Interview with Microsoft Board Member Hugh Johnston

>>Hi, I’m Hugh Johnston, a Microsoft Board Member and the
Vice Chairman and CFO of PepsiCo. My career actually started with General Electric when I
got out of undergraduate. I went to Business School at University of Chicago
and then I actually joined PepsiCo 32 years ago, in 1987. I’ve probably spent about 60
percent of my career doing finance and 40 percent doing
operating and other types of jobs. Lived in the US, traveled
to 80 countries. So I’ve had the good fortune
of really on PepsiCo, learning and seeing the world. I think the part that I
have found most fun in my career is actually learning about new things
and then leading people. The theme of leading people has
come up consistently for me and as I’ve engaged more at the higher
levels of the organization, I found that leadership is frankly the biggest difference maker in
what makes a company successful. I’ve often received a lot
of good advice but one of the most striking ones
for me goes all the way back to when I was
just out of school. You know, you’re going to do
a whole lot better when you realize your job is to make your people better
individual contributors. It’s not their job to make you a
better individual contributor. I kept reflecting on
that particular comment and it gnawed at me because
I knew it was true. That was a major shift
for me to learn, hey, it’s not just about how
smart you are and what you know, but how can you make the team
smarter and how can you build a team and find people who can actually
make the organization better. The biggest impact I could have
is by identifying and growing those people much more
than the impact I can have by being the
smartest guy around myself. So it was really a major
career shift for me. It turned out to be one of the most fundamentally sound
pieces of advice I’ve ever gotten. When the opportunity came along
to join Microsoft’s Board, knowing just the massive
breadth of the company and how it touched almost every
aspect of the tech sector. I couldn’t help but say yes. For me, the ability to try to come in and be a part of the
group that’s building the value that Microsoft is building and making the company even more impactful than it has been in the past was both a great
challenge and frankly, a great privilege so I happily took the opportunity to
join Microsoft’s Board. The Board meeting is not as
mysterious as it might seem. There’s really three big things that happen inside
of a Board meeting. Number one is a Board has a
role around governance and making sure that the company has
the right checks and balances, it’s following the rules under which we’re supposed to play
whether it’s the rules around the investor world
or the rules around environmental world or the rules
around the securities world. So there’s sort of a whole variety of governance things that the company needs to follow and the Board’s
job is to oversee that. Number two is really
around the strategy of the company and does the strategy, does the vision makes
sense and then is the company’s compensation
linked to the strategy? So that the executives
are motivated to actually follow and pursue the strategy that’s been agreed to with the Board. Then the third is really people. Ensuring that the team
is high functioning. The team has an appropriate
pipeline so that as executives move on and retire
and move on to different things, that there’s a good
pipeline of people so that the company has continuity. Can continue to grow and
continue to perform. You tend to think of the company in terms of not just quarters or years, but multiple years and even decades
and you want to ensure that the strategy and the
talent are consistent with where you’re trying to
see the company go. So those three things are probably about 90 percent
of the Board’s work. Its people, its strategy,
and its governance. It requires a more diverse group of thinkers on the Board because
as you put together a Board, you’re looking for a different set of experiences so that the totality of the Board brings really good
collective intelligence to this oversight role that
the Board has on the company. The audit committee’s
primary role is overseeing financial reporting and
overseeing risk and disclosure. That’s the primary role
of the audit committee. How does the audit committee do that? It really takes place in four ways. Number one, the audit
committee reviews the financial reporting of the company
and ensures that its compliant. This role is not producing these things but it’s
overseeing these things. Number two is to review the risk processes of the company and to ensure
that the risk processes are robust and then to ensure that the Board has full
exposure to the risks that exist within the company and how the company is choosing
to manage those risks. The third is oversight of the internal audit group because the internal audit group’s job is to ensure primarily that risk management is being handled properly
and in addition to that, the financial disclosure is being
managed properly and then last, the audit committee’s focus is around the external auditors who do some
things that are similar to what the internal audit group does but are fundamentally separate
from the company and therefore by reporting to
the audit committee have even more independence to ensure that the appropriate
checks and balances take place over that audit committee primary role of overseeing financial reporting and
financial disclosure. This Board is a very
hardworking Board. It’s highly engaged. It presses management hard on the details and thinking
through strategy, financial plans,
guidance, people plans. So that the Board is a
highly engaged Board relative to what I’ve seen
in most other places. It’s a board that has
really gone through a pretty fair level of renewal over the course of
the last several years. So you have some members of the board who had been on
for a long time and bring wonderful experience and
then you have a number of fresh perspectives on the board as well and the combination
of those two, I think benefits the company
quite significantly. The Board has a significant role
from a strategic perspective in understanding where is the
company choosing to make its bets. Where does management
want to make its bets. As an overseer role, the Board will never have
the same level of expertise that management has in
evaluating those risks but what the Board brings rather is a broader perspective of multiple industries in
a multiple points of view on where the world is going and to be able to connect
those points of view on where the world is going with the management’s view on
how technology is evolving. I think creates the right balance
in ensuring that management is choosing to invest in
technologies that will enable the company to continue
to grow and build value. One of the board’s primary
responsibilities is to ensure that the strategies lead towards
shareholder value creation. It’s obviously a one of
the more critical elements for the board from the
perspective of shareholders. Shareholder value is a product of a few different
things ensuring that not just the current performance as well but the duration of
performance is strong. How did you do that? It
really falls into two areas. Number one is evaluating
strategic opportunities and ensure the strategic
opportunities are consistent with the agreed to vision because the agreed vision is one that
is clearly geared towards creating value and then the second
is ensuring that the management is building the right
talent base to be able to go and execute
against those opportunities, to be able to execute the vision. So the board spends
considerable amount of time trying to understand
deeply the strategy that’s being proposed and ensure that the resources exist to execute
the strategy successfully. If you think about the
last 10 or 15 years, for all companies considering ESG, has moved from a tail risk to not just the primary
risk but frankly, a primary opportunity to
differentiate yourself. So as a Board and as we talked to
Satya and his management team, we think a lot about
how can we turn ESG into an opportunity for the company whether it’s the
way that we produce products, whether it’s the way
that we engage with customers, engage with associates. There’s a real significant push from the Board to
management and saying, let’s ensure that we turn ESG from a potential risk into a differentiating
opportunity for the company. I think we’ve made good
progress on it so far. As a member of the Microsoft Board, I have to say I’m both honored and privileged to be a part of what
I think is a terrific company. Satya and the management
team, I think, are doing a great job
in trying to transform a really large enterprise into an even more impactful enterprise that will create an
enormous amount of value, have a positive impact
on society and really be a sustainingly
attractive place both to work and to have as a company
as a part of the ecosystem. So as I sort of think about
the future of Microsoft, I see nothing but big
opportunities for the company to have even more
impact on a positive world.

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