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Podcast: Roberto Quarta — What Makes an Effective Board of Directors

Roberto Quarta

Roberto Quarta, Chairman of CD&R Europe

In the time of an unprecedented global pandemic, boards – private and public – have been forced to re-examine priorities. And it’s not just trying to manage through Covid. ESG, diversity & inclusion, an evolving remote-work dynamic, a growing expectation that corporations will engage with social issues around race, gender and more.

As companies face new challenges, what makes an effective board of directors? And how are companies with strong board compositions and engagement better equipped for turbulent times?

To find answers, I spoke with Roberto Quarta. Roberto is Chairman of CD&R Europe, in addition to being Board Chair of WPP and Smith & Nephew. He is a former CEO and serves on both private and public boards. And as you’ll hear, to drive success, there’s one agenda in particular that has captured his attention – it’s what he calls the “human agenda.”

Transcript: Roberto Quarta

Chris Riback: Roberto, thanks for joining me. I appreciate your time.

Roberto Quarta: Great, thanks. I look forward to catching up with you.

Chris Riback: Global pandemic increasing cross border, cross region and international political tensions, a tentative, just in time global supply chain, highlighted recently by the Suez Canal crisis and previously, of course, by COVID. Growing pressure on U.S. companies to take stands and sides even on social and political issues, technological disintermediation at every turn… Roberto, has there been a tougher time to be a business leader or sit on a company’s board?

Roberto Quarta: This is I think a great question, that I think all of us on boards have been sort of thinking about, as we manage our way through this pandemic. Look, the pandemic obviously is a particular event. I mean, we don’t get pandemics every year or every 10 years, or maybe someone said it’s 100 year event. So it is quite particular. But boards have been challenged before in a very different way than the pandemic and I will go back to the financial crisis in 2008, right? And that was a different sort of challenging period for boards and for companies. And that, I think caused boards to sort of have to react to unforeseen circumstances, and I would say that, to try to make a comparison, for example, between the financial crisis and the pandemic, I mean, I call it a different type of trauma. It is a trauma, but a different type of trauma.

And which causes different types of stress, both for board, for management and for companies. And you addressed some of them in sort of your intro piece, which is you’ll have human stress, and we certainly have seen different elements of human stress during this pandemic than, for example, in the financial crisis. And obviously, the one thing that is different about this one and for boards is that actually, we’re all in the same boat. Whereas you could argue on the financial crisis, it was mostly financial institutions and banks, this time the whole world actually was affected. So in some ways, there’s more understanding this time around, because everyone is on that same boat of what’s going on, the issues that affect performance under performance, the stressors and challenges that companies go through. So very, very different, but I would say every challenge has to be dealt in a different way. It would be easy if all challenges could be all met in the same way.

Chris Riback: Is that one of the keys and how hard is that for director level boards for C-suite leaders? One task, it would seem, is to recognize that a crisis exists. Second thing though, I would think is, it must be human nature when we recognize a crisis, to fall back on what worked the previous time or to perhaps avoid what didn’t work the previous time, perhaps not thinking through that, wait a minute, not every crisis is the same, the same bag of tricks isn’t going to work each time, how hard is that, and is that right?

Roberto Quarta: Yes, recognizing the crisis, I mean, totally, absolutely agree with you. I mean, that’s the first step. If you don’t recognize it, then you can act. And I think that goes for everything else, whether it’s a small crisis or a big crisis, until you actually recognize something, you can’t act. But I think that what needs to happen is, yes, boards and management do sort of kind of look back… Because of their background and their experiences, okay, what happened then? What was the situation? But you can’t carbon copy or copy and paste, because every crisis, every challenge is different. So what do you need?

You need a board that is flexible. And I think flexibility certainly was the order of the day when it came to 2020. It was unprecedented in terms of what was happening, at the uncertainty about how long it was going to last, what would be the implication? So a board needed to be nimble, needed to be flexible. Needed to very quickly acknowledge that there needed to be a new way of working, and embrace the technology. I mean, how many of us used Zoom before this pandemic?

Chris Riback: Not many, not many at all.

Roberto Quarta: It was there.

Chris Riback: Yes.

Roberto Quarta: So boards have had to adapt and have to recognize the fact there’s a new technique. If we’re going to be able to operate remotely, then we better embrace it. But one of the other big factors in this one, different from others, because we were all at home, in our small little cubicle, whatever it-

Chris Riback: Yes, our personal cubicle in the house, wherever our family would let us sit.

Roberto Quarta: Absolutely. And sometimes they say get out, go somewhere else, because I need the room. So the other very important thing for boards was to understand that we needed to commit time. So dedicated time commitment was the order of the day. And this isn’t about the occasional phone call or the occasional Zoom, this is not about the board once per quarter. I mean, this is all hands on deck, right? And give the time commitment. And I have to say that I’ve been very impressed, certainly in the boards that I’m involved with, to see how quickly boards have adapted, and board members have been willing to give up their time. And public boards of major international companies are multinational, so, we’ve had to basically try to balance, whether we get someone on the West Coast to wake up at four o’clock in the morning, someone in Europe to have to a Zoom in nine o’clock at night, or in Asia, with the time difference, so had to adjust the time difference, to schedules, and I have to say that certainly was the order of the day.

Now an effective board during this period, and I think going forward needs to balance agendas. We have sort of competing agendas, I believe, so on the strategic side, we have the short term versus long term strategy, right? There’s an issue here today, how are we going to deal with it, but what is the implication, the way in which we deal with it in the short term may indeed affect the longer term strategy.

The human agenda is probably at the forefront of most boards, and that human agenda, that all of us in recognizing the pandemic, the effect it was going to have, not on our business necessarily only, but on our people. And that in terms of giving our people support, giving management the support to support our people in making the right decisions, but at the same time, keeping in mind the longer term agenda continue to challenge management in terms of performance and results. And then I think the last thing I would say is a bit of self-reflection for boards in terms of what can I really contribute during this very challenging period? So kind of dig deep inside and your contribution to the board, let it come out in terms of its ability to help the company not only survive, but thrive.

Chris Riback: You seem to be putting a real emphasis, and I wonder if this is a realization, or maybe just a heightened awareness that came as a result of the pandemic, and I don’t mean to pejoratively, but the softer components of what defines a successful business, the human agenda, the being able to be present to connect the culture of a company, have those aspects of what defines or what’s required for a successful business, have those become more clear, have those become heightened as a result of the pandemic?

Roberto Quarta: Both, Chris both. Definitely, it’s sort of, it just screamed at you, right? I mean, a company has to perform from a standpoint of, financial performance, operational performance, efficiencies, effectiveness, I mean, let’s not forget that, all right? Because unless you’re creating value, all right? You’re not going to be around. So those are there. To me, those are sort of prerequisites. But, at the forefront of the agenda now, right? Is the human element. And I think that companies have embraced that. And companies need to embrace that.

If you look at the way Europe is dealt with employment, unemployment, furlough, even at a government level, right? You’re seeing a sense of urgency, of understanding, of empathy, towards the suffering of people. And how often have you heard the mental anguish, right? And implication for people who’ve been through this pandemic, we’re not as fortunate as others to have a house of a size and a little garden to go out to, and that we’re basically locked up in a two room apartment Zooming 12 hours a day with no respite. So, yes, the pandemic did heighten it.

Now, are we all going to forget about it and say in two years’ time and say, fine, that was there now is now and we’ll forget, I don’t think so, I think companies are going to continue to think about the well-being, the culture of their company, because it’s all tied into you, this whole ESG and sustainability, it’s about the planet, but it’s about people.

Chris Riback: I’m curious then, perhaps what did you reflect on, notice, change, do differently yourself? You hold, in addition to serving as chairman of CD&R Europe, you also serve as chairman of WPP and Smith & Nephew, did you notice that the core approaches you already held were proven out and served you well?

Roberto Quarta: I would say adapting, adapting to the changing environment, going back to that theme, we’ve learned, those of us who’ve been around a long time and ran businesses over the years, that turbulence is not only a threat, but also an opportunity. So this was a time where you sort of try to focus on the opportunity versus the threat. And to instill that dynamic of, “Okay, guys, it is tough, there is uncertainty, great concern, human tragedy, but let’s look at, what are the opportunities before us?”

And therefore, we needed, and I needed to adapt my thinking to that opportunity. And as a board, we really needed to make an effort of communication. I mean, communication was key and is still key today, it’s always been, but in these difficult times communication, internal communication, and I would say communication with all stakeholders, because everyone was living in what’s going to happen next? Am I going to have a job, right? Is the company going to survive? Do we have enough liquidity? So be on the front foot in communication with stakeholders. And last, and I’ve said it earlier, recognize those changes and act accordingly.

Chris Riback: I’m curious about this point of adaptability, my reading of your personal background is that you have spent a lifetime getting to be and having to be adaptable, you’ve lived in multiple cultures, you’ve worked in multiple industries, on multiple continents, I would imagine that you have had to show a great deal of adaptability within your own history. And perhaps that was just part of who you are, that was part of your DNA, and therefore you went down a path that exploited that capability. As you think about defining and looking forward, what makes an effective board member? maybe there was a period where an effective board member was, well, I need someone who can really plug a specific hole, I need a finance person, or I need a marketing thinker, is there a shift in how you might think about what makes an effective board member where adaptability goes higher on your list?

Roberto Quarta: Well, I mean, adaptability has served me well over the years as I was moving my way through the corporate world. And I would say, the shift from corporate to private equity also required adaptability, right? Because I was no longer the CEO of the company. And as CEO of the company, you make an awful lot of decisions yourself, right? Sure you have a board to convince, but many decisions you make yourself. You walk into a private equity environment, and it’s a partnership, and you have to convince your partners of the merit of what it is that you’re putting forward. So for me, adaptability is a key word, as is being a good listener. Because the way in which I think you can adapt better, is to listen first. And therefore being able to understand the dynamics of situations or environments or geography in which you find yourself.

There are many, many factors that make a good board member, but boards are constantly evolving. So the requirement, right, of a board change over time. And as I’ve chaired boards over the years, I’ve had to, as chairman of the company and chairman of the nomination committee, with the nomination and board, assess, do we have the right mix on our board that can help the company thrive, and support and challenge management? So as companies evolve, the makeup of the board evolves, right? So if you have a company that’s moving from a single geography to a multiple geography, then, do you have the geographic skills, let’s say, on the board to reflect the ambitions of that particular board.

So the word “adapts” as applied to board means constant evolution, when is a reasonable time. In Europe, board members are expected to serve on boards for, sort of, three year, sort of, intervals, right? Up to a maximum of nine years. U.S. is quite different, they can stay on for much longer. But during that three, six, nine, there is an opportunity to refresh boards, and to refresh boards is to adapt to the changing dynamics of the business.

Chris Riback: Are there differences in the ways private company boards and public boards operate in times of stress?

Roberto Quarta: I would say that certainly, family businesses, well-organized in the pandemic, assuming they have the experience, could, should have recognized what needed to be done and act very quickly because they don’t have to go out and consult with 1,000 shareholders.

Private equity similarly, right? The shareholder sits around the table, we sit around the table with management, we see the issue, and we say, right, now go. Public companies, however, depending on the changes taking place, what is required, may take a bit longer. And that’s not necessarily because the boards may not be able to make the right decision, or as quickly, the right decision, but because there are governance issues as a public company, they will require consultation with shareholders, for example, raising capital, right? So, I think good boards, be it public, private, or private equity boards, I think can all assess the challenge equally, the speed in which they can react is basically based on the governance of their particular situation.

Chris Riback: Diversity and Inclusion is obviously an increasing, growing area of focus across all businesses and in nearly every aspect of business. How do you think about diversity on boards? How do you define diversity on a board, and what does that bring based on your definition?

Roberto Quarta: Well, I look at it on a sort of very broad spectrum, and it’s something that I think I’m able to sort of look back. And I can go back to the ’80s, mid ’80s, I’d say, when I first went on boards as an executive, and this is in Europe, okay? In the UK in particular. And what did you see around the table? You basically saw white males, right? But more importantly, you saw white males all either current executives, or former executive retired. So, if you think about it on the diversity spectrum, those boards work very effectively, let’s say in the ’60s and ’70s, but they needed to change, they need to bring in some external thinking, some external challenging. So the first thing you see is the boards diversifying in terms of executive versus non-executive, and then in terms of skills.

And that’s where skills, experience and background are constantly changing. It goes back to the point I made earlier. Now, there are other elements of diversity that over the last 15 years, 10 years, and recently in the last five years, which is diversity of race, diversity of culture, ethnicity that needed to be addressed. Europe, I think was at the forefront in terms of gender diversity, male versus female. UK and European boards now actually have sort of minimum requirements that each board should have at least 30, and in some cases 40% of the board represented from male, female diversity perspective. But at the end of the day, diversity is good, if you find the right candidate, irrespective of if it’s ethnicity, color, or gender, but they possess the necessary skills and experience and background that are required for that particular business, for that particular board going forward.

Chris Riback: I want to follow up on something you said earlier as well, which was about balance. You talked about the requirement to balance in this particular case, the human agenda, let’s say the short term, immediate term human needs, with the long term requirements of any enterprise, which is to be in business, and to show results over the long term. We discussed companies are increasingly requested, if not required to act on issues such as ESG, we talked about D&I, continuing education, and there’s more. Has the definition of corporate responsibility changed, and how should an effective board balance all of these various stakeholder interests, including of course, investors, shareholders, employees, community, and more?

Roberto Quarta: If you ask me, what are the sort of trends or what’s on the radar screen for boards at the moment, and going forward? So ESG certainly, I think, front and center with a particular emphasis on E, at the moment on the environment, and that by the way, is across the broad spectrum. It’s not just about public company, and now that focus is with family owned businesses, and that focus is very much with private equity.

The other items, which perhaps more UK, Europe, that should be on the radar screen, are the topic of remuneration. That’s becoming very, very contentious. And certainly, in the US, it raises its head once in a while, but still, I think, not to the same degree as in the UK and Europe. That has a number of implications for companies. If you’re managing a global international business, you’re competing for talent on a global basis, right? That is certainly something that boards are having to have to deal with more and more going forward. How do you attract the best talent and at the same time, adapt to the governance that is currently in vigor?

Also, there’s a question now coming up on committees versus boards. Traditionally as you know, you’d have your various committees — remuneration and nomination — now we have sustainability ESG, and the board would delegate the responsibility to those boards, including all that, to basically dig deep in the agendas relative to those committees. And then those committees would report to the board. I think we’re beginning to see, perhaps questioning, whether the whole board ought to be involved, and doing deeper dives in the areas where the committees previously stood.

International board participation is an interesting one, and I’ve heard it from some colleagues over here in Europe, in terms of, if you’re a decent size company, you want to have someone on your board with international experience. And now, if you can find that board member in your geography, right, I think is the best of all worlds. But when you’re trying to attract international board members, they’re on the other side of the world, there’s an open question about participation, and board composition. And I don’t know if I made myself clear, it’s quite challenging for people on the other side of the world to be able to … In a non-virtual board environment, be able to physically be present given the very stringent requirements for attendance that are now in vigor.

Chris Riback: Is it possible that’s one benefit of the times, that securing international board participation, if there is a greater willingness to communicate virtually, perhaps that opens the pool a bit on that front, is that possible

Roberto Quarta: That is something that’s being talked about certainly on this side of the pond. So, whereas before, if a board member of a UK PLC global business, irrespective of where they sort of reside, if they miss one meeting, right? Never mind two, I mean, investors would let you know. As you know investors are voting more and more now on issues that are important to them, and board attendance, obviously, is very, very important. And I totally agree with that, right?

Now, so, you may be able to attract a board member from the other side of the world from where you are, in turn says, “Well, how many board meetings do we have to attend?”Committee meetings, right? And I have to be physically present? And I have a full time job, because we normally would like to have people who are active, who are currently involved-

Chris Riback: In the marketplace.

Roberto Quarta: … In the marketplace. And this virtual experience may help facilitate and enable us to attract even better talent than we could otherwise.

Chris Riback: Roberto, we’ve talked as well about some of the turbulence that has occurred in various countries and societies, and obviously because of COVID, there’s been turbulence globally. Is there something from your private equity experience during turbulent times that might work well in the public context?

Roberto Quarta: I’m sort of grateful that I have had the opportunity and still do today to be able to kind of sit on both sides of the fence. And I’m not at all shy in picking up things that I find that effective on one side, and using them and transferring them into the other, and vice versa. So, you could argue that the private equity experience, I think, has helped me to ensure kind of a sense of urgency relative to defining the challenge, the problem, the opportunity, and acting quickly but thoughtfully to resolve it. And that’s because of that freedom and flexibility that private equity has, that does not necessarily require the degree of consultation that a public company has.

So I’m not at all shy of actually bringing that across. And process and disciplines, whether they be financial processes, and disciplines, I think, can certainly be effective for both. Now, the requirements on, for example financial reporting, which is on a public company, are becoming increasingly more onerous, right? Now, private equity increasingly is also ensuring that their portfolio companies are prepared for exit, especially if an exit is a public company exit. So, the ability to be able to transfer the knowledge moving from public to private equity, private company is obviously very helpful.

Chris Riback: And Roberto, as we look forward, and as you look forward, the vaccines are coming out, they’re picking up, we hope that we are starting to come out of the pandemic, certainly there’s a dichotomy, some countries are coming out much faster than others, and that’s certainly an ongoing challenge if not potentially a crisis. As you look forward on the horizon, which trending issues would you say boards ought to have on their radar, ones that might not be sufficiently noticed right now? And what advice might you offer to boards on how to keep their eye on the ball?

Roberto Quarta: Well, look, I don’t have a crystal ball. So first thing I’m going to say is that I would assume that it’s going to take a couple of years to resume to normality. What is the new normality? Will it be the same as previous sets, some companies, in terms of physical presence have already said, “You don’t need to come back to the office, you’ve worked effectively during this period, you can continue to do so.” I don’t think that’s necessarily going to be the case across the board. And there’ll be variations of it, come in three days a week, or two days a week or whatever. So, normality from the standpoint of physical presence, I think is certainly going to be sort of moving around in the next two years. And by the way, people, especially the younger people are eager to go back to work, some have never even met physically their boss, they haven’t interacted with their teams, they’re yearning to do that, they’re yearning to be able to sit in a room, or to have a cup of coffee.

So I think that if we need to assume that will take a couple years for that to shake out. We need to have proper visibility on people, and proper visibility means understanding people dynamics, what are people yearning for? What are they concerned about as it relates to the business, as relates to coming back to the business? And really reflect on, were there any mistakes made? And therefore, what are the issues that we need to confront as a result of what we’ve just been through. Boards also will need to even more focus on risk and control factors. So that risk to the business? And what controls do we need in our business? I think is going to be certainly on the board agenda.

Chris Riback: Do you mean defining different types of risks or simply being even more alert to the potential for risks?

Roberto Quarta: Both, because if you’re a public company in particular, but any company ought to have on its radar screen, what are the potential risks? Now, some risks are of a dimension that, let’s say the probability is very low, right? But even those have to be clearly identified, and clearly monitored, and that’s where the control part comes into play. And boards will have to increasingly do more. Now regulators are also putting more emphasis, and shareholders are putting more emphasis on that. And so therefore, you have a domino effect onto company boards and to companies and to management.

Now, corporate culture, did we talk about corporate culture in the ’70s, or ’80s to the degree that we’re talking about now, in the importance of culture, the definition of culture? What is the right corporate culture for your company? Employees and management to sit down and think about that, do we have the right culture? And if not, what do we need to do to change that culture? Why is the culture what it is? Do we understand how our culture that we believe is right for the business may not necessarily be the way our employees see it? And what do we need to do?

So, succession is another issue. Whether it’s pay gap succession, and so succession also in terms of ensuring that the company is not at risk, because we don’t have within the management structure, the right people in place to be able to not only be promoted and move up the ladder, but actually to fill voids, which inevitably occur over a period of time.

And think the board has responsibility to ensure that we spent some time together physically, because we haven’t done that now for what, 18 months? And who knows, it could be 24 months before we do that. And I think that it seems banal, but the physical getting together, the chat before the board, during lunch, and let’s say the evening dinner, I think it’s quite important in terms of bringing boards together.

And last I would say, we need to have better visibility in terms of connectivity. And so those are the things that I see boards needing to focus on, and to keep their eye out.

Chris Riback: Roberto, thank you. Thank you for your time. Thank you for your insights.

Roberto Quarta: Well, thank you. Appreciate it.