Insights

In a world of disruption and constant change, where ambiguity is the norm, we actively drive
conversations as thought leaders across multiple industries to generate insights that lead to
pragmatic outcomes.

THE JOURNAL OF PEOPLE + STRATEGY

Corporate Board Directors Need to Focus on Trust

February 23, 2021

Why Corporate Board Directors Need to Focus on Trust

For board directors, the absence or presence of trust within an organization and its ecosystem has taken on new urgency.

By Lisa Shalett, Extraordinary Women on Boards

This article was published in print in the Summer 2020 Issue of the Journal of HR People + Strategy.

In the wake of COVID-19 and its subsequent economic shocks, trust is emerging as a crucial issue for board directors. In the initial stages of the pandemic, levels of trust suddenly made a stark difference: Work policies impacted whether employees stayed healthy or fell ill, and continuity plans held together or fell apart with broader layers of damage than anyone had initially expected. In my experience as a director, and in conversations with many members of the Extraordinary Women on Boards group representing more than 300 public and private boards, the absence or presence of trust within an organization and across its ecosystem has taken on new urgency for assessing potential risk.

For directors, this creates a new lens for evaluating management—and for considering our own effectiveness together in the boardroom. Beyond the implications of the moment, an important lesson from this crisis is that trust can no longer be assumed; boards must now interrogate it.

During the financial crisis, when I managed the brand of a major Wall Street firm, the interconnectivity of systems and securities revealed surprising butterfly-effect relationships across global markets. Today’s crisis has magnified that effect. We are now agonizingly aware that every person is connected, and that we are dependent on one another’s actions, choices and behavior. We are reminded that a business is a series of touchpoints of trust, and each of those touchpoints is the hub of a set of relationships. The quality of and investment we make in these relationships determine our shared vulnerability and strengths, and our opportunities.

The relentlessness of this crisis leaves little space for boards and management to reflect. But we should press pause and take stock of the real-time lessons we’ve learned to date about risk. The Trust Touchpoints framework and five scenarios provide actionable examples of where touchpoints of trust matter most and why, and how to measure and monitor that trust to manage risk. The crisis also provides a crucial reset moment for directors, corporate officers and senior leaders to revisit foundational questions about the dynamics within the boardroom:

  • How do we perform together as an extended, complex team?
  • What have we learned about our strengths and weaknesses, especially under stress?
  • Are there skills in the boardroom and/or management that we lack?
  • Do we have enough trust in our relationships with each other?

We are living through new and unexpected scenarios, creating opportunities to observe, gather data and analyze. Here are some of the emerging questions about trust that boards are asking and that senior management should be aware of and perhaps asking as well.

ASSESSMENT OF THESE 5 TRUST TOUCHPOINTS CAN HELP BOARDS AND MANAGEMENT BETTER ANTICIPATE AND ADDRESS RISK

The Board and Management Relationship

Directors want to trust that management is honest and transparent with them, sharing both good and bad information. The quality of discussions, and leadership’s responses to the crisis, hold up a mirror to the board-management relationship.

Questions for directors include:

  • Are we discovering that we weren’t well-informed? If so, why?
  • Are there unexpected vulnerabilities that management and directors should have monitored more closely?
  • Are gaps emerging between what management said it was doing and what was happening?
  • What has this crisis taught us about the leadership skills our organization requires?
  • Does the leadership team perform well or poorly under stress? Do they trust each other? Is this relationship functioning as well as we thought it would?
  • Has recent experience strengthened our trust in leadership or made us question it?

In a demanding situation such as this, boards are seeing how leaders perform under stress. One of the board’s emerging roles is to ensure leaders are taking care of themselves—are they getting enough sleep, taking time to recharge, seeing their family and delegating effectively? At a very human level, directors may be the only ones who can hold a mirror up to the leader.

“It’s proven critical to have built trust between board and management far in advance of facing the crisis. Not just trust in competence and skill, but trust in mission and intent,” said Irene Chang Britt, an experienced director who serves on four boards and chairs a fifth.

The Leader’s Relationship with Employees

Amid so much uncertainty, trusted leaders have the ability to energize their teams with consistent and clear communication that provides a sense of stability. A crisis also will reveal leaders who have not invested in trust and culture. “I’ve found one signal of trust to be how easy the transition to working from home has been,” said Jane Chwick, independent director. “If there has been a culture of trust, and trust in the leader, the shift can be seamless and productive.”

Culture is a major risk area with normally “soft” measurements that can frustrate board directors. But they now have an opportunity to see the culture in action.

Questions we are asking include:

  • What signs are we seeing that our leader has invested in culture and values?
  • Is management facing this crisis from a foundation of employee trust or starting from a deficit?
  • What level of care, compassion and perspective are informing decisions about people?
  • How does the leader communicate decisions to employees?

An example of compassionate leadership has been Danny Meyer.1 Though his restaurant company had to make drastic cuts, he wanted to support employees as best he could. “Overnight we have tried to distinguish ourselves to be excellent employers—which has meant being excellent ‘unemployers,’ as well,” he said. “A lot of effort is going into how to be a great unemployer.” That has included a weekly call with “family members,” who include not only current employees, but also those he has had to let go. He also created a fund to provide grants and set up support services, including a job board, online classes and resume coaching.

In contrast, in the aftermath of 9/11, a friend told me that as coworkers in a skyscraper that day were walking down many flights of stairs, trying to get out of the building amidst chaos and uncertainty, one of their senior leaders came racing down, literally pushing colleagues out of the way to get out of the building as fast as he could. Think about his reputation as a leader: What trust foundation would he have to stand upon?

The Organization’s Relationship with the Leader

Directors are seeing more clearly how well information flows within an organization. Is there enough trust such that new ideas, questions or unfavorable news can reach the leader, or is that information handled or blocked? In her book Seeing Around Corners, Columbia Business School professor Rita McGrath challenges readers to assess whether the leadership team regularly gets—and seeks out—“information from the edges.”2 Boards need that same information to better spot inflection points early.

Questions to explore organizational trust touchpoints include:

  • Is there enough trust in the organization to surface unwelcome or unfavorable questions, insights and alternative views from diverse sources, including those who work directly with customers and suppliers?
  • Are incentives and processes in place to encourage this? Who owns these, how are they communicated and are they working?
  • Is there a practice, including within the leadership team itself, to question and test assumptions?
  • Is there an organizational curiosity that is celebrated and role-modeled by leadership?

The Relationship Between the Company and Its Customers

In a crisis, a company learns how much their customers are rooting for them. The businesses that we supported before the crisis and have since reached out with thoughtful, personalized email often earn more support and loyalty from customers, in sharp contrast to companies that have made unsolicited requests for donations without personalization or opt-in permissions. Deposits in the trust and relationship bank remind us how interconnected we all are, and directors are increasingly taking that insight into account in their roles as fiduciaries.

Questions for directors include:

  • Does management assess and monitor the trust in its customer relationships?
  • Does the company differentiate among levels of trust among its customers?
  • Is the board asking about customer levels of trust? Has there been discussion about strong versus weak customer relationships? Was the board ever misled about the strength of relationships?

The Company’s Relationship with Its Ecosystem

Urgent liquidity and supply-chain issues point to the importance of trusted relationships within a company’s ecosystem. As companies grapple with inventory, demand, supply and/or cashflow challenges, boards want to better understand: Have we invested enough in trusted relationships? The answers can be a make-or-break differentiator.

Questions we are asking include:

  • What is the company’s reputation with its suppliers and partners? Are there any issues? Who is responsible for and monitoring this?
  • Has the company treated its suppliers and partners well? Does the company pay on time or regularly stretch out payments, creating pressure and vulnerabilities for the suppliers?
  • Are the suppliers able and willing to be there for the company? Do suppliers deliver on their commitments? Are these trusted partnerships, with an understanding of “I’ll be there for you,” or are they weak ties with no loyalty or reciprocity?
  • Did partners make promises they weren’t able to keep during the crisis, or did they take advantage of loopholes?

This crisis has uncovered greater risks in companies’ supply chains. In a recent discussion, McGrath cited the example of a company needing to go deeper and deeper—ultimately 40 layers deep—to really understand a dependency that they hadn’t realized was so critical.3 In this environment, cracks or weaknesses become obvious very quickly. Directors need to challenge ourselves and management to understand whether the risks we’re navigating today are unique to the current circumstances, or if they represent underlying factors that we are now seeing primarily because we are asking a new set of questions.

[ HEAR MORE FROM LISA SHALETT IN THIS WHAT’S NEXT PEOPLE+STRATEGY PODCAST]

 

The Future Is Boards Challenging Themselves and Management

Trust is easy to lose and hard to build—and building it requires investment, intention and time. Transparency, honesty, proactivity and inclusivity are the building blocks of trust and are tied into values and culture. Boards are focusing on these characteristics, and on leadership’s commitment to building trust and culture, more than ever. Informed by recent experience, boards will be taking a fresh look at evaluating senior management. Boards likely will revise assessment protocols to build in newly critical leadership qualities, such as trust, empathy, self-awareness and resilience, for both current leadership teams and in succession planning.

But this crisis is also a catalyst for the board to assess itself as a potential source of risk. Every board is different, but too commonly, traditional board meetings focus on lagging indicators or decisions already made. These are slow-motion, check-the-box exercises. For boards that operate this way, the current environment has been an even bigger shock.

Questions directors can be asking of themselves include:

  • Are our board meetings typically robust discussions, or have they been more passive, check-the-box exercises?
  • Does our board culture include encouraging questions and input from all, or are our discussions dominated by a few?
  • If any individual directors are losing trust in management, how does the board collectively and responsibly discuss that issue in the midst of a crisis?
  • Are we the right team of individuals to come up with the best questions? And do so under stress?
  • Are we diverse enough to see a wide variety of issues, or do we think alike and have blind spots?
  • Do we have the right mix of skills as a team, and alchemy of thinking styles, to bring expert questions and guidance to this company’s strategy?
  • Is our board, under stress, a worse board?
  • As board directors, do we have enough trust in each other?

If we’re honest in our self-assessment, we may find reasons to reconfirm our confidence, but we may also find that we fall short and represent a trust touchpoint risk ourselves. Using trust as a lens and through intentional strengthening of trust, directors can continue to identify risks and discuss them with greater candor, and together build more robust organizations.

Lisa Shalett is a retired Goldman Sachs Partner, an experienced director and the founder of Extraordinary Women on Boards. She can be reached at lisa.shalett@gmail.com.

References

1 Meyer, Danny. “Rebuilding restaurants post-pandemic: What’s next for hospitality.” Collective [i] Forecasts Series, virtual panel discussion, 16 Apr. 2020.

2 McGrath, Rita. Seeing Around Corners. Houghton Mifflin Harcourt, 2019.

3 McGrath, Rita. “Reflections in the Midst of an Inflection Point.” Extraordinary Women on Boards, virtual discussion, 27 Mar. 2020.