Gordon is a non-executive board member of the Hong Kong-listed companies Swire Pacific, Meituan and Lenovo as well as of EQT in Sweden. He is also a Non-Executive Director of several privately held China and UK-based tech companies. Beyond these formal roles, he provides counsel to a number of China-focused entrepreneurs.
We’d like to speak with you about what’s changing in the boardroom. Clearly there’s an awful lot going on in the current environment -- like this discussion, board meetings have become more virtual and may stay that way. You sit on a number of important international corporate boards. I wonder if you’ve seen any changes in how boards operate as a function of the shift to virtual interaction.
It’s been a challenging year but one where boards have largely risen to the challenge, we’ve had to make more critical decisions and do so more quickly than we would in a typical year. I’ve been involved in boards that have had to seek government bail outs, dispose of businesses on short notice, undertake new listings, even change CEOs. It’s been an incredibly active year for critical decisions on virtually all of the boards I’ve been involved in and we’ve had to work out how to make those decisions in a quality fashion in ways that didn’t involve flying around the world to meet in person. So yes, we have had to work out how to work virtually.
I should highlight up front the role of the chair in any of these of meetings; it just becomes absolutely critical. The chair is always an important role, but in these virtual conversations, the orchestration of engagement, drawing on the expertise of board members and moving the conversation forward are essential.
You mentioned the lack of live interaction. I imagine that nearly all boards have ceased in-person meetings. As a result, there are no board dinners, no site visits, no trips with spouses to wherever the board might be meeting. I wonder if that has changed how the board interacts, whether the board’s relationship with the chair and the CEO has changed, and whether it’s possible to still develop personal relationships among board members and with the management team, given that you don’t see them in person anymore.
For most of the boards that I’m on, where the membership has been relatively stable for a number of years, we’ve already established trust and connectivity. You know each others’ strengths, you know the areas for which you’re going to turn to a particular board member for guidance, and that works just as well in a virtual environment as it does in a physical one. If you want to have a one-on-one interaction with a board member or an executive, you can do that. It obviously adds a level of formality to it by saying “let’s have a Zoom” the day before, however.
One situation where it has been a greater challenge is where we brought two new board members on to the board during the COVID period. I still haven’t met either of them in person. I respect their skills and experiences from what I’ve seen on paper and have started to hear in the board meetings, but it takes a while, and I think it’s just harder, to build a relationship from scratch purely over technology.
I would imagine that everything being virtual would make it harder to influence the CEO or other board members on “softer” issues, the kinds of things where a personal discussion and perhaps even an in-person meeting would be more useful?
Yes, I think that’s fair to say. For the big decisions where it’s go/no go, yes/no, black/white, we’ve been able to make them well and in a quality fashion. For some of the human elements, however, where it’s about perhaps the timing of transitions or the need to add an additional person or individual capability, that’s where interactions outside the board meeting and being there in person would definitely help. We’re going to go back to those when we can, I’m sure.
That brings up another question: how many of these changes do you think will be permanent or at least partially adopted? I imagine that on occasion it’s not so bad for you not to have to fly around the world for a board meeting. Do you think companies will perhaps alternate between virtual and in-person?
It’s not entirely under the board’s control because, as you know, stock exchanges impose regulations. The UK has created exceptions for now, but historically the UK requires everyone to attend in person. Hong Kong has had more flexibility on that historically, but rules are very exchange by exchange.
In a couple of the boards on which I sit we’ve had explicit discussions by standing back and asking: what did we learn from the process of running the board virtually over the past year? Certainly, having an occasional board meeting virtually has the appeal of reduced travel, but having all of them that way has no appeal whatsoever. But if you have say six board meetings a year and pre-agree that the “location” for one is virtual, I think that could well be the case.
I think one of the other things we have learned is that it’s more effective to have everyone be virtual than just one or two people be virtual. It is very hard to get full engagement with two people on the screen and the rest of you in the room -- it creates an imbalance.
Most of the boards that I’m on have board members from two, if not three continents, so in some sense, there’s a trade-off between being jet-lagged and being up in the middle of the night. I think the mixed model is really where we’re likely to end up and I hope that the regulatory bodies see the positives in that. It’s actually likely to increase the attractiveness of being on a specific board to someone who brings geographic diversity to that board.
I wonder if the long term impact of these changes will be a positive or a negative. If the board is less collegial (and perhaps it’s not), if it’s less easy to develop the friendly relationships, particularly with new board members as you have noted, perhaps the board becomes more of a serious oversight committee, as opposed to a group of friends? Neither of those is accurate, but do things move a little more in the direction of holding the management team more accountable and less of being a collegial/friendly place?
My experience of being on these large public boards is that professional responsibilities come first, and collegiality enables you to deliver on your professional responsibilities, whether that’s governance, strategy setting or risk management. It’s essential that you respect other board members for their skills and their contribution. Is it necessary for you to have a social relationship with them outside the board? No, I don’t think it is.
One of the elements that we haven’t touched on is committees. On most boards you’re going to spend more time in the committees than you are in the full board and a committee is typically only going to be three, maybe four board members. It’s inevitable that you develop a closer relationship with the folks that you’re with on the remuneration or audit or sustainability committee. I think if I stand back and ask who I am closest to on boards, both professionally and collegially, it’s the people I’m on the committees with.
I imagine those are reasonably easily run remotely?
Yes. You still need the discipline of the chair, but it’s a small number of people -- only three or four committee members and the relevant executives and advisors.
There is a host of relatively new issues that are coming in front of boards, whether it’s all of the ESG topics (climate change, sustainability, human capital management), or even corporate political donations. How does this flood of new topics affect the relationship between the board and the CEO? Are you all working together on issues of that sort?
I think the board is trying to make sure that it is on top of what the stock exchange expectations are at a minimum, and in addition to that more broadly what investors and other stakeholders are expecting. And that then gets built into your role on strategy setting, and ESG is part of that.
ESG absolutely comes to the board in terms of how we’re doing, both qualitatively and numerically, and then it leads to the conversation of what we want to be doing and how we commit to that. Internal and external goals are moving so fast. I would say the rest of the world doesn’t always make it that easy for us; just the multiplicity of different ways that people measure all of these things today, particularly on ESG. We’ve had some discussions on at least one of my boards as to why one agency rates us five stars and another agency rates us two stars when we’re telling both of them the same things. There’s probably a perfectly good answer in terms of the metrics, but it doesn’t help us communicate either internally or externally on our progress.
Do you find boards get reasonably involved in figuring out how to measure the corporation, where it sits and what benchmarks should be considered? There are many standards setters out there right now, and it’s debatable as to which are leading or which ones should be followed more than others. Do you find that the boards are involved as well as management?
Boards are definitely involved when it comes to what metrics investors are using and what questions they are asking. I find boards today are quite likely to have someone with deep ESG background, certainly the “E” part, and we turn to them for input and guidance from them. Does it get to be contentious? It can be contentious around how quickly we want to move, because there are potentially very material costs in the short term. As for which metrics to follow, there’s a bit of a learning process, to be honest.
I think it’s fair to say that most boards are trying to pin down what are the most relevant metrics for a specific company and how to track them. As an example, on one of my boards, we have millions of drivers who are delivering food to people’s homes every day. We need to know how much of that packaging is recycled? How many of those bikes are electric? The metrics that you’re going to use will be rather different than for a company that owns major office and retail developments, for example.
Many shareholders are now trying to approach boards directly about topics of this nature. Are you finding your boards are approached directly? Do you find that to be a change in your role? Are you open to those kinds of approaches and do you feel they’re a good idea?
Investors have approached boards that I’m on mainly on governance-related issues, not on much else; board make up, board compensation and topics like that. They’re absolutely entitled to, and should. If they have questions about how we’re executing our governance responsibilities, we should make it clear to them.
There’s quite a bit of talk as well about board evaluations. Are the boards doing a good job? Are they doing what they should do? What’s your experience in how boards are evaluated? Do they evaluate themselves, should they be evaluated by outside benchmarks? What have you been doing in the boards you sit on?
We do internal evaluations. Some of my boards do it every year. Some every three years. I think internal is the right way to go. I’m not sure you get particularly high-quality data from the outside. You can do the dry metrics -- did they have the meeting? How long was it? Who was there? What was on the agenda? That, however, is not really giving you a ton of insights.
What works quite well for me is a combination of some kind of online survey along with a structured set of open ended questions and some scoring particularly on how the CEO’s doing, how the chair’s doing. After you’ve done the survey and it’s been synthesized, a one-on-one conversation with the chair can follow, and then he or she will then pull all that together. We’ll then have a conversation in the full board and if someone’s got an outlier point of view, they’ll bring it up in the board meeting.
There’ve been an awful lot of changes in how boards are run, mostly driven by the current environment but also by the topics that are being discussed. What do you foresee, if anything, in terms of changes in boards of directors going forward? How will the boards of 2022 differ from the boards of 2019?
I think we are on an unstoppable journey of requiring more and more diverse expertise on boards. Boards have an ever broader set of responsibilities.
For me, this particularly comes up in the functional areas. For example, when non-digital businesses are undergoing digital transformation. You need someone on the board who’s literate on that. Someone on cyber security. I also think geographic diversity is incredibly important for global companies. That’s obviously part of the time commitment challenge that we’ve been talking about, but if you’re a global company, I think you need to have board members from three continents at least, if not more.
We talked about ESG in particular and boards need expertise on that. We could also have talked about geopolitics because, particularly for my boards, with companies that are China-centric but trying to be global, geopolitical tensions can easily be a third of what we spend our time on in the board meeting. That was maybe 5% of time two or three years ago. Do we think things are going to get quiet between the US and China over the next three years? Doubtful. So we’ve got to make time for that going forward and have the expertise to make good decisions.
Any advice for board members looking at where things are headed in the next few years?
I think one of the things that the good boards are going to do is identify where they’ve got capability gaps, and then address them. Having explicit board-learning agendas is really helpful, creating a regular agenda item where you invite in an expert, on a one-off basis, to talk to us and let us question them for two or three hours, on a topic that’s of relevance to us. If some of the gaps are enduring then it’s about finding the right board member to join.
Standing back, being on a major public company board is going to become a bigger time commitment, it’s also going to become a richer responsibility, because of the wider range of issues and topics that you’ll need to deal with. It’s going to become a more public role, that’s more scrutinized by multiple types of stakeholders. Board members will need to make sure they’re comfortable with that because, going back to where we started, joining a board is a professional responsibility. It’s not joining a club.