules that were laced with cyanide. The company CEO consulted J&J’s ‘Credo’ that stated it was ‘the caring company’: He immediately recalled 31 million bottles of Tylenol, came up with a tamper-proof lid, and communicated constantly with his customers until the crisis was settled for good. 

Within three months of the crisis, the company had won back 95% of its pre-crisis market share. The moral of the story: It pays to keep a cool head and follow company values. Perhaps IDs can remind their boards about company values, especially given the fact that boards tend to focus on how to minimise immediate financial damage to the company, ignoring the more important long-term damage to a company’s reputation and market value.

Staying on message

Staying on message is a critical aspect of CEO Communication. This simply means that a CEO prepares in advance the message she will deliver to any company stakeholder – whether it is a group of 3 employees meeting in her office or a shareholder meeting of 5,000 people. For example, at top global companies, CEOs do not venture out to a company event without consulting their communication teams on key messages that they need to deliver at the event, including how to respond to any issues that may be raised.

Similarly, IDs meet with different stakeholders of a company. Apart from their interactions with other directors and company management, they may well come into contact with customers and other employees of the company. In addition, they could be involved in community events, TV interviews, etc. Therefore, as ambassadors of their companies, IDs should be prepared with appropriate messages for different stakeholders they meet, including furthering the interests of their companies at public forums.

Preparation – the caveat

None of these facets of CEO Communication will work for IDs if they do not prepare their oral presentations in advance. The popular mantra of the 6Ps is applicable to communication situations too: Proper Prior Preparation Prevents Poor Performance. It is interesting to note that most leaders will prepare intensely for finance-related meetings, however these same people would believe they can ‘wing it’ when it comes to an oral presentation at any other meeting. And, in the process they miss valuable opportunities to make a positive difference for their companies, and in the worst case scenarios do irreparable damage to their organisations. As far as IDs are concerned, lack of preparation in their oral communication strategy could well mean not meeting their fiduciary duty to the companies they serve.

“The art of communication is the language of leadership,” wrote James Humes. As an ID, you can fulfil your fiduciary duty and show your leadership in the boardroom by putting into play some of these lessons from CEO Communication. To do this effectively, proper prior communication preparation is a must.