VSHR Advisory Leadership Alert 2021 with Monica Mächler

Monica Mächler has been a member of the boards of Zurich Insurance Group Ltd and of Zurich Insurance Company Ltd since April 2013 and a member of the board of directors of Cembra Money Bank AG since April 2015. She also chairs the advisory board of the International Center for Insurance Regulation at Goethe University Frankfurt am Main and serves, among others, on the board of the Europa Institut at the University of Zurich. Previously, she was the vice chair of the board of directors of the integrated Swiss Financial Market Supervisory Authority (FINMA) from 2009 to 2012, after having been the director of the Swiss Federal Office of Private Insurance from 2007 to 2008. From 2010 to 2012, Mächler chaired the Technical Committee of the International Association of Insurance Supervisors (IAIS). Before that, she served as the group general counsel of Zurich Insurance Group and was a member of the Group Management Board.

From your perspective, what is the biggest challenge most companies face right now?

Monica Mächler: There are many challenges, such as macroeconomic conditions, sustainability, as well as societal and political changes. Right now, there is still a considerable amount of uncertainty relating to how the pandemic will evolve, when the recovery will become sustainable, when it will be possible for employees to return to the office, and which business initiatives can successfully be launched. Each of these has financial impacts.

As a result of the pandemic, do you think organizations will become more risk averse and more prudent in their scenario planning?

MM: I think it depends on the industry. Some industries, such as life insurance, have been addressing pandemic scenarios for a long time. But others, more cash flow–dependent businesses, usually do not work with such scenarios. It has been eye-opening to see how little reserves some of these industries set aside to cope with emergency situations. But I do not think that all industries will be able to move to a completely long-term perspective in addressing the risks they face. They have to balance many factors. Across industries, there will likely be a gradual shift, but not a complete shift to more of a long-term perspective.

The pandemic has led to calls in some quarters to rethink the social contract that exists between business and society. How are boards balancing the need to adapt to the changing needs of society and their obligations to shareholders

MM: From my perspective, rethinking the social contract is not only related to COVID-19. This is an evolution that started quite some time ago. It began as a reaction to the shareholder value approach. Later, it transformed into a stakeholder value concept to get at the question, How do you best embed the business into the economic, environmental, social, and societal context where it operates? Personally, I am very glad we are having this discussion, because I think that corporations need to be interlinked with the environments they operate in. For companies to be sustainable and achieve success for decades to come, it is critical to foster this embeddedness.

Do you believe the social contract changes for businesses that accepted government support during the pandemic?

MM: By accepting government support, you also have a heightened obligation of loyalty in terms of what you do with the government money. Companies that accept government support have to be very careful about how to allocate those funds. There can be nuances, however, that sometimes get lost in the public discussion, and some of that discussion can be very short-sighted. For example, contractual terms cannot always be changed right away, and companies may need to reward people who stepped up and are working extremely hard in challenging situations.

How has the pandemic impacted trust among board members?

MM: In a really challenging situation, functioning boards stand together. Trust plays a big role. Board members have to bring to bear their best. In difficult times, leadership must also be strong so that the board speaks with “one voice.” Often, I think that such challenges help unify a board way more than in normal times when there is not as much of a pressing need to join forces.

In your view, what is the role of the board of directors with respect to climate? MM: Boards of directors have an important role to play. They are positioned to ask for a clear assessment of the facts and thus identify the challenges the company faces. They can encourage and support management to develop strategies. Options need to be assessed and decided upon. Once decisions are taken, it has to be ensured that the strategy chosen is being implemented throughout the company. As to how to structure the board conversation, there are many possible approaches. Overall oversight is to remain with the full board. At the committee level, I serve on a board where the ESG topic is combined with governance and nomination. But it could also be combined, for example, with risk. Combining issues into one committee can prevent creating too many interfaces. From what you’ve experienced as a board member, what are the top three secrets to an effective board? MM: First, I think it is important that there is an atmosphere of mutual respect and appreciation among board members. Of course, this presupposes that the board is composed of highly qualified individuals. To have a robust discussion and develop good solutions, it is key to have a wide variety of well-substantiated perspectives. Second, the board should take a far-sighted view. Sometimes, the company is faced with near-term challenges that seem to prevail. The board, in the context of playing its role as a challenger or sparring partner for management, is most effective when it looks at the issues through more of a long-term lens. Third, management and the board ideally engage in a very active discussion to reach good solutions. But once that in-depth discussion is held, everyone needs to come together to agree on and implement a solution.

What advice would you give a new CEO about how to get the most value from his or her board? MM: A new CEO first needs to gain a very good knowledge of the company. This includes learning about the board and its members and dynamics. Full board discussions are crucial. There may be follow-up discussions with individual board members to pick their brains and gain further insights. These exchanges allow CEOs to build a platform, which they can use when getting ready to develop strategies for the future.

Is there a big external trend that boards should be talking more about right now? MM: Regarding topics related to the economy and the sustainability of the environment, we may need to rethink the extent to which the corporate world is participating in the public dialogue. There was a period when corporations stayed out of these discussions. But this has created a void and misunderstandings. It became evident in the Responsible Business Initiative in Switzerland, which was rejected by a small majority of voters. In many instances, the corporate world has already started and would benefit from further intensifying the exchange with their stakeholders.

What could corporate leaders do to make that happen?

MM: Corporate leaders could provide deeper insight into how their companies cope with being part of society and the common challenges society faces. They could explain what the company does, how it does it, and with what attitude. At the same time, careful listening to societal challenges and reading the handwriting on the wall regarding upcoming risks and issues are warranted. This could uncover shared experiences, which would strengthen the mutual understanding between the corporate world and society-at-large.

Source: Deloitte

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