It’s no longer about finding the perfect CPA for the audit committee, a savvy CEO from a peer industry or a sharp academic who’s a tennis whiz at the club. Building the right public company board of directors requires tenacious effort that yields a collection of committed members who, as monitors and mentors, are a devoted team aligning corporate strategy with shareholder expectations.
Perhaps more than ever, the passion that today’s public boards bring to their roles intersects with shareholder scrutiny and regulatory reform at the increasingly transparent corner of corporate excellence—clearly seen through the prism of ROI, values and ethics.
Bottom line: This only works with the right board; success continues by keeping the board’s mission aligned with corporate strategy.
“A board is a great gift on behalf of the shareholders,’’ says Theodore L. Dysart, a managing partner with Heidrick & Struggles, where he is a leader in the Global Board of Directors Practice. “These directors really want the best for the company.”
Sometimes, however, what’s best for the company is for a single director, or several, to step away to ensure the highest performing board possible.
Replacing directors is an evolving art laced with essences of traditional organizational skills, robust team building and effective leadership roles grounded in solid management science. The resulting best practice is the evolution of “relationship” boards into “skills and experience” boards. This evolution also supports thoughtful, meaningful board-succession planning to support future strategic plans.
This requires a variety of new approaches to board composition, such as “recruiting skill sets versus recruiting names,” says Peter R. Gleason, managing director and CFO of the National Association of Corporate Directors (NACD). Other requirements include reducing experiential overlaps and closing professional gaps. “You have to constantly look at what you need and what you have” both in terms of immediate assessments and the changes and challenges forecast for the next two or three years for the corporation, Gleason says.
Since most boards have some latitude regarding their size, they don’t need to wait for a pending term limit to expire or the looming retirement of a current member to recruit the strategic expertise necessary for critical, long-term success. These boards also don’t need to be bound by a multi-month, if not multi-year, recruitment cycle for new board members.
“By staffing up, say from 12 to 15, a board may increase short term to get the skill sets necessary for the future,” explains Gleason. “Let’s say the corporation wants to expand into India next year. The board is going to want someone with multi-national experience. Planning for that ahead of time means going after a strategic expert in global management, knowing that someone else on the board, like a banker, will be retiring in a year or two.”
As executive compensation both in and out of the C-Suite continues to garner regulatory and shareholder interest, recruiting board members with extensive human-resources expertise is another key area of consideration. Directors who have HR experience “with internal performance metrics are critical moving forward,” Gleason says, especially as the Securities and Exchange Commission spotlights pay-for-performance and other executive compensation risks as mandatory reporting metrics.
With the SEC focusing more on disclosure rather than criteria of public board members, diversity is the hot-button issue when openings for directors occur, according to Edward H. Pendergast, president of Pendergast & Co., board chair of PLC Medical Systems, and an NACD faculty member.
“Diversity in the boardroom is looked at differently than diversity in the public,” where it usually refers to race, gender or ethnic backgrounds, says Pendergast, who serves on several public, private and non-profit boards. “In the boardroom, it is beyond that. It is about not having people from the same background. It used to be there would be seven CEOs on the board. No one from HR. No one from Techno-logy. No one from R&D. We need to look at diversity in every way. The ‘thinking’ boards are spending more time to find a director to fit their needs; someone who is honest, ethical and willing to take a contrarian position.”
This “patience vs. balance approach” gives the organization—whether a $2-million or a $2-billion corporation—the correct corporate governance model, bypassing short-term gain in favor of embedded fiduciary and risk oversight tied to individuals who foster an aggressive, value-driven and performance-oriented culture, and are knowledgeable and responsive to market forces.
So, given the “new normal” of the post-recession recovery, if it’s necessary to replace the entire board of a public company over the next three to four years, is it also possible?
Yes, according to Robert M. Galford, managing partner of the Center for Leading Organizations and chair of the compensation committee of Forrester Research. But it does take time to bring new members up to speed. What Galford suggests is that board chairs exercise a bit of creativity to rejuvenate current members while actively recruiting new members for the future.
“Boards get into patterns and into assigned roles,” Galford said. He urges directors to be bold and brave: “Ask the C-Suite what it would like to see from its board.”
Galford also recommends occasionally ditching the C-Suite to allow board members direct contact with middle managers and other high-potential employees in an informal setting. One way of accomplishing this, he says, is to politely disinvite the C-level—except maybe the chief counsel, as lawyers like to say, out of an abundance of caution—from the dinners that are often held the night before a quarterly board meeting. Then invite the “skip-down” crowd to meet with the board.
“Don’t have the ‘highfalutin’ there. Invite two to five employees per board member so the board sees more of the organization. This way, board members get a great deal of value unfiltered,” Galford says.
He also advocates that even experienced directors should participate in continuing education and executive leadership programs for public-board members.
“It’s very invigorating. [These programs] are surprisingly helpful. First, they calibrate your own point of view. Second, it gives you the ability to gain perspective on what’s on the horizon for boards in general. And, third, it is an opportunity to formally and informally hear from others about the issues that they are grappling with,” says Galford, who has more than a dozen years of public-board experience and is a faculty member for NACD’s customized education programs.
Over those 12 years, Galford says, board service has become “harder work, more work, more serious, more consequential. It may take awhile for board members to re-energize [as a result of educational and leadership programs] but once it works, the results are better returns for stakeholders and shareholders. It’s a fairly high return of investment…[a] tremendous return on costs that provide significant improvements. There’s very high ROI in this.”
This emphasis on board leadership demonstrates that boards are pro-actively refreshing and recruiting by considering individual skills and evaluating experience against corporate strategy. The results of these “skills and experience” boards: directors and managers are working together to achieve “constructive interaction” with a focus on activities that help the company maximize shareholder value.
Pages: 1 2
Every company has a unique culture & every boardroom has a different feel.
Small & mid caps trying to grow internationally–they should either seek sitting board members in those target countries or senior executives with strong financial track records, an understanding of applicable laws such as “FCPA,” someone able to forecast new technologies/trends and an ethical background.
These candidates will bring diversity and the new fresh prospective the law intends.