Whether you're choosing a new member of a board of directors or are a candidate yourself, following these guidelines will help to ensure the board includes people with the right skills and attributes for the job.
Stephen H. Fraser is managing director of Barrington Capital Partners LLC, which provides board and transitional/interim CEO advisory services to companies in the logistics, supply chain, transportation, and distribution industries.
For many people, the term "board of directors" conjures images of well-dressed executives who meet behind closed doors, far removed from the people who manage day-to-day operations. But as events of the past decade have shown, a board of directors can have a profound influence over a company's success or failure, and therefore who sits on the board should be of interest to all employees.
The last few years have seen significant shareholder value destroyed by boards and management that failed the tests of vigilance, independence, awareness, and integrity. The media have chronicled a number of corporate tragedies that resulted from accounting scandals (Enron, Adelphia, and WorldCom); inadequate or flawed investment oversight (JPMorgan Chase and the "London Whale"); bad investment strategies (the collateralized mortgage fiasco); and unseemly executive compensation and the absence of accountability (TYCO International and Chesapeake Energy).
Those corporate scandals made the shortcomings and failures of corporate boards hot topics on the evening news and at the water cooler. They also sparked the passage of two landmark pieces of legislation in the United States that were designed to correct such abuses: The Public Company Accounting Reform and Investor Protection Act of 2002, popularly known as Sarbanes-Oxley, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (much of which went into effect in 2012).
I believe that now, more than ever, corporations need strong and independent boards to provide guidance, perspective, counsel, expertise, and governance. Board members need to ask tough questions. Investors, public and private, **italic{expect} management to be held accountable by boards of directors. And they want boards, in turn, to be held accountable for doing so. This doesn't apply just to companies like those in the famous cases mentioned earlier. It's just as true for logistics and transportation service providers. These expectations and the unrelenting increase in regulation prompt investors, board chairmen, and board governance committees to seek an answer to the question: "What makes a good candidate for a board of directors of a transportation or logistics company?" A similar question applies to logistics and supply chain professionals who may be candidates for the board of any company.
What board members do
The overarching duty of the board of directors is to protect and sustainably maximize shareholders' assets and interests. The basic legal duties for a board member are to approve financial statements; select and approve auditors; approve the annual budget; and establish dividends, recommend stock splits, and oversee share-repurchase programs. Oftentimes, a company's bylaws may specify additional legal duties and expectations for board members.
But there are other, "value-add" requirements. These responsibilities may include:
Reviewing, testing and approving strategy
Selecting, evaluating, and mentoring the chief executive officer (CEO)
Succession planning
Setting the tone (and policy, if needed) for compliance and risk management
Directing and approving major merger and acquisition and finance transactions (mergers, acquisitions, divestitures, joint ventures, partnerships, and so forth)
In addition, boards can act as a resource to management, assisting with advice, guidance, contacts, and relationships. Boards comprising carefully selected, seasoned candidates can be particularly useful in providing perspective, awareness, and balance in regard to companies' "bets" and strategy.
Of course, the boards of logistics- and supply chain-oriented companies have the same basic requirements as for any other corporation, and they should aspire to provide the same "value-add" elements. However, in our dynamic industry—which is constantly subject to disruption in terms of technology, regulation, modal capability, competition, sourcing strategy, and business models—board members need to bring a higher level of preparedness and a broader view of the industrial and commercial playing field.
Personal qualities of a strong candidate
Although we tend to think of boards as monolithic structures that come into being at one point in time and endure, the reality is that they are constantly changing. Board members retire, CEOs depart, corporate strategies evolve, and major investors weigh in with their candidates. One of the responsibilities of the chairman, CEO, and (in many cases) the board's nominating and governance committee is to continually monitor the composition and complexion of the board and identify candidates who can best fill any expertise or personality gaps.
An effective, well-balanced board comprises individuals with complementary skills, experience bases, and personalities. My "checklist" for potential board candidates includes the following personal qualities: unshakeable integrity, clear intellect (with high mental "clock speed" being a real plus), independence as a thinker, seasoned tenure in executive management, prior board experience, a positive reputation, good interpersonal skills, strategic agility, and—the most elusive and important of all—wisdom.
Most of the above-referenced personal qualities are self-explanatory, but one that is often overlooked is "good interpersonal skills." Good interpersonal skills are particularly valued when independent, veteran executives on a board convene to debate tough questions and such matters of import as strategic direction, capital allocation, exit strategies, acquisitions, compensation, dividends, CEO succession, and the like. Great board members have the ability to build consensus, artfully make their points without damage, stand their ground graciously, and use humor to defuse emotional situations. Outspoken, stubborn, independent personalities, no matter how brilliant or insightful, wear quickly in daylong or multiday board sessions!
What board members should know
Let's turn now to the question of background expertise. For the group as a whole, I've found that comfort with strategic matters is particularly important. Strategy is a principal obligation of boards, and virtually every board decision of merit has defensive or offensive implications.
In general terms, I look for a balanced board of individual players, each of whom brings specific subject-matter expertise to the team. A well-rounded board generally includes: a broad-perspective lawyer; a senior financial or accounting professional; an experienced merger-and-acquisition (M&A) person or dealmaker with a track record in the field; and an individual with strong credibility in commercial matters, such as sales, marketing, and negotiations.
For a logistics or transportation company in particular, the broader a member's knowledge about modes of transport, business models, business processes, trends, players, and mergers and acquisitions, and the more fluency candidates have with the issues, the better served the board and the corporation will be.
At the same time, it is helpful to be mindful of where the company should be three to five years down the road. For that reason, the selection process should build into the board the skills and knowledge that could help the company on that journey. For example, a company planning to go overseas would be well advised to recruit a board member who is experienced in international trade, foreign-exchange risk, the vagaries of cross-border taxes, and operations in another geography. Similarly, a company needing to expand its Internet presence and e-commerce capabilities might want to find a board member who is Internet-native and/or experienced in launching or accelerating e-commerce platforms.
In addition, a board candidate or member must be educated about and current on the practices, technologies, pricing, and strategies of the direct competitive threats to the company in question, as well as the threats from businesses that are in the "adjacent" competitive spaces. For example, intermodal transportation is "next to" trucking, and ocean carriage is "next to" marine terminals and freight forwarding. It is also of great value to be a student of the methodologies, business models, competitive advantages, and threats to the company's customers. In this way, the candidate or board member will be best equipped to participate in key board discussions that focus on customer risk and strategic options.
An interesting side note: More and more customers of logistics and supply chain service providers are recognizing the power of supply chain management to enable strategic differentiation beyond product selection and price. For example, a business-to-consumer (B2C) retailer might leverage quality and professionalism of the delivery, order-to-delivery speed, ease of returns, and more to improve the customer's experience and distinguish it from competitors. As a result, many companies are considering inviting service providers to join their boards. This is a great opportunity for experts on the provider side to broaden their own knowledge and understanding. By way of example, I was asked to join the board of a consumer packaged goods (CPG) company that had determined that the largest component of its cost of goods sold (COGS) related to its supply chain—yet no one in the boardroom was knowledgeable in this area. The board addressed that issue, and in the process I got an in-depth education on the issues and drivers of one particular corner of the CPG environment.
Finding candidates and openings
Now that you know what professional qualifications and personal characteristics a board member should have, where can you find candidates who meet those criteria? Or, if you're looking for a board seat yourself, how do you go about finding those opportunities? There are several proven resources to explore.
First, talk with board members you already know, as most members have good contacts in the board community. Second, if you are a member of the Council of Supply Chain Management Professionals, consider using CSCMP's resources, which include a searchable, online directory of all current members. Another excellent option is the National Association of Corporate Directors (NACD), which provides board education and certification. NACD has a proprietary, searchable database designed to match member board candidates with companies seeking independent directors.
However, if the search involves a public board or a very large private firm, the recommended route is to retain a national search firm to handle that task. The search firm inevitably will identify a broader range of candidates. Moreover, retaining an independent, expert third party to find the best candidates will demonstrate diligence to investors. All of the large, national search firms have board practices, and a number of them have built supply chain expertise in particular.
The task of assembling a board of directors or of upgrading a board with the addition of a new member can be described as "artful puzzle solving." In the fast-paced world of transportation and logistics, where new market entrants, technologies, opportunities, and business models are continually evolving, a strong, independent board provides an important ingredient in building an enduring and successful company. Good boards are the result of diligence on the part of chairmen, CEOs, and nominating and governance committees, who have worked hard to find the best possible candidates.
Tips for being (or becoming) an effective board member
If you are new ...
Review the last few years' board minutes, audit reports, and strategic plans.
Take NACD's basic directors education class and get involved in a local chapter.
Set up Google alerts on the company you serve, on all of its known competitors, and on its key customers. Drill down a few pages into a Google or Yahoo search every few months to see what is going on at the company.
Check out www.glassdoor.com and similar sites to learn how the organization is perceived by its employees.
Work with your chairman to establish a personalized orientation program that includes one-on-one meetings with key personnel, site visits, and attendance at a sales presentation or two. Review the organization's training and orientation materials.
Meet with the general counsel for a comprehensive briefing on the company's litigation situation, and insist on appropriate directors and officers insurance.
Do desktop "comparison shopping" of the organization and its competitors, as if you were a customer, to see who is easy to buy from and what best practices competitors might be using to attract and inform customers. Get fluent with the company's website, but with a critical eye.
Consider joining the board's audit committee; this is where a lot of the action takes place in many companies.
Before taking on any committee work, be realistic about your ability to meet expectations regarding time commitments and the committee's responsibilities.
Get to know your board colleagues one-on-one so you can understand their issues and roles on the board.
Be attuned to the difference between the role of board oversight and management's responsibility to run the company. The roles are distinct, and it requires vigilance and continuing discipline to maintain those boundaries.
If you are currently serving ...
Remember that you represent the shareholders, and be independent, objective, and vigilant with respect to their interests. Treat board service as a fiduciary trust.
Embody the highest values and principles.
Maintain the integrity and confidentiality of the boardroom.
Avoid conflicts of interest—in letter, spirit, and appearance.
Communicate early and often through the established channels of the board.
Respect the chairman or lead director as the conduit between the board and the CEO, and the CEO as the conduit between the board and management.
Maintain professional detachment with the CEO and the company's staff.
Work hard to become and remain broadly informed and aware of competitors and trends in the industry, rather than narrowly focused just on the company's operation.
Economic activity in the logistics industry expanded in August, though growth slowed slightly from July, according to the most recent Logistics Manager’s Index report (LMI), released this week.
The August LMI registered 56.4, down from July’s reading of 56.6 but consistent with readings over the past four months. The August reading represents nine straight months of growth across the logistics industry.
The LMI is a monthly gauge of economic activity across warehousing, transportation, and logistics markets. An LMI above 50 indicates expansion, and a reading below 50 indicates contraction.
Inventory levels saw a marked change in August, increasing more than six points compared to July and breaking a three-month streak of contraction. The LMI researchers said this suggests that after running inventories down, companies are now building them back up in anticipation of fourth-quarter demand. It also represents a return to more typical growth patterns following the accelerated demand for logistics services during the Covid-19 pandemic and the lows of the recent freight recession.
“This suggests a return to traditional patterns of seasonality that we have not seen since pre-COVID,” the researchers wrote in the monthly LMI report, published Tuesday, adding that the buildup is somewhat tempered by increases in warehousing capacity and transportation capacity.
The LMI report is based on a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
With the economy slowing but still growing, and inflation down as the Federal Reserve prepares to lower interest rates, the United States appears to have dodged a recession, according to the National Retail Federation (NRF).
“The U.S. economy is clearly not in a recession nor is it likely to head into a recession in the home stretch of 2024,” NRF Chief Economist Jack Kleinhenz said in a release. “Instead, it appears that the economy is on the cusp of nailing a long-awaited soft landing with a simultaneous cooling of growth and inflation.”
Despite an “eventful August” with initial reports of rising unemployment and a slowdown in manufacturing, more recent data has “calmed fears of a deteriorating U.S. economy,” Kleinhenz said. “Concerns are now focused on the direction of the labor market and the possibility of a job market slowdown, but a recession is far less likely.”
That analysis is based on data in the NRF’s Monthly Economic Review, which said annualized gross domestic product growth for the second quarter has been revised upward to 3% from the original report of 2.8%. And consumer spending, the largest component of GDP, was revised up to 2.9% growth for the quarter from 2.3%.
Compared to its recent high point of 9.1% in July of 2022, inflation is nearly back to normal. Year-over-year growth in the Personal Consumption Expenditures Price Index – the Fed’s preferred measure of inflation – was at 2.5% in July, unchanged from June and only half a percentage point above the Fed’s target of 2%.
The labor market “is not terribly weak” but “is showing signs of tottering,” Kleinhenz said. Only 114,000 jobs were added in July, lower than expected, and the unemployment rate rose to 4.3% from 4.1% in June. Despite the increase, the unemployment rate is still within the normal range, Kleinhenz said.
“Now the guessing game begins on the magnitude and frequency of rate cuts and how far the federal funds rate will be reduced,” Kleinhenz said. “While lowering interest rates would be good news, it takes time for rate reductions to work their way through the various credit channels and the economy as a whole. Consequently, a reduction is not expected to provide an immediate uplift to the economy but would stabilize current conditions.”
Going forward, Kleinhenz said lower rates should benefit households under pressure from loans used to meet daily needs. Lower rates will also make it more affordable to borrow through mortgages, home improvement loans, car loans, and credit cards, encouraging spending and increasing demand for goods and services. Small businesses would also benefit, since lower intertest rates could lower their financing costs on existing loans or allow them to take out new loans to invest in equipment and plants or to hire more workers.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”