2020 BOARD LEADERSHIP AWARDS

‘WE’RE IN UNPRECEDENTED TERRITORY’

FROM DOING BATTLE WITH ACTIVIST INVESTORS AND FIGHTING SHORT-TERMISM TO TAKING A STANCE ON SOCIAL ISSUES, THIS YEAR’S HONOREES WERE SELECTED BY A CROSS-INDUSTRY COMMITTEE OF PEER PUBLIC COMPANY DIRECTORS FOR EXEMPLIFYING EXCELLENCE IN THE BOARDROOM. BY JENNIFER PELLET

‘Focus on those things you can control’ As lead director of United Technologies, Ellen Kullman helped guide the company during a tumultuous transformation.

Ellen J. Kullman is no stranger to turmoil. nologies and Goldman Sachs, Kullman on a much more personal level. From an During seven years at the helm of DuPont, is also now back in a CEO role, having economic standpoint, it will be very rocky, she fended off an activist campaign aimed stepped from the boardroom at 3D printing but it’s the personal health impact that at splitting up the materials company. More company Carbon into its corner . The makes it so much harder. It’s not just fear of recently, she served as lead director of move came at the tail end of November— people losing their jobs; it’s fear of people United Technologies Corporation through putting Kullman in the hot seat just when the losing their lives and being impacted from a series of turbulent events at the compa- Covid-19 crisis hit American shores. a health standpoint. So, we’re in unprece- ny—a performance that led her peer direc- When CBM spoke with Kullman, the vi- dented territory, and I think we just have tors to name her Director of the Year. rus was shutting down local economies, its to stay close, learn from each other and “Ellen has been a steady, guiding force economic impact still unfolding. Excerpts follow the guidelines. Take it seriously. in the transformation of the company for of that conversation, edited for clarity and The CDC has pretty specific guidelines many years, including fighting off activist length, follow. on how we should be behaving and acting. campaigns and replacing the CEO,” said People need to take that seriously if we’re Nigel Travis, executive chairman of Dunkin’ We happen to be talking when the going to contain this virus. So, we have had Brands and a director at Abercrombie & business world is in the middle of coping to figure out how to work from home, how Fitch and Office Depot, who served on the with the Covid-19 crisis. What are your to be productive. selection committee for Corporate Board thoughts on how CEOs and directors You’ve have to be okay with people Member’s Board Leadership Awards. should be managing this situation? saying, “I can’t make that call because I’ve Currently director at Amgen, Dell Tech- It’s akin to the global financial crisis but got to take care of my kids that hour,” and

12 CORPORATE BOARD MEMBER THIRD QUARTER 2020 INDEPENDENT DIRECTOR OF THE YEAR ELLEN KULLMAN

Former Lead Director, United Technologies; Director, Amgen, Dell Technologies, Goldman Sachs; President & CEO, Carbon COURTESY OF CARBON COURTESY

CORPORATE BOARD MEMBER THIRD QUARTER 2020 13 just say, ‘okay, we’ll do it later.’ We need Many companies are incurring huge costs to be very cognizant of people’s personal trying to continue to take care of employ- situations because they’ve got to take care FROM AN ECONOMIC ees. How do boards reconcile manage- of their families first. “ ment decisions to close stores but still We’ve got to figure out the business STANDPOINT, IT WILL pay people with their fiduciary responsi- side of it as well. It’s akin to the crisis man- BE VERY ROCKY, BUT IT’S bility to shareholders? agement that we did during 9/11, although The interesting thing is that there’s an eco- that was just U.S. based, and the global THE PERSONAL HEALTH nomic impact, and then there’s a recovery financial crisis. You’ve just got to learn from IMPACT THAT MAKES IT impact, right? So, you can calculate pretty the past and be open to learning from easily how much it will cost you to do it by others because nobody has a bead on how SO MUCH HARDER.” week… although how many weeks it will to get through this. last, who knows? You also know how much it would What did you learn then that you’re what’s going on with other companies that cost you if you had to retrain workers drawing on now? they’re involved in as key learnings and because employees who you were no A few things. First, overcommunication is how that applies to us. They help us think longer paying found something else. not bad. Communicating with your em- outside of our box into the larger box. You There’s a huge cost to that. There’s ployees, communicating with your custom- can get really internally focused at a time also a morale cost to [having not paid ers, communicating with your board—err like this, and that’s not helpful. employees] when people do come back. on the side of frequent, quick check-in It’s important to keep your eyes wide, Loyalty is an easy thing to say, and it’s meetings. At Carbon, we are talking daily understand what’s going on around you, a hard thing to get and retain. Treat- about what we’re seeing, and it’s changing not just in one area but in the entire U.S. ing people with respect, to the extent daily. Until we see things settle out to a and the entire world. We’ve been back that you can, goes a long way in these different place, communication is just so and forth with our head of China, and they circumstances. So, individual compa- important. came back to work slowly, but it’s starting nies will make their decisions based on Second, modeling potential outcomes. to turn. What can we learn from them as their situations. But as you recall, we’ve It’s hard to tell right now because it is still they start up again? It’s really using the tal- been at a pretty low unemployment unfolding. But we’re seeing impact on our ent that the board brings and having them rate as a country over the last couple of customers, so we’ve got to model the busi- help advise, give us examples, so that we years, and finding, developing, retaining ness impact out for the rest of the year— can hopefully create a plan that’s stronger people who are going to show up, who what we should be doing to support our than what we would have without them. are going to get the job done, is really customers and what our suppliers should an important part of the equation. And be doing to support us—and start and What about the companies on whose people want to come back quickly when keep having these conversations because boards that you’re serving, what are they the opportunity presents itself. we’re all in this together. looking to you for right now? The question is how long can any of us I learned during the global financial crisis Kind of the same thing. I’m actually continue to do that, right? That’s going to that if you really think through what’s import- learning from some of them, because be a time-will-tell kind of thing. ant for your business, focus on those things Amgen is on the front line in the phar- you can control, then you can come out of it maceutical community. It’s interesting, So the idea of retaining rather than fur- stronger. So, software engineering can hap- the impact it has on different compa- loughing people is an investment in the pen from home, right? We don’t have to lose nies is very, very different. You know, future that you wouldn’t necessarily find any time on that. Hardware engineering is a more people need personal computers to be problematic? little harder. It’s about focusing on what you because they’re working from home and When I was running DuPont, we used to say can control and really communicating very, maybe didn’t have a portable [com- that in order to lay someone off and have very well with all your constituencies. puter] because they were working on a it work out economically for the company, terminal in their office. The impact on you can’t need someone in that job for two What about from a board perspective? airlines and jet travel, I’ve got a confer- years. And I don’t think people are think- What can boards do to help ence call with a CEO this afternoon to ing about this as a two-year thing. In retail, in this crisis to get through it? kind of go through what kind of actions it’s different economics, right? Because Our board members have a tremendous we’re thinking about taking there. So, I’m talking about engineers and operators, amount of experience in a lot of different the interesting thing for me is that it’s plants and things like that. But every indus- areas, so they’ve helped us understand the hitting different industries very different- try, every company kind of knows what that impact on different industries they have ly, and it creates opportunity and risks equation is for them, and they’re making participated in, sharing information about that we have to work our way through. their decisions based on that.

14 CORPORATE BOARD MEMBER THIRD QUARTER 2020 You served on United Technologies’s and construction is very different than Car- board, which went through a CEO suc- rier, than the HVAC area, different go-to- BOARD LEADERSHIP cession and an acquisition, and now the market, different competitive set, different AWARDS SELECTION company is splitting itself up. What was just everything than the aerospace busi- most challenging? ness and the aircraft engine business. So, COMMITTEE 2020 CEO succession is probably one of the they’re all pretty different businesses. most challenging things that you’re going UTC is a phenomenal operating system, Bryan Jordan to go through, regardless of the circum- so they could get great performance out of Chairman, President and CEO, stances. It’s an emotional time for the those [divisions], but once we acquired not First Horizon National Corporation; company. It’s a time when a company only Goodrich but then Rockwell, aerospace Board Member, AutoZone wants to understand whether a change became a predominant part of it. We, as in CEO means a change in direction. With a board, determined that Otis and Carri- Edward Kelly III UTC, how we came together through this er were huge enterprises, phenomenally Retired Chairman, CSX Corporation whole process and came out of it as a competitive, great franchises, very strong stronger board was done very well. It’s a globally, that might be better off on their Michael O’Neill hard thing to go through as a company own. That’s when we started the analysis to Retired Chairman, Citigroup even under the best of circumstanc- understand it. In any of those situations, the es. Mergers, acquisitions, divestitures, answer is not always keep together or al- things like that, you’ll learn a lot as you ways split. It depends on the circumstances. Maria Sastre go through them about the organization, To us, as a board, in the UTC circum- Board Member, General Mills about the board and how they view things stances, it was pretty clear that this was the and leadership. But I think CEO succession right thing to do for the shareholders, it was Nigel Travis is probably the most challenging for a the right thing to do for the companies. Chairman of the Board, Dunkin’ board to come together on. Brands; Board Member, Having been on the receiving end, how Abercrombie & Fitch You’ve also had some challenging expe- do you feel about the effect pressure for riences with activist investors in the past, short-term performance has on compa- James Umpleby particularly at DuPont. nies today? Chairman and CEO, Caterpillar; Activists are everywhere, and I’ve had a When I started at DuPont as a middle-level Board Member, Chevron couple on boards that I’ve been on as well. manager back in the late ’80s, while Ed But it’s interesting, activists have a point Woolard was CEO, there was a theory of view. You always learn from the inter- about four stakeholders that you had to ADVISERS TO actions. It doesn’t always get as intensive satisfy to create a successful enterprise. as the DuPont situation. I wasn’t thinking It was our shareholders, our employees, THE COMMITTEE about that because I was thinking specifi- our customers and the communities in cally of UTC examples, but [as a challenge] which we operate. For DuPont, operating Scott Gillis Founder and Senior Managing it’s right up there as a stressful time for big, heavy chemical plants, we needed the Director, Galt & Company the board because 12 people may have 12 communities with us, and we needed our different opinions, or they might have 20 employees with us and our customers. I different opinions, right? Some of them learned that through my experiences with Lee Mergy have several about these types of things DuPont and running businesses there. So I Founder and Senior Managing and the process. The key there is making viewed the onset of this wave of activism Director, Galt & Company sure you’ve got a great inclusive process as really taking it to “there’s only one stake- with your board and you’re bringing your holder that matters” type of thing. Joe Shalleck board with you. Earnings per share, cash generated, Founder and Senior Managing your multiple—all that is an output. The Director, Galt & Company At DuPont, wanting to break up the com- input is engaged employees, relevant tech- pany was the activist battleground, and nology and innovation that captures the Dan Bigman now at UTC splitting up is the strategic customer, right? That allows you then to Editor, Corporate Board Member move. generate the revenue that then creates the They’re two totally different situations. shareholder value, right? So, I think it’s too United Technologies was built through ac- simplistic to think that the only thing that Jamie Tassa quisitions over decades and very different matters is shareholder value. Publisher, Corporate Board Member businesses and construction. And elevators If you’re not investing for the long-term…

CORPORATE BOARD MEMBER THIRD QUARTER 2020 15 where is innovation going to come from if on and keeping the board together, making all you care about is the next quarter? To tell sure everybody has a voice and making sure you the truth, some of the problems that WITH MANY OF THESE that we’re giving the right and the appropri- we saw with the Covid-19 crisis in terms of “ ate level of counsel to the company to man- THINGS, THERE’S NO ‘RIGHT how we plan as a government for crises is agement is really important. Boards don’t that, “Yeah, we’ll deal with it when it comes, ANSWER,’ RIGHT? YOU want to be too distant, but we oversee, we right?” attitude. We’re seeing that with not MAKE A DECISION BASED don’t manage. So, I mean, it’s important for being prepared with the testing kits, with a lead director to really set a tone for the not having the right kind of infrastructure. ON WHAT YOU KNOW AND transparency and the right level of dialogue Companies have to think about that too. OUR BELIEF ABOUT WHAT and engagement, and to make sure you Most of my shareholders were long-term have enough private sessions where people shareholders; they’re not the ones who are THE FUTURE LOOKS LIKE.” who don’t feel comfortable talking in front grabbing the front-page news or going on of management can get things out on the CNBC to put a point of view out there. As table. Making sure that you’re engaging the you know, “steady as you go” never sells What kind of conversations about ESG CEO with the feedback from these sessions a lot of magazines or TV slots. I believe are taking place in boardrooms now? in a very open and kind of lifting up way that it’s not any one at the expense of the I think the way it started, and now I’m most of the time. others. Shareholders are only going to be going back to my DuPont experience So, it’s a very thoughtful exchange. You satisfied if you’re successful, and you’re only decades ago, was more of a denominator have to listen a lot. I’d been on the board going to be successful if you’re innovative kind of approach. Meaning you lessen your for a number of years before I became a and have engaged employees and operate impact on the world, put less CO2 into the lead director, and I knew the players, not in a way that creates that value for your atmosphere, less water usage, less landfill only on the board but management, very customers. So, you know, I got the activism usage. Now, people are starting to think well. That really helps you have those con- thing, right, obviously, because I was a big about it as, I’ll call it from the numerator, is versations. I’ve got a great relationship with part of that story, but I always played for it doing good? Diverse workforces, Greg [Hayes] and his team. There’s nothing the long-term health of the company. When people with disabilities and creating a work that we can’t talk about. It’s really import- you run a 215-year-old company, you feel environment that’s good for everyone to ant to not only make sure the board’s responsible for that kind of legacy. work. And from the low unemployment together, but that each one has a voice and area, really making sure that you’re using can really counsel the CEO in any way that Are the increased focus on ESG by inves- all the skills that are out there. For the can be supportive of continuing a compa- tors like State Street and BlackRock and banking industry, creating loans to help ny on their journey. the Business Roundtable’s broadening developing nations and small businesses the definition of corporate purpose help- create a stronger future for themselves. You’ve been a lead director for com- ing to move things in the right direction? In terms of community impact, I just think panies undergoing the kind of massive You look at the number of sustainability there’s a much more holistic view of it—it’s change that probably made for some reports that companies are putting out not only reducing your impact on the world intense interactions between board mem- now versus in the past, you look at peo- but creating a better impact on the world bers. How do you handle discord in the ple getting a lot more transparent about through what you do. And that is discussed boardroom? all the aspects of what it takes to create in the board meetings. What is the company Well, there was a lot of passion. And with that earnings and whether it’s environ- strategy on this? How do they play versus many of these things, there’s no “right an- mental impact, people impact, good or their peers? And it’s part of the conversation swer.” You make a decision based on what bad. I personally think transparency is around risk management, around the future you know and our belief about what the your friend. People need to understand of the company, around how relevant is this future looks like, which could be the same and then make their decisions holisti- franchise in 10 years, in 20 years. So, it has or could be different. That’s why it’s not a cally. And some businesses have more grown over time, and it’s changed. In most of quick process. challenges there than others. We’ve the companies that I’m associated with, it’s Greg did a great job with the board on all seen that in many parts of the tech been a very thoughtful exchange. talking about the idea as it was forming, industry, which was thought to be so working with us as they were doing their clean and lovely because it didn’t create The role of lead director has evolved over analysis and things were kind of chugging any environmental hazards, some of the the past few years. What does it mean to along to a decision. He incorporated the people treatment issues that have come you to be a lead director today? What’s board at every step, which then allowed a out of there are kind of scary. So, I think most challenging about that role in to- lot of the, “Well, why do you think that?” that you’ve got to take it as a whole, and day’s environment? and, “Shouldn’t we know this?” type of you’ve got to look at it as a whole. In today’s environment with so much going discourse to occur and allow people to

16 CORPORATE BOARD MEMBER THIRD QUARTER 2020 have plenty of time to think about it so no- body felt like their hand was being forced. The company did a great job of that LOYALTY IS AN EASY engagement through the whole process, “ which makes it a lot easier. We also had a THING TO SAY, AND IT’S deadline for when we wanted to make a A HARD THING TO GET decision by, which also helped. AND RETAIN.” Was there any particular one issue that had to be kind of really hashed out? People have different views about together or apart and the costs, the synergies, and they need to work through those. Setting up the balance sheets for our three compa- nies instead of one, and then the decision that came later to merge with Raytheon, creates a level of complexity that I think

that most of us have never experienced BEN HIDER before. So, there was a lot of discussion around these things, and I think that’s appropriate. that my skill set in building safety and pro- I bring a lot of big-company thinking with tection at DuPont was really relevant. Com- me, but that’s not how I operate and work. Let’s talk about Carbon. You’re back in ing out of the October board meeting, we My favorite part of my career quite the CEO role at a very different kind of started serious discussions about whether frankly, was building the safety and protec- company; what appealed to you about something like this would make sense. And tion platform at DuPont and working with this opportunity? we decided that maybe it was time for Joe that team and the product and the growth. I joined Carbon’s board somewhere in the and I to switch jobs, so that he’d become And I believe our success when I had that spring of 2016. Alan Mulally, who was on executive chair and that I would become role was more pivotal for me than being the board, called and asked me to go out CEO and president. named the CEO of the company. But just and take a look at this company. I met I always said I would never go back to being out in the marketplace and focusing with one of the founders, Joe DeSimone. work full time unless it was a compelling on the customer, the growth and the sci- As a mechanical engineer and somebody company because after you run DuPont ence, bringing that all together in a much who believes that manufacturing is a really for seven years, there’s not a lot that to me more hands-on way is a lot of fun. important part of the economy, I was would cut that. But this did. So, it’s quite intrigued with the technology, manufactur- a new adventure. It’s a West Coast pace The issue of diversity in the boardroom is ing, injection molding. DuPont was a big versus East Coast pace. It’s less than 500 something we’ve been talking about for polymers company, and that’s been done employees versus 40,000. And it’s fun. decades, but it seems like there has been the same way for eons. This technology, I’m very happy with the decision and very a lot of movement recently. What’s your to me, had the opportunity to disrupt that excited to be part of this journey. perspective on where we stand now and at a scale and a cost that was relevant, not where you think we’re headed? everything, but to a lot of manufacturing. What’s it like going from the boardroom I have always been a proponent of diver- So, I was excited to join the board, and into the CEO spot? Did you have a better sity in the boardroom because I believe I became the lead director at Carbon. Joe, inside scoop coming in from the board- that the perspectives are different, the with his experience, and I, with my experi- room? background is different, the engagement ence, very different from each other, worked Well, I knew a lot, but I didn’t know any- is different. The more diversity you have, together really, really well. Then in 2019, you where near enough. You never do. I knew the more holistic the thinking around the know, it became apparent that we had cre- enough to understand where I thought opportunities and risks for any company. ated the team and tremendous proof points the opportunities were, and now I’m work- DuPont had a very diverse board. That’s in the technology, given what we’ve done ing through that with them. So, it’s much something that we worked very hard on. with Adidas and Riddell and many other ar- more helpful than coming in out of the My predecessors obviously did a great job, eas, from automotive companies to medical cold, as it were. But you just go on a listen- Chad Holliday brought [Lockheed Martin device companies. ing tour and a learning tour in order to be CEO] Marillyn Hewson to our board back But the issue is how to scale and how able to truly form the plan for the future. when she was just a group . get up that curve. So, it just seemed to us I think people were a little concerned that We kind of won the lottery on that one.

CORPORATE BOARD MEMBER THIRD QUARTER 2020 17 Diversity of background is important. past paradigm about how the world You shouldn’t just have all ex-CEOs and needs to be is really important. CFOs or current CEOs and CFOs. At Gold- THE MORE DIVERSITY This latest challenge with the virus is really man, we have a former admiral who brings “ going to take its toll on this year, and may- YOU HAVE, THE tremendous thinking around technology be even in 2021... In uncertain times, boards and cyber and things like that. So, there are MORE HOLISTIC THE come under pressure for both short-term and a lot of different skills that come to bear THINKING AROUND THE long-term decisions. Where will they place on the board. When you move to a skills- their bets? Where will the company place its based matrix, you understand that you OPPORTUNITIES AND RISKS bets for the long-term for the shareholders? need to get different views in the room; FOR ANY COMPANY.” Making sure that the company is making the you really see where the opportunity lies. right decisions around what they’re investing in and what they’re changing based on this is You mentioned that you worked very of the cultural aspects of the board. really important. hard to get a diverse board, which is one Nobody’s going to tell any tales out of of the defenses you hear with a lack of school. But there are ways to communicate You mentioned before that, in some cases, diversity in the boardroom—that it’s just inclusiveness or lack of inclusiveness with- there are no right or wrong decisions, and really impossible to find people. out getting real specific. you don’t ever really know that one is right It’s not hard. You just have to convince until after you make it. them that you’re the prettiest company out Looking ahead, what issues will be the For me personally, I believe you make the there and they should really want to be on biggest conversations taking place in best decision you can based on the infor- your board, right? People should be careful boardrooms over the next few years? mation that you have and the forecasts, in picking a board. They should want to We’ve been on a great growth path as presumptions and the assumptions you’re know what the culture is. Is it an inclusive an economy for, what, 10 years, 11 years? making. And you really need to make sure board, do they really listen? Women and And I think this downturn is going to be you understand the facts you have and the people of color have choices, especial- more impactful than we think economically. assumptions that you’re making. ly if they’ve been in a senior leadership It will be interesting to see, but I think As you track the results and what position. So, they want to make sure that uncertainty as a way of life has just in- comes to be, you’ve also got to make sure they’re making the right choice because it creased exponentially. So, really working you’re on top of whether [the path you is a commitment for a while. You just can’t through and making sure that the compa- took] is meeting expectation or, if it’s not, get on a board and decide a year later that ny is thinking broadly about their issues, what you’re going to do about it. These you don’t want to be on the board. That’s their opportunities, doesn’t get stuck in a things, whether it’s mergers, divestitures, really not good for you or the company. major investments in new products will I think that you’ve got to use your have a big impact on the shareholder. networks and learn where people are from COURAGE IN THE So, there just is a diligence that has to be others. The search agencies are doing a BOARDROOM maintained, not only for making the deci- much better job today than they have in the sions but on questions like, have we creat- past in terms of bringing forward diverse ed value out of it that we anticipated? And candidates. But expanding your network if not, what steps could we take in order and using it is really important as well. DICK’S SPORTING to improve it? The diligence doesn’t end GOODS with the decision. That’s just step one, and How do you vet a board before you get you’ve got to track it all the way through. Honored for exemplary leadership on it to make sure that it’s somewhere in making a very difficult business that you want to be? Any last thoughts for directors who face decision, the board of the Coraopolis, One of the things that I learned when I a moment where they have to show some Pennsylvania-based sporting left DuPont and had a lot of opportuni- courage in the boardroom? goods retailer was recognized for ties for boards was to not only speak to For me, it’s always about what’s in the best its support of CEO Edward Stack’s the existing board members but to see interest of the company and the shareholders, decision to restrict the sale of if there was an ex-board member who’d not necessarily what’s in my personal best in- firearms in 2019.CBM was unable to be willing to talk to me. In a few cases, terest. I believe that’s why I’m there as a board interview a board representative due I was able to speak to people who had member. I think you just have to keep that in to the Covid-19 crisis. recently stepped off of a couple of the mind, that you’ve got to really put the com- boards. To the extent they can, they do pany and the shareholders first and foremost share in an appropriate way, and you in your mind as you’re advising the company learn a lot. It’s very enlightening in terms and making these decisions. CBM

18 CORPORATE BOARD MEMBER THIRD QUARTER 2020