Overstock CEO Jonathan Johnson on Governance, the G in ESG
Jonathan Johnson, who became CEO of Overstock after founder Patrick Byrne resigned, chats with Catherine and Steve about the “G” in ESG, cryptocurrency, and setting the tone from the top. During his career at Overstock and elsewhere, Jonathan has served as a general counsel and CFO, giving him an appreciation for strong corporate governance. Tune in!
Season 4, Episode 22: Overstock CEO Jonathan Johnson on Governance, the G in ESG | Transcript
Jonathan: If governance isn't being done carefully, that's when companies get in trouble.
Steve: Hello, and welcome to Off the Books, where we surf the uncharted waters of accounting, finance, risk, and wherever else the waves take us. This episode is brought to you by Workiva, the one platform that brings together financial reporting, ESG, audit, and risk teams so they can work together in the cloud, not in an overcrowded conference room. My name is Steve Soter, accounting enthusiast and Diet Coke aficionado. Looking forward to debiting a great conversation, and I'm so happy to have you with us. Joining me, as always, is Catherine Tsai. Catherine, could you please introduce yourself for the fine folks at home?
Catherine: I'm not an accountant or Diet Coke aficionado, but I like venti soy chais and asking questions, so I'm here to do some of that. And I understand we have a very special guest with us today.
Steve: Indeed we do, Catherine. We are so excited to welcome Jonathan Johnson, chief executive officer at Overstock.com. I'll point out, during his time at Overstock, Jonathan has served as general counsel, president, chairman of the board, and has been deeply involved in Overstock's efforts to incubate and deploy blockchain technology. But he's also been a CFO and even clerked for the Utah Supreme Court. I got to be honest. I feel like I might need a nap just having gone through that list.
Catherine: And you also worked together before, right?
Steve: We sure did. I am a proud Overstock alumnus. Thoroughly enjoyed my chats with Jonathan as I was collecting his signatures for our SEC certification process. I can also add, Jonathan, not to make you feel uncomfortable, but almost without exception, you were the very first person to provide your comments on our 10-Qs and Ks. So Jonathan, welcome to the podcast.
Jonathan: Steve and Catherine, thank you for having me. It's good to be surfing together.
Steve: We love it. So Jonathan, let me just lead off. In my opinion and, I would add, firsthand experience, Overstock is a really well-governed company, and I feel like you've had a front row seat from nearly the beginning, actually. Why do you think, why would you say that Overstock has been so successful in this regard, and maybe what lessons did you learn along the way?
Jonathan: Well, it's not been without some bumps and bruises, but I think from its inception, Overstock has had a strong commitment to good governance. We've maintained independent board committees. We've tried to hire strong and qualified outside directors to be on our board. We have always had a strong audit committee and audit committee chair to oversee our financials, a very good compensation committee to oversee the programs we run as a company for compensation, and then we've got a great nominating and corporate governance committee that's recommended good directors. We just added a new director last week that came through our nom/gov committee, was interviewed by the full board, and has been great. I will say that when we have had some twists and turns and things and early in our history—20 years ago—we had a restatement. I think that helped us refocus. I think any time you make a mistake, you work hard not to make it again. We review our charters annually, look to see what best practices are, look to see what new rules have come, and, you know, 2022 was a year of plenty of new rules and plenty of new things to think about being in the upcoming proxy. The other thing I would say that's important is we've learned to value having a diverse board of directors: diverse skills, diverse experiences, diverse perspectives and backgrounds. Then we really work hard to make sure that all are prepared for the meetings, that we get the materials out plenty in advance, and that people have time to review them. And then our chairwoman today does a really good job of making sure each director's questions get asked and answered, that all are participating. You know, it doesn't do any good to assemble a diverse and well-qualified group if they don't feel like they can participate and dig in the way they want to on the topics they're best able to.
Catherine: Was there anything on your first day as CEO that you felt you wanted to do right away with governance, or do you feel it was in a pretty good spot?
Jonathan: Oh, you know, I think when I became CEO, I think I knew we needed to add to our board. It was lacking some things. I think it lacked someone with marketing expertise. And so within a year we had Barbara Messing join the board. She's the former chief marketing officer at Walmart, the current chief marketing and people experience officer at Roblox. She's added a great perspective. We were missing a person of color, and we were missing people with IR background. And so, you know, within that first year, we added William Nettles—great experience working in investor relations and doing deals and also happened to be a person of color, helped round out our board. And then, you know, those were kind of day one things I wanted to do. But this year, three and a half years into it, we recently added Joanna Burkey, who's the chief information security officer at HP. With the growing emphasis on privacy, it was important to me to find a person who knows, a CISO who knows the information security space, but who views it from the perspective of a business person. When I met Joanna, it was clear she was just that person. She wasn't, you know, the old adage, to a person with hammer, everything's a nail. Sometimes you get someone who has expertise, and they view everything through that lens. Joanna's got great expertise in information security and information strategy, but she looks at the business holistically, too. And so I think we've really upgraded and augmented our board with with her addition just last week.
Steve: One of the things that I think is interesting, Jonathan, that I'll just point out is that if you think about maybe that the typical aggressive CEO, "Hey, I'm hard charging, I want to do this my way, and I don't want the board to get in the way." What's interesting to me and I think notable is you've taken the opposite approach, which is to say, "Govern me, provide the guardrails, provide the insight that I need as a CEO to kind of stay aligned." I just find that really unique. I guess I don't have a question other than that seems very different than I would expect a CEO would want a lot of autonomy and a lot of freedom to do whatever she or he felt like was needed to be done.
Jonathan: Well, I think that's a fair comment, Steve. And I do think board members need to be thoughtful that one of their primary responsibilities is to hire and fire CEOs. But I also think in between those two things, they have a responsibility to support the CEO that they've hired and make that person successful. And I think they do that. A phrase I heard recently was "nose in, but fingers off." Being really aware of what's going on in the business, but not trying to be CEO for a day one day each quarter or two days each quarter as the board meets. And so that's how the Overstock board has really operated, and it's made me rely on them more. There's that old adage, it's lonely at the top. A CEO is really making the hard decisions. Easy decisions don't come across my desk because other people are making those decisions because they have the autonomy to do so. And on the hardest decisions, you know, yes, I rely on my colleagues on the senior leadership team, but I also will talk to board members to get their thoughts, particularly if it's in an area that's their area of expertise. And so I really view the Overstock board as a group that helps me do my job better while it represents the shareholders' interests.
Catherine: We've been talking about governance, which is an important pillar in ESG, a hot topic of the day. And there's been a lot of focus on the environmental side, the social side. How does governance fit into Overstock's overall ESG goals? And do you see governance growing in importance in light of some recent headlines at companies that shall go unnamed?
Jonathan: Yeah, look I think, ESG—governance—is the ultimate letter of that acronym. It's last on the list, and it's not last because it's least important. I think it's very important. If governance isn't being done carefully, that's when companies get in trouble. That's when unscrupulous management teams can do wrong by the company, by the shareholders, by other stakeholders. And so, governance has been a vital part of Overstock's ESG efforts. It's always front of mind. We've had a strong commitment to governance from the beginning. The committee meetings, the board meetings are not perfunctory. They're fulsome discussions, and we're continuing to find ways to improve governance. Although, Steve, as you introduced me, I've had a lot of different hats, but one of them was being a general counsel. I think from my perspective, governance was kind of what I cut my teeth on when I started working at public companies. I've also been a CFO, and so I know financial disclosure has got to be correct and important. So I cut my teeth on that. So I think having worn those two hats before wearing business hats, as the president of the company and later as the president of our investment arm before becoming the CEO, has meant that I put an emphasis on governance. And as you commented, Steve, even today, as the CEO, I try and get my comments on the 10-K first when it's emailed out to the entire executive team for comments. I like to get my comments back first, in part to send a message to everyone else who's copied on that email: If this is important enough for the CEO to read through this long disclosure document and comment not just on the new wording, but on some of the old stuff too, then it's important for everybody to look at it and comment on it. Another one of my practices is when the rest of the people send their comments, I usually send a private email to each person as they comment, thanking them for their review of this important disclosure document. Just, to me, that sets the tone at the top that disclosure—and governance—is important at Overstock.
Catherine: Is that different from what your predecessor did?
Jonathan: Uh, you know, he read it. Even then, I tried to be first. There's a little bit of a competitor in me. I like to get, you know, I like to keep my inbox clean so when stuff comes in, it's not—so maybe a little bit different. But it's something that's part of my DNA. And I've tried to make it part of Overstock's DNA as the CEO of the company.
Catherine: Well, there's more to come in our conversation, but we're going to take a quick commercial break.
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Steve: So, Jonathan, speaking of governance and in light of some of the breakdowns that you've seen recently, as you read the news, are there takeaways that perhaps you and other chief executives are thinking about right now that maybe weren't on your radar before? And I don't mean to make every corporate scandal an issue of governance and ESG, but I can't, and actually, especially as you've just described it, I can't help but connect the dots to where today we think about ESG and, you know, environmental and social terms often. But then you see some of those breakdowns and then immediately what wasn't an ESG issue might suddenly become an ESG issue because it largely was a failure in governance. But what are you thinking about now that maybe you weren't before?
Jonathan: Well, I'm certainly thinking about what the SEC is asking companies to do. I mean, I look at the climate control proposals, the climate rule that's been proposed, and I frankly think they are an overreach of authority. I know people may disagree on that. I think most rules, I think most laws should come from the Congress and not from the executive branch. But, you know, we're looking at how we can comply if all those proposed rules become rules, of how it will impact competition among public and private companies. I think it's going to give a leg up to private companies. I look at privacy disclosures. There have been rules out there about, when there are breaches, what needs to be disclosed. That's one of the reasons that Overstock was thoughtful in our most recent board appointment and had a chief information security officer who's sitting in that chair today at a great technology company join our board. So I think there's lots going on. And then, of course, I think that when there are scandals out there, and we see a lot of scandals in the crypto world today, and, you know, Overstock has been involved in the blockchain world more than it's been involved in the crypto world, but I think some of these things were predictable as agencies thought, it's easier to rule make by enforcement rather than rule make by writing rules. I think most people, certainly not all, but most people want to color within the lines. They want to obey the rules. But when you don't know where the lines are and lines are really set up by enforcement, that's catching people coloring, and then drawing enforcement lines regardless of where the coloring is happening sometimes.
Steve: Well, do you want to dig into that a little bit because it occurs to me that your perspective here, I think, is really, really valuable and relevant. You know, given everything that we've seen happening, and you're right, that's largely related to crypto, cryptocurrencies, crypto exchanges, but you were actually a big part of some of the early efforts to actually lay out those lines and to lay out some of the regulatory groundwork. What's your take about what's been happening recently?
Jonathan: Yeah, so Overstock was, I think, the first major retailer to accept cryptocurrency when we began accepting bitcoin in January of 2014, so over nine years ago. I remember going back to Washington, D.C., shortly after that on non-crypto-related business discussions on the Hill, and every staffer, every member of Congress, every agency staffer I talked to wanted to talk about crypto. What they really wanted was jurisdictional. How could their group have jurisdiction over this kind of newly emerging technology? I think that it wasn't—there's not been enough clarity around it. The way the IRS treats it is an asset and not a currency. Whether crypto was under SEC control or the commodities rules, it's been confusing. And so I think we don't have a history in the United States of regulating new technology well. I think when it's not regulated well, either be explicit that it's going to be in a sandbox and we'll figure it out as we go and give some leniency, or set up rules ahead of time so that people can, again, color within the lines correctly. We've created an environment where those that are willing to be fraudulent can do so, and that gives a black eye to a whole industry. So, I mean, Overstock is not really a crypto-focused company. We do have a number of investments in startups that are advancing blockchain technology, and that blockchain technology underlies cryptocurrency, but it's much broader than that. But yes, you're right, we were involved early in trying to get some clarity on rules. Didn't happen, and I think that's part of what led to where we are today.
Steve: Well, thank you. Very interesting.
Catherine: Really quick. Steve and Jonathan, were you in conversations with the SEC at the time back when Overstock was accepting bitcoin?
Jonathan: We were. I mean, we talked to the SEC about bitcoin. We talked to them about security tokens that would trade on the blockchain. And in fact, Overstock was the first company to issue what was called an STO, or a security token. We've since retired that, but Overstock was kind of the vanguard of that pioneer effort for some of those things with the SEC.
Catherine: Fascinating. Well, it's about that time to get to our closing question of the day. Steve, do you want to ask this one?
Steve: Well, I can ask the question because I've actually—this is a legitimate question, not even a lighthearted one, although I'm hoping, Jonathan, you have a lighthearted quip, at least. But what do Catherine and I need to do to eventually get a seat on a board as part of retirement? I didn't say this, but actually, as I looked through your LinkedIn profile just to be sure I had all the history, I note that you are currently serving at, it feels like, a dozen boards actually. So I feel like you're the perfect person to whom we should ask this question.
Jonathan: Well, I'm only serving on one other board than Overstock right now, but I've served on a lot of private company boards as Overstock made investments in these companies. One of the happiest days of my life was when we outsourced the management of that investment to a venture capital firm. And when that deal closed, I resigned from seven boards of directors, and it was a big load off the shoulders. I know a lot of people kind of view sitting on a board as easing into retirement or part of retirement. I think that the best way to get on a board is to be an active member of a management team where you're in the trenches and doing the stuff. The other board that I sit on, we're actively recruiting people from the C-suite because they're playing the game. They know what's going on. Will some of us on that board stay on that board after we retire from the day job? Perhaps. Maybe. But I think the best way to get on a board is to have value you're bringing today, and a lot of times that value is, you're in the game at an adjacent industry and you have expertise. Steve, you know, you would be great on an audit committee for a lot of companies given your background. But I think the higher up on the management team you are in your company, the more appealing you are to be sitting on the board of another company.
Steve: Sounds like we need to create a C-suite for both me and Catherine with the express purpose of recruiting ourselves to a board somewhere.
Jonathan: You have the qualifications. You just need the recognition. That's true for sure.
Steve: Well, Jonathan, thank you so much. I know you are very busy, have a lot going on. Very kind of you to to drop by and talk to us.
Jonathan: Steve and Catherine, thank you for having me on as always. It's nice to chat, and you make a conversation feel easy and casual.
Steve: Well, after that awesome interview we just had with Jonathan Johnson, a quick note on some content and a programing update. We are actually going to take a break here. Expected to come back the beginning of June. Catherine, could you use a break?
Catherine: Of course. I want to relisten to some of our past episodes. Maybe I'll give you a note on YouTube, too.
Steve: Absolutely. I feel like after the conversation we just had with Jonathan Johnson, as well as the huge episode that we have talking about the Bernie Madoff docu-series, I think we could all take a deep breath.
Catherine: Thank you, dear listener, for surfing along with us. Please subscribe. Leave a review and tell your buddies if you liked the show. If you're watching this on YouTube, please leave us a note in the comments, or feel free to drop us a line at OffTheBooks@workiva.com. Surf's up, and we'll see you on the next wave.