How can a new director assess a board’s chemistry and culture?
Julie Daum: While most boards have orientation programs, new directors should also look for somebody on the board as a mentor—either formally or informally—spending time before or after meetings to get a sense of how the board works, makes decisions and the history.
Should the board put together a succession-planning framework?
Succession should always be on the board’s agenda, and so they need a formal framework as a guide, which should be reviewed no less than annually. Some of the specifics depend on where they are in their CEOs career cycle. If you’re coming up to a succession event, you should review it at every board meeting. Importantly, boards should have in place an emergency succession plan as well.
For the new director, what other board roles are subject to succession-planning?
Board leadership is very important, and that has implications for succession. There should certainly be a framework for succession of the lead director or a non-executive chair. For committee chairs, there should be communication about succession—at least annually.
What is the talent pool like for new directors these days?
A decade ago, chief executives, chief operating officers, chairmen, presidents and vice-chairmen represented roughly half of the pool of new independent directors. In 2009, the proportion of new directors with these backgrounds was only 26 percent. A primary driver is the drop in the number of active CEOs serving on outside boards. The increasing demands of board service have also triggered a greater reliance on retirees as potential directors.
What are the qualities boards look for now in CEO candidates?
At the start of the CEO search process, it can be tempting for companies to assemble a “dream sheet” for their ideal chief executive. But the size, scale and complexity of many organizations today can make it impossible for a single person to offer every competency. Instead, boards should first look at where the company is and where it needs to go. A corporation that is underperforming likely needs a strategic, transformational CEO. A fundamentally sound organization seeking to advance its existing position, on the other hand, might need a strong operator who can continue to improve on the organization’s operating model. These two kinds of leader aren’t mutually exclusive, but the best strategists may not have equal skills as world-class operators, and the best operators aren’t necessarily the best strategists.
What is the CEO talent atmosphere like today for high-risk organizations?
The talent pool for suitable leaders is not always tremendously deep. However, we are still seeing strong interest from candidates willing to tackle extremely difficult opportunities.The CEO role may be more challenging than ever, but it is still highly attractive to many.
With the SEC and investors demanding greater transparency on succession plans, how are you advising boards?
Companies will, of course, now be moving to make shareholders more aware of their efforts. We are reminding boards that the most important priority is to have compelling and comprehensive plans across the various scenarios they may face. The issue of what aspects of those plans get disclosed, and how and when, is far easier to work out with the informed advice of counsel.
How are boards approaching diversity in light of recent SEC rules?
Boards recognize that it is good to have people in the room who don’t all look alike—so that might mean, for example, having a director from overseas. For some boards, that is the diversity they need. Others are still trying to make more basic strides.
Do you see a power shift from insiders to independent directors? Will this continue and why?
Most boards no longer have insiders other than the CEO so I think we’ve already seen a shift toward totally independent boards. I find boards are taking greater responsibility for the governance of the companies and so there has been a slight shift of power towards the board as it relates to governance. Given the experience of the past two years, boards and management are working more closely than ever.
ADDITIONAL COVERAGE IN THE BOARDROOM GUIDE FOR THE NEW DIRECTOR::