What we also discovered in putting the list together was that in some instances, it became impossible to separate the captain from the team. This year’s D100 is a case in point: Our editors and board of advisors were nearly unanimous in our selection of President Barack Obama as this year’s most powerful corporate governance influence. And yet, to do justice to the seismic shift his policies have brought about in the boardroom, we also had to recognize the many other  “New Voices” in the Administration who are now leading the greatest financial reform of American business since the 1930s.

So, we ask that in the pages ahead you pay more attention to who counts, and less to how we count, in arriving at our final selection of individuals and institutions that have met the requirement to be “most influential.” We think you’ll agree it’s an intricate and impressive mosaic where the whole equals much more than the sum of its parts, which may or may not be greater than 100.

Regulators & Rulemakers

Team Obama
It is often written that reasonable people may disagree, and with Americans and their Presidents, it is practically a way of life. But even an unreasonable person could only conclude that this President and his Administration are having a profound and lasting influence over the boardroom. President Barack Obama has demonstrated an enormous capacity for calm in uncertain times. His relative youth leads to frequent comparisons to John F. Kennedy and his communications skills to those of Ronald Reagan. But it is his aggressive response to the unparalleled economic challenges that greeted him at the dawn of his young presidency that harkens back to an earlier figure of towering influence,  Franklin D. Roosevelt.

FDR’s massive social and financial reform programs—the creation of Social Security as part of the New Deal, the establishment of the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Company (FDIC)—helped restore confidence in the nation’s banking system coming out of the Great Depression. One could plausibly take major portions of FDR’s New Deal and substitute his name with President Obama’s.  The implementation of the $787-billion American Economic Recovery Act one month after Obama took office, coupled with his handling of the Troubled Asset Relief Program (TARP), which sought to strengthen the financial sector by buying up the assets and equity from troubled banks, has clearly helped the nation avoid further financial disaster and put the economy on the path to recovery.

And finally, turning again to the FDR playbook, Obama assembled a team of wise men and women, formidable economic and business minds, whose decisions are having a lasting effect on the role of the corporate director. Preeminent among them was the choice of Rahm Emanuel as chief of staff. Described as a veritable “influence machine,” within the Administration and Congress, the former Congressman from Obama’s home state of Illinois is known as a hard-charging, brutally candid, sometimes combative, acutely intelligent man who can get things done and knows the ways of the Capitol and the boardroom.

The Enforcers
Perhaps second only to Obama in terms of her influence on boards and corporate governance, career regulator Mary Schapiro heads up the 75-year-old SEC. Before the crisis, the agency’s very existence was in question: “Obsolete,” “out of touch,” and “behind the times” were just some of the many terms uttered by detractors. The Commission, under former chairman Christopher Cox, was pilloried for missing the Madoff scandal.

As former SEC chairman and Directorship 100 Hall of Famer, Arthur Levitt described her: “She has the skills, the intellect, and the character to be a superb SEC chair.” But Schapiro will face a new kind of challenge in the role, not just that of proving her own qualifications, but also instituting a significant remodeling of the SEC itself, as she works to bring it into the new regulatory era.

Moving swiftly to address regulatory concerns in the wake of the financial crisis, the SEC has rolled out a series of proposals that could embody the biggest change to the rules of the game for directors in some time. Schapiro, who is no stranger to the boardroom, having served on the boards of Duke Energy and Kraft Foods, has overseen proposed rule changes on proxy access, broker voting, say on pay, and new requirements for disclosure on executive compensation and director qualifications. It’s now up to her and fellow commissioners Kathleen Casey, Elisse Walter, Luis Aguilar, and Troy Paredes to determine the final regulations that emerge from the proposals.

Other key players Schapiro has brought into the SEC include Senior Advisor Kayla Gillan, Chief Accountant James Kroeker, and Director of Enforcement Robert Khuzami. Gillan was a founding board member of the Public Company Accounting Oversight Board (PCAOB) and former general counsel to CalPERS. Kroeker joined the SEC as deputy chief accountant in 2007 from Deloitte and Touche where he had been a partner in the firm’s national accounting services group. Kroeker recently said that the proposed road map for the convergence of International Financial Reporting Standards,pushed to the back burner amid the larger issues of market reform, would be restored as another top priority. Khuzami is a former federal prosecutor, has pledged to improve the SEC’s enforcement performance by creating specialized units to provide “structure and resources for staff to ‘get smart’ about certain products, markets, regulatory regimes, practices and transactions.”

TARP Overseers
Another example of Obama’s preference for brains over politics was his reappointment of Sheila Bair to chair the FDIC. Another fiscally conservative Republican, on Bair’s watch alone this year, 94 banks have failed, creating a new challenge:  how to replenish the fund. Bair has also been an integral part of the team overseeing TARP. Neil Barofsky is a former New York assistant attorney general confirmed by the Senate in December as special inspector general. Dubbed the “TARP Cop,” his job is to figure out how and where the $700-billion TARP funds are spent, reporting directly to the President and providing updates to the Congressional Oversight Panel chaired by bankruptcy expert and Harvard Law School professor, Elizabeth Warren. COP’s first report, released in February, casti-  gated then-Treasury Secretary Henry Paulson for his performance and lack of transparency, reporting that the Treasury Department  had overpaid by $78 billion for the assets it bought from banks.

Interestingly, while Obama sponsored and was a strong proponent of  “say on pay” legislation while a senator, since appointing Kenneth Feinberg special master of compensation, he has appeared unwilling to make the issue a top priority. Feinberg, who has immersed himself in some of the country’s most troublesome and high-profile cases, is considered a superb choice, both in terms of skill and temperament, by Capitol Hill insiders. His most noteworthy case was the 33 months of pro-bono work he did following the 2001 terrorist attacks to determine how much each victim would receive from the federal government’s September 11th Victim Compensation Fund.

Feinberg may in fact be perfectly suited for a job that most compensation specialists see as thankless, and possibly as a “no win” situation. As the Obama Administration’s comp expert, Feinberg was called on to monitor the compensation of executives in what were once some of America’s most prestigious corporations, now TARP recipients, including American International Group (AIG), Bank of America, Citibank, Chrysler, GMAC, and General Motors.

Fed to the Rescue
To prevent American capitalism from spiraling deeper into the abyss, nine months after President Obama made his first Cabinet announcement, he re-nominated Ben Bernanke as Federal Reserve chairman. The former Princeton economics professor was selected by Bush in 2005 to succeed Alan Greenspan. In 2008 after the market crashed, Bernanke invoked emergency powers, slashed interest rates, and spent trillions of dollars to right the financial system. Just last month, he declared the recession “likely over.” Though he seldom gives interviews, Bernanke is never far from the public eye and has been a stalwart in the transition between presidential administrations and in the effort to stem the economic slide.

When then President-elect Obama named his economics team, it included players who, like Bernanke, were already steeped in the crisis details, demonstrated a studied understanding of Depression-era economics, or some combination of both. Enter Treasury Secretary Timothy Geithner and Chief White House Economic Advisor Lawrence H. Summers. Geithner, who is currently pushing legislation to provide more systematic regulation of financial institutions, including new limits on executive compensation, recently told one interviewer that he is optimistic major reforms will be passed.

Prior to his appointment replacing Henry Paulson, Geithner was president of the Federal Reserve Bank of New York and part of the team central to the critical negotiations that resulted in Bear Stearns being tucked into JPMorgan Chase, Merrill Lynch going to Bank of America, Lehman Bros. disappearing, and Citigroup and other struggling banks getting a lifeline.

Summers, the former Harvard University economist who became its president following his tenure as Treasury Secretary to President Clinton, is director of the Cabinet’s National Economic Council. The group was established in 1993 to coordinate and ensure that the President’s economic policy agenda is carried out.

Rounding out the team, Paul Volcker, the former Fed chief under Clinton, was selected to chair the president’s economic recovery advisory board. And Christina Romer, a former UC Berkeley economist, who administration sources suggest is well- regarded by both parties, chairs the Council of Economic Advisers. Her appointment was seen as a further triumph of brain over politics in Obama’s approach to talent recruitment.

For many years HR executives sought a seat at the table with senior management. Today the HR profession has stepped up, and in most corporations HR has a seat at the table. It is hard to imagine a Fortune 1000 company where the top HR executive is not on the executive management committee or operating committee of the company. HR’s value is being recognized by some of the best companies whose top HR executives have risen to be one of the five named officers in the firm’s proxy statement. With total compensation packages for the senior HR executives at these firms topping over $4 million a year, it is clear that CEOs and boards have understood that effective HR is critical to business success and the HR voice is an important one at the company’s senior management table.

According to the NACD the top three issues for public company boards have remained the same over the past three years: strategic planning and oversight, corporate performance and valuation, and CEO succession. It is easy to see that many of these board issues have people implications as do some of the major responsibilities of boards.

While HR representation as a key member of the senior management team has become accepted practice today, there is surprisingly few HR executives adding value as members of corporate boards. Research presented at last year’s annual conference of the National Association of Corporate Directors (NACD), revealed that less than 2 percent of all director seats are filled with executives with an HR background. In fact Julie Daum, who heads Spencer Stuart’s corporate practice, has said that she estimates that the percentage of HR executives on S&P 500 boards is “minuscule.” There are a number of reasons for this lack of representation of HR on the board, but the point is that HR should have a seat at the board of directors table.

HR Proves its Worth
As a function, HR has clearly earned and retained a seat at the senior management table by adding value and making significant contributions that are recognized by the senior management team and the organization. To earn a seat at the boardroom table, the contributions made by HR executives must earn the same high level of recognition and esteem from board members as they have earned from their corporations. In the current business climate, boards are spending increased time and energy on a host of HR related issues, from CEO succession planning and executive compensation to managing large-scale layoffs and off-shoring without losing key talent and damaging the culture and reputation of the firm. This current difficult business climate presents a unique opportunity for exceptional HR executives to prove their worth at the board level.

Boards typically average 50 to 70 hours of face time together in a year. With so little time together all board discussions must be meaningful and productive to the organization. At board meetings today directors want to have an intelligent discussion on major issues rather than presentations of material sent to them prior to the board meeting. It is the dialogue and the important decisions that follow that are critically important.

One of the most important roles of the board, if not the most important one, is to make sure that there is a competent management team in place to manage the company’s business. Evaluating the performance and results achieved by the senior management team, especially the CEO, is probably the most critical responsibility of board members. When necessary, replacing and naming a new CEO is one of the key responsibilities shared by all board members. This means that the board has to be the driver of CEO succession planning. Attracting, retaining, and motivating CEOs through up-to-date, attractive yet reasonable compensation philosophies and plans is another key full board responsibility, even though the board compensation committee will study this and make recommendations to the full board for action and approval.  While the board provides advice to the CEO in many areas, the board is responsible for making sure the company has a strategic direction, approving financial plans and results, major acquisitions and divestments, dividends and stock buybacks, compliance, risk and crisis oversight, and corporate governance. According to the NACD the top three issues for public company boards have remained the same over the past three years: strategic planning and oversight, corporate performance and valuation, and CEO succession. It is easy to see that many of these board issues have people implications as do some of the major responsibilities of boards.

It is obvious that board members’ responsibilities have grown significantly in the past few years as has the scrutiny of board actions by shareholders, especially in the area of executive compensation. This has been making headlines almost every day for TARP companies. To help boards deal with this intense pressure for board governance and excellence, board committees are spending more time meeting and taking on bigger roles. Two very important board committees are the audit committee and the compensation or human resources committee as some companies call them. This is certainly not meant to diminish the important roles other board committees play in corporate governance. Since Sarbanes-Oxley was enacted in 2002, the oversight responsibilities of the audit committee members have greatly increased. In fact, a SOX requirement is that at least one member of the audit committee have a finance background. There is no such requirement that the compensation committee have at least one member of the committee with a compensation or HR background, yet the responsibilities of the HR committee have also greatly increased.

One of the most important roles of the board, if not the most important one, is to make sure that there is a competent management team in place to manage the company’s business. Evaluating the performance and results achieved by the senior management team, especially the CEO, is probably the most critical responsibility of board members.

Most directors today come from the ranks of CEOs, whether active or retired. However, there are now consultants and head-hunters, including those at Heidrick & Struggles and Spencer Stuart, two of the leading board search firms,  who believe that the assumption that CEO-level generalists continue to make the best directors may no longer be true. The big picture and general broad experiences of CEOs may not be enough to equip board members with what they need to guide the organization through increasingly complex and nuanced issues in some areas. From this perspective, two functional areas of expertise that should be represented on the board are finance and human resources.

While having financial expertise at the board level seems obvious, why HR? Because to be successful, companies must strategically manage compensation, succession, talent and talent development, labor relations, global operations, ethics, culture and integration of acquisitions, and change, just to mention the short list. Top performing companies never lose sight of the importance of these people-related management issues. CEOs, CFOs or other generalists or functional experts outside of HR can’t provide the strategic focus and oversight needed. Asking the right questions and providing the necessary leadership on discussions of these topics/issues in the boardroom requires a deep HR background. Similar to auditing, finance or law, mastery of HR management requires many years of senior-level HR job experience, including working closely with the HR committee of the board. Only after a successful career of such experiences does a person have the required HR skill sets for dealing with all of the people-related topics that are increasingly capturing board attention, e.g. managing CEO succession, compensation, change, organizational culture and global operations.

The Importance of Human Capital
How many times over the years have we heard that “people are our most important asset” and that the “quality of our talent is the key differentiating factor” of our company? Most people reading this article would have to say “many times and often.” Truly successful companies do think that way and manage their human capital very well. It gets the proper attention at all management levels and in the boardroom. Boards today require a diverse group of directors with diverse industry and talent skill sets. Having a board of only generalists, regardless of how much successful experience they may have, no longer makes sense nor is it good corporate governance. Independent directors are a definite requirement of the audit and compensation committees as is the need for the proper skill sets of members of those committees. It now should seem apparent that HR is, and always will be, a necessary skill set for every board-level compensation or human resources committee.

Like the glass ceiling for women on boards many years ago which has been shattered, the glass ceiling on boards for HR executives is starting to crack as the best of the best HR executives are proving their worth on boards. Executive search firm recruiters who do board searches say that they are now recommending HR executives to their clients looking to fill board seats. However, their clients still mostly request CEO and CFO backgrounds unless the search involves filling multiple board seats for a company. In those cases, a diverse background of skills and industries is often explicitly sought, and people with HR backgrounds are being considered and nominated to boards.

There are a few notable examples in industry today where directors with HR experience and backgrounds are adding significant value to the boards they are serving on:

• William T. Conaty serves as a director of Hewitt Associates. Bill spent his entire career with General Electric Company and served as the Senior Vice President of Corporate Human Resources from 1993 to 2007. He was the architect behind many of GE’s widely recognized HR practices and has been a role model for turning HR organizations into strategic business partners. Russ Fradin, the CEO of Hewitt, said “Hewitt specifically wanted Bill on the board because of his HR background and that now he is making significant contributions to the board discussions and decisions.” The obvious place for HR executives to serve on boards will initially be for those companies like Hewitt who serve the HR industry. These will be HR consulting firms, as well as payroll, executive search, and training and development companies.

• Jill Kanin-Lovers serves as a director on the boards of Heidrick & Struggles International Inc., BearingPoint Inc., Dot Foods Inc., and First Advantage Corporation. Jill is the former Senior Vice President for Human Resources and Workplace management of Avon Products Inc. Prior to Avon she held senior HR positions at IBM and American Express. Jill is a real HR thought leader having over 50 publications on HR and teaching in executive programs at Rutgers.
• Michael A. Peel serves on the board of the Select Comfort Corporation and is on the board of directors and an officer of the Walker Art Center. Michael is currently Vice President for Human Resources and Administration at Yale University. Before moving to Yale, he was with General Mills as Senior Vice President of Worldwide Human Resources from 1991 to 2007.. Under his leadership, General Mills appeared on Fortune’s list of “100 Best Companies to Work For” six times since 1997.

These few examples point out that there are some executives with HR backgrounds qualified to serve on boards. The HR talent is out there and available to serve on boards and the Compensation Committees of boards. Good corporate governance demands the appointment of directors who bring special skill sets and competencies to a more independent and diverse board. As we see in the news everyday, in today’s difficult and highly competitive dynamic global business environment, people issues – from executive compensation and CEO development and succession to senior management recruitment and bench strength to company values and culture, provide ample agenda items for board discussions and decisions. The number of these people related issues at the board level is increasing.

There is definitely a growing trend (even if slight) of HR talent serving on boards.  This trend should increase and grow significantly in the near and long term future. It must be remembered that the people above and many more like them are basically business people first and HR experts second, having served on executive management and operating committees for a large part of their careers. This broad experience enables them to participate in the discussions and decisions on all topics which reach the board level, and not just the people related topics. They just happen to also have the experience and skill set to take a leadership role on the board for the most difficult and emotional topics the board has to deal with—those that require a lot of discussion where mistakes made are very costly and impact peoples lives – the people related issues. It is often effective management of these issues-and geting them right-that differentiates the best from the rest.

Bob Bogart is an HR executive currently working with Mullin associates as an executive coach and EVP of the firm. He previously worked for The Thomson Corporation as EVP, HR prior to the company’s acquisition of Reuters. He is also a volunteer of SCORE and counsels small business owners. He may be contacted at bob.bogart@yahoo.com.

We recently sat in on a conversation between Magnus Böcker, president of Nasdaq OMX Group and Kevin Kelly, CEO of executive search and leadership advisory firm Heidrick & Struggles, which trades on Nasdaq. The two shared their views on what leading companies must do to persevere during times of uncertainty. They also discussed what trends are shaping today’s corporate leaders and boardroom agendas and their own organizations.

Kevin Kelly: Magnus, have you found your management style changing as a result of the global crisis? Internally, how have you dealt with your people, your budgets, and your customers?

Magnus Böcker: The traditional thing to do under these circumstances is to make sure you have the right cost discipline and see if there are things that you haven’t dealt with that you should. At Nasdaq OMX, we have a tradition of good cost-discipline and already run very lean operations. So that part has not changed . The lesson learned over the last eight months is that the business model of exchanges is very strong. It has functioned well, even amidst trading volume that is more than double that of a few years ago. We’ve been open every day, we’ve been trading and providing an avenue to capital for companies. At the same time, the credit markets have been dysfunctional.

One of the things we are doing is looking at ways we might be able to leverage this environment and see if there are new opportunities. We’re using the exchange model to see if we can add value to the market for interest rate-swaps and other instruments and markets that we probably never would have been able to go into unless we had this crisis. Kevin, tell me, how has it changed the way you see things?

K.K.: There are a couple things that we are doing differently. One would be communication. I think leaders in any organization try to communicate effectively, but we’ve definitely ramped up the communication. Number one, internally to all of our consultants and employees across the globe, we make sure they know that the operating team is doing everything possible to weather the storm. Because we’re in over 60 countries, we’re in touch frequently, so they don’t have to guess what’s going on. We convey what’s happening in real time—partly to steady nerves, partly to ensure our crew benefits from the great advantage we have over our clients— about best practices across all geographies and all sectors. Number two, we have a constant dialogue around the world about how to best manage the shortterm. The dialogue is between our regional leadership and the operating committee, and it covers costs, as you mentioned, and making sure that we preserve cash. As in any organization, cash is king right now, so it’s crucial we stay on top of our operations around the globe on a day-to-day basis. Another aspect of this would be short- versus long-term thinking. We all have two- to three-year plans that we have in effect or that we would like to execute, but the current economic situation has kind of thrown a spanner in our long-term thinking. It’s hard to forecast what’s going to happen to the market tomorrow, let alone three months from now.

M.B.: You highlighted something that I agree with completely. That is that our staff, our customers, and our partners are demanding more information. I think that’s a very relevant point, that when everybody sees all this information out there and much of it is negative, we need to be more proactive in the way we’re communicating. We are going out to listed companies in a way we didn’t before, telling them what’s going on, trying to use communication as a tool to tell them what we’re doing and that the world goes on.

Now Kevin, you talk to a lot of CEOs. What are they concerned about right now? How about the board?

K.K.: With all of this debate and dialogue, when we talk to potential CEOs for jobs, we hear concern about the scrutiny put on CEO compensation today. But it’s not only that. One CEO who could run a major financial institution said to me, “Kevin, forget the $500,000 comp, because it’s not about compensation. The reputation I’ve built up over time is worth much more than $500,000. The risk of taking on this job is too high.” Boards are of course very interested in the short-term. They’re also preoccupied about succession planning; not just for the CEO, but for one or two levels down in the organization. And they need to make sure the firm as a whole has the talent pool that’s going to enable it to succeed. We’ve had probably a six-or-seven- year run where the focus on quarterly results caused a lot of turnover at the CEO and board level. You can’t build a long-term, sustainable strategy when you’re flipping over CEOs and executive teams every 24 to 36 months. Everyone is still figuring out this recession, and how to work our way out as fast as possible. So it’s important that boards are really clear about the overall direction of the organization. It’s also crucial that they support their CEO and leadership team. Every CEO faces agonizing choices, like do they yield to short-term pressures and just cut costs? Or do they pursue innovative ideas so as to come out of the downturn ahead of their competitors? Away from the storm, the right answer is obvious, but taking the long view is easier said than done when the wave right in front of you is the biggest you’ve ever seen. Boards can do a lot to build the confidence of the organization’s leadership. Exposure to risk needs to be managed with extreme care right now. But most organizations will work their way out of this downturn by finding new ways to stay competitive. Apple increased its R&D spending during the dot-com crash and made the iPod. But that means a degree of risk-taking. Managing that is one of the most important tasks of leadership right now because innovation depends on the prevailing culture of the organization.

I see it with my own board. You have a group of very smart, free advisors, who are willing to help. Whereas I may have talked to a couple board members every three or four weeks before, in the last few months I’ve had more frequent dialogues. On a real-time basis, I’m getting their input on the decisions we’re making as an organization.

What has your experience been in this area?

M.B.: There’s no doubt that you see changes happening at the board level when we have these difficult economic periods. We see more engaged board members, and that is a positive. They want to know, what’s the top project? What are the key figures to follow? I would say that from talking to a lot of the companies that are listed with us, the general theme when you talk to CEOs and CFOs is that it’s back to basics—they are following cash flow very closely. The board is keen to know more about risk management. They want to know more about how are we doing with acquisitions and following up with previous investments.

K.K.: What is your view about having a separate CEO and Chairman?

“I have more frequent dialogues and I’m engaging [the board] in decisions that we’re making as an organization and getting more input on a realtime basis.”

—Kevin Kelly

M.B.: That is the structure that we have at Nasdaq OMX. I’m coming from a European tradition, where, as you know, there’s a very clear and distinct separation of the chairmanship and the CEO. So, I’m very supportive of it. We have been supportive of the philosophy of separating the CEO and the chairmanship for a very long time. We see that as good corporate governance, and we’ve taken a strong position on it.

K.K.: I’m in the same situation. I have a chairman who’s been extremely supportive of me. A lot of the dynamic in any organization hinges on who the chairman is. I spent the last three years in London, so I have seen up close how well this works there. We may see a trend in the United States towards dividing the two roles, just given the size and scale of some of the organizations today. Given the time it takes to actually manage these, I think it makes sense to split the chairman and CEO jobs.

M.B.: Kevin, is this a generational issue? Do you see this becoming less of an issue when younger executives are promoted to CEO who have less of a traditional background and are more operational, more performance-oriented?

K.K.: I think you’re right, because the average age of CEOs is coming down. One of the questions that goes to the future of the CEO is, given the global reach of most organizations today, and the time that it takes, the endurance and tenacity you need as a CEO, how can you be expected to run the board too? So I think it is a generational thing. In my personal experience, the chairman can also serve as advisor, guide, and coach along the way, and this is a trend that will continue.

M.B.: Is there a new CEO for this environment and what are the characteristics?

K.K.: What’s fascinating about this is that we will see an evolution of a whole new group of leaders across the globe, who differentiate themselves by succeeding through this financial crisis. There has been so much change over the last seven or eight years and everything moves at a much faster pace, even the communication tools and real-time technologies, as Nasdaq well knows. But it takes a long time to fully know the business. Jack Welch said that it takes five years before any CEO—even an internal candidate— can get a full grasp of their organization. So my belief is that the CEO of the future will be somebody who has the international component and background and can also understand different cultures— especially with bigger and more complex organizations. There is another component, too. CEOs can’t be dictatorial today; they have to be leaders who can bring people along. So I think not only does he or she need to have the IQ, but also the EQ, the emotional quotient, and then a third quality is the CQ, or the cultural quotient, to maneuver through different markets and cultures across the globe. I think those are the critical success factors going forward.

There is so much information out there that it can almost be overwhelming to the CEO of a large organization. Now at Nasdaq, which thrives on this technology and these information streams, I can image it would be difficult to keep from drowning in it.

M.B.: Maybe it’s because information is the lifeblood of the company that we don’t get too stressed about it. In the industry we’re in, there is a constant stream—I wouldn’t say overflow—but we have a very intense informational flow, and that is part of our world. Therefore, I think we get less caught up and less stressed about it. But it is getting more intense, especially with everything going on in Washington. We don’t only have ordinary business information, we have a new government coming in and, with all the things happening around that—the new players, the new issues—that is creating enormous amounts of information to digest. But our existing infrastructure helps us to see what’s relevant and what’s not. I think it’s a very important question, and we have addressed it. There will always be things that fall between the cracks, but we feel actually quite okay.

But Kevin, I’m curious, is there something about business leaders—let’s say the candidates that your firm recruits—is there something about business leaders that enables them to graze over this avalanche of information and make sense out of it, that perhaps lesser leaders don’t have? 3

K.K.: Well I recently had a discussion with a CEO who just retired, and I asked him how he was spending his time. He told me that it’s amazing how long it takes to actually read a magazine cover-to-cover or the newspaper cover-to-cover without getting distracted and, based on numerous conversations with CEOs, I think it comes down to discipline. Today we’re inundated with information. I mean you have Blackberries, you have your computer, you have mobile phones. The expectation is that if you don’t reply or respond to somebody in 30 or 40 seconds, no matter where they are across the globe, you’re not getting back to them in a timely fashion. So having interviewed a couple CEOs about how they manage their time and whether they expect CEOs to work even harder in the future, I don’t think that’s actually possible. You can’t think about what you want to do with the organization longer term and also let your Blackberry rule each day.

M.B.: I think we all know the feeling.

Magnus Böcker

Magnus Böcker understands that a successful business strategy can be likened to running a marathon—patience, endurance, and mental fortitude are needed for both. His success as a runner, having finished a New York City Marathon in less than four hours, has abetted his professional endeavors. As president of Nasdaq OMX Group, Böcker is well-equipped with experience in the European and international capital markets. While CEO of OMX from 2003 to 2008, Böcker oversaw the integration of seven national exchanges in northern Europe into one. Today, Nasdaq technology supports more than 70 exchanges. He is a member of the board of the World Federation of Exchanges (WFE) and also serves as chairman of the board of Dustin Group, a privately held electronics retailer in Sweden.

Kevin Kelly

In full swing working on his second book, Top Jobs—How They Are Different and What You Need to Succeed, Heidrick & Struggles CEO Kevin Kelly writes of his own experiences as he explores what it takes to lead a global organization in the 21st century. Fluent in Japanese, Kelly joined Heidrick & Struggles’ Tokyo office in 1993. He was regional managing partner of Asia Pacific and then Europe, the Middle East, and Africa before being named CEO in 2006. Kelly believes a new approach to leadership and talent is necessary to succeed in today’s tumultuous economy and he coaches today’s top corporate chiefs on just that.

A new study shows that CMOs believe their companies are “behind the curve” when evaluating their company’s performance in the digital marketing arena. Heidrick & Struggles found that 60 percent of companies believe they are not where they should be in terms of marketing.

“Companies realize that they’re in the midst of digital man-to-man combat to acquire consumer dollars, but they’re frustrated that they’re not very good at it,” says Lynne Seid, partner at Heidrick & Struggles’ global marketing officers practice.

Other key findings:

• Forty-nine percent of respondents agreed that it’s important for the CMO to be proficient, yet only 13 percent said their companies had developed the internal talent to promote marketing growth.

• Forty-five percent of respondents felt they would need to turn to external partners and agencies.

• Only 12 percent felt their company was improving the consistency of its marketing and sales communications.

• Sixty percent of respondents reported that the marketing department has primary responsibility for analytics, but they want IT to share this load with 44 percent of respondents wanting IT to take responsibility for analytics.

• Growth is not an immediate desire as only 13 percent of respondents viewed expansion into new geographies has very important.

“John has a proven track record and reputation for conducting some of the most high profile CEO and board level searches in the business,” said Chief Executive Officer L. Kevin Kelly in a statement. “Given the current economic crisis, John’s experience and knowledge will be critical to helping our clients find the right talent and leadership needed to effectively manage businesses in these most challenging times.”

Wood, who joins Heidrick from Spencer Stuart, will work to integrate the firm’s suite of leadership consulting services, creating a complete offering in one practice that helps clients manage their leadership assets from the acquisition of talent through executive search.

He has an extensive track record of directly completing nearly 200 CEO and board director search for a wide range of international corporations.

“From CEO succession planning to the impact of recent TARP executive compensation restrictions, our clients need a partner that can provide them with not only the best executive search services in the world but also strong, accurate and concrete recommendations that will help them make decisions that are essential to the health and future of their businesses,” continued Kelly. “Under this structure, we will be able to fully leverage the synergies that already existed between our CEO and board practices as well as integrate our leadership advisory offerings for our clients.”

The first challenge, according to Miles, is that boards need to move beyond the initial feeling that there are no great candidates within a company. While there may be well-suited external candidates, looking within first may be the best solution. “Get over the paradox that no one inside appears to be perfectly qualified for the position at first glance,” he advised. “Succession planning requires a board to consider the future needs of the company.” And that means keeping a close eye on potential inside candidates.

During difficult times, there is a tendency to want to put succession on the back burner.

Lines of Communication
When narrowing down the list of contenders, keep in mind that communication with internal candidates should be the first priority. Dana Mead, chairman of MIT Corp., the governing body of the Massachusetts Institute of Technology, and a director at Pfizer, said that when internal candidates realize that a board is also considering external options, it can lead to backlash or an exodus of top talent. Mead stressed that internal candidates might become restless, questioning why they aren’t being promoted or why the company is considering “an outsider” for the post. “It may be because the board has a dysfunctional succession plan,” he explained.

During difficult times, there is a tendency to want to put succession on the back burner. “The idea is, ‘we’re trying to survive—we aren’t thinking of succession,’ ” said Thomas L. Doorley, chairman and CEO of Sage Partners and lead director at Natrol. Doorley also pointed out that sometimes the CEO believes he or she is the only person who has the ability to guide the company through the rough patch. A challenging economy is exactly when CEO succession planning matters the most, advised Dysart, since volatile market conditions might force a change in the top post, either voluntarily or through termination. A CEO might be doing a good job with a flailing company in a turbulent economy, but if stocks are down 20 percent, investors are likely to cry foul and may call for new leadership.

Boards are increasingly devising formal processes for identifying capable individuals in the organization who are qualified for top posts or should be groomed for future consideration. “What are your tools for making that determination about who should be on the list?” asked Doorley.

“It’s important to know the top executives in the organization who should be managed, to make sure they are acquiring the right skills,” noted Miles. As a board looks deeper into the organization for potential candidates, directors need information about each individual to determine who is high on the list and what the next tier looks like. Since the board rarely sees employees below the C-suite, they are often unable to know each potential candidate well. When sizing up candidates, particularly in a larger company, Miles urges boards to have brief synopses written on each person since it would be difficult to remember details about 100 or more individuals who might be discussed.

When to Say Goodbye
“Changing the guard—terminating a CEO—is there a better way to do it than what we often see now?” asked Jeffrey M. Cunningham, chairman and CEO of NewsMarkets. The panel agreed that there is no easy way to remove a CEO once the board decides termination is the answer. When changing CEOs, boards must consider current business needs and future scenarios. While the decision should be carefully weighed, it should not be delayed and should follow a set process.

Engaging the whole board by tapping into members’ expertise is key. “While it’s unlikely that every member on the board will know the ins and outs of a company, a good board consists of a medley of experts: those who can lay out industry-specific information and others who have experience on how to run a business,” said Miles. “The compilation of talents is what truly makes for a well-rounded, well-informed board.”

MIT’s Mead agreed, emphasizing that succession should never be the responsibility of just one committee— the entire board needs to contribute. “Make it a regularly scheduled item, so you know every six months what is going on,” said Mead. When the compensation committee meets, either after or during the same meeting, Mead advises that succession candidates under consideration should go in and meet with the board.

Miles cautioned boards to be realistic about evaluating candidates, suggesting that sometimes it can be counterproductive for boards to be too focused on finding faults or shortcoming in the current or prospective CEO. “Pick one or two things to improve about someone—not 20 things,” he advised.

Role Migration
While the road to the top post must be mapped out carefully, panelists agreed that the path to other executive positions must also be re-examined. Doorley said the role of the COO is changing and is now often focused solely on operations, so many companies are uncoupling that role from the president’s title.

But the COO role differs in each company and industry, which makes it difficult to create a “one size fits all” scenario for succession planning. “There’s no ‘COO magic [formula]’ because they are unique to their company,” said Miles, who likened the roles of CEO and COO to a Venn diagram. “The COO is a customized role—if the CEO and COO roles overlap too much, it won’t work,” he concluded. He also noted that many CEOs have been reluctant to have a powerful COO, although that sentiment is changing.

Panelists pointed out that the role of the CFO depends on the industry. “In the biotech industry, the CFO is the second spokesperson after the CEO,” says James Frates, senior vice president, CFO, and treasurer of Alkermes. In some industries, the CFO is taking on responsibilities such as working more proactively when closing deals and communicating with clients and other partners. Board members should be familiar with a company’s specific requirements, so qualified internal candidates are on deck for consideration when necessary.

Engaging Your Board
Due to increased scrutiny from both shareholders and the public, many CEOs are now under intense pressure to demonstrate and sustain performance. Typically, however, they’re not focused on finding their own replacement. An effective board must take the reins and be proactive by putting a disciplined succession-planning process into place that emphasizes the recognition and cultivation of internal talent.

Given the current state of the global economy, many companies are evaluating their options for both retrenchment and strategic growth. Accordingly, now is a great time to take a critical look at the makeup of your board and evaluate whether you have the right combination of skills represented. Do your directors have real experience digging into issues such as strategy, compensation, and succession planning? Times like these highlight both the risk averse and those with the courage to step up and chart a course to the future.

Whether you are a small cap or a Fortune 100 company, board evaluation is of paramount importance. And, it is a task that must be done on a consistent and continual basis. A disciplined, rigorous assessment and review of your board makes it possible to identify areas where improvement is needed and ensure it has the experience to not only tackle issues of compliance, but of long-term strategy as well.

The best directors enrich their board with the perspective of someone who has faced some of the same problems the company may face in the future. In tough times it is often hard to think past tomorrow let alone what the long-term goals should be for the company. Challenge yourself and your board and let us know how you are doing. We’d love to hear.

CEO’s are heavily sought after for board positions, especially those in the Fortune 500. But as boards elect new members and address the increased complexity in the marketplace, there are only so many CEO’s to go around. Other C-level executives are also important to a well-balanced board but even so, one can’t help but wonder where the next qualified pool of corporate directors will come from.

There was a time when the chief information officer (CIO) was an important executive to have on your board, especially as we approached the year 2000. Chief financial officer’s (CFOs) have always been a popular choice, and recently there is more interest in the chief risk officer’s (CRO) skill-set. Even General Counsels have been necessary to boards at times. But the days of senior-level executives taking on countless board appointments are numbered and have been for a while.

Each company needs to take this topic on for itself. What type ofexecutive mix is right for your board? Building the right board meansmore than seeking out candidates with fancy titles or an impressiveresumes.

With current demands in the marketplace and the need to be a true collaborator in the boardroom, time is even more limited for C-level executives. So where do we go from here? Are there other senior executives to consider that board have not contemplated in the past? Chief merchandising officer? Senior vice-president of sales? Executives from the non-profit world? What we do know is that retired executives are being sought after more than ever before. And COO’s are being groomed to be that next class of CEO’s, making them attractive candidates for a board.

There is no clear cut answer. Each company needs to take this topic on for itself. What type of executive mix is right for your board? Building the right board means more than seeking out candidates with fancy titles or an impressive resumes. Finding the right cultural match for a board is just as important as the caliber of individuals.

The right board “blend” can determine a successful future for a company. So when thinking about the next move for your board, will it be a CEO, a CRO, or possibly a Chief Merchandising Officer? It all depends of the needs of your board. Just make sure it is the right fit for you.

This is a national survey designed to solicit direct knowledge from those currently serving on corporate boards. Our intention is to gather useful and meaningful data around several key issues, including (but not limited to) board dynamics, compensation, process and structure.

If you are currently a corporate director we would appreciate your insight and ask that you complete the survey. Your responses will be kept strictly confidential.

CLICK HERE TO PARTICIPATE IN THE SURVEY!

We want your first reaction so estimated completion time is less than 15 minutes.

Results will be combined with those of other directors and presented only in summary form. If you’d like a copy of the final report please enter your contact information at the end of the survey.

CLICK HERE FOR THE MIDDLE EAST TALENT INDEX

Other notable speakers include U.S. Congressman Barney Frank; former SEC Commissioners Harvey Pitt and William Donaldson; world-renowned economist David Hale; institutional investor and Vanguard founder John Bogle; former Congressman Michael Oxley; Chief Justice Myron Steele; Justice Leo Strine, Jr.; Martin Lipton of Wachtell Lipton; Lucian Bebchuk of the Harvard Law School; Jeffrey Garten, former Undersecretary of Commerce; Charles Elson of the University of Delaware; and Patrick McGurn of RiskMetrics.

For more information and to register, click here or email events@directorship.com. Board Connection readers can use this code VIPHS500 to save 40 percent off regular rates.

John Thompson, vice chairman of executive search firm Heidrick & Struggles, says he has observed at least two of what he calls “soft factors” that strangle a board’s effectiveness— allowing a board to be ruled by emotion rather than logic and not proactively managing conflict. “In some instances, where you have a long-standing or founding CEO or if the CEO is a significant shareholder, I see boards asking the CEO what he wants: Do you want to step up to chair? Do you want to exit the board? Too often, I see the board following the CEO, and the CEO is making a decision on an emotional rather than a logical basis, and shareholders are not being served.”

Leading a recent Directorship Roundtable at the Nasdaq OMX Market Site in New York on “Building Better Boards,” Thompson said the litmus test for effective boards is how they manage conflict; ineffective ones fail to do so, while effective boards work to manage agreement. In fact, “it’s something that seems counterintuitive,” Thompson said. “Boards often may not know whether they are in agreement on a topic because some directors refuse to speak up,” he said. “In many boardrooms, there is a lack of direct communication or straight talk. I’m not talking about being abrasive or disruptive, but often when there is a very dominant lead director or CEO, people don’t want to tangle with what the boss wants.”

“On a personal basis, it is surprising how many times I hear directors say, ‘Gee, I can’t believe that we are thinking about doing this,’” said Thompson. “And it strikes me: Why haven’t they spoken up about it? Some directors hold back. Even on issues that are extraordinarily serious such as succession, or hiring a new CEO or board member. Look at some of the issues around stock-options backdating. Sometimes board members just don’t have the time, or fear that raising a question will result in endless debate. Newer board members may think they don’t know enough historical data to speak out. And that’s too bad, because they can often bring a framework or a point of view that might propel the board to work more effectively, ” said Thompson.

“Having been a new board member, I do think we have to speak up. There are no stupid questions,” said Pamela G. Sheiffer, a director for New York & Co. “I do think that at times we are rushing off to catch planes, or there is a board member who perhaps sits on too many boards and doesn’t have the time to commit, so that person thinks ‘I’m not going to bring this up because it’s getting towards the end of the meeting and I don’t want to hold everyone up.’ ”

The introduction of a new director can be the perfect time to conduct a full board review. “When you have a new board member, that is a great time to review,” said Thomas J. Clarke Jr., chairman and CEO of TheStreet.com, who was recently appointed to a board where an issue cropped up that resulted in a management change. “I think it was because I wasn’t afraid to ask the questions that needed to be asked,” he said.

Dissonance and Dissidence

Roundtable participants John A. Ward III, chairman of MAP Alternative Asset Management, and Raymond S. Troubh, a director who serves on such boards as Gentiva Health Services and Triarc Companies, have at different points in their board service careers been brought into companies in need of drastic change. Success can sometimes breed complacency, Ward noted, and the ability to be a new voice asking critical questions can become a necessary learning experience for the entire board.

Both dissonance and dissidence can be constructive, Troubh suggested. “As you get older and stronger, you can speak out more as a brand new director. CEOs shouldn’t always have their way. And directors should have a large, personal stake in the company, so when they talk about shareholders, they’re talking about themselves,” he said. “With respect to succession planning, the chairman can’t pick his own successor. It’s the board that will continue under the new leader who should make that determination. This permeates my view of the independence of the nominating committees as one of the great new developments and will assure that tougher, smarter, more able, objective people will serve on boards.”

Management of ego is also a key factor in building a constructive board. “The leadership sets the tone for all, whether it’s in the boardroom, a surgical room, or on a sports field,” Thompson said. “I think in the boardroom you must manage egos. It’s not consensus you’re aiming for, but leading a group of people in an intelligent discussion to arrive at the right decision.”

One tactic that Thompson has seen work to diffuse a dissident board member who may be controlling the tenor of a meeting, is to have the courage to say, “I hear that people are passionate about position A, but I’m still having trouble with this. Can anyone help me?” or “I’m having some difficulty following the logic of this assumption. Can you help me better understand it?” This simple, direct approach is effective particularly for lead directors or independent committee chairs, Thompson said, “because it totally dismantles the emotion and brings it back to the group.”

Holding regularly scheduled board teleconferences, perhaps weekly, also provides “a consistency and momentum without the chief executive being part of the conversation,” said Allan Grafman, president of All Media Ventures, who serves on a number of boards. “Week after week, you begin to ferret out the issues and by the time you come to the quarterly board meeting, much of the thinking and discussion has already taken place.”

These are turbulent times on Wall Street and beyond, and it is difficult for many to understand how such history defining events could not have been prevented or avoided.

Unfortunately we may bear witness in the near future to even more history that will no doubt be studied in years to come by business students around the world. As we look to the future it brings up the age old questions: What are the lessons to be learned from the downfall of some of Wall Street’s oldest and largest companies, and can we prevent history from repeating itself…again?

Making sure that your board is equipped with the right mix of talent, varying expertise, and understanding of the complex intricacies of your industry are now essential elements to corporate success.

There will be, and to some extent already has been, much scrutiny put on the executive management and the board of directors of these companies. An obvious reflection is the necessity of having a strong diverse board.

Companies need directors who will be vocal advisors and strategic consultants, who will ask the difficult questions and play the devil’s advocate at times, and will provide guidance to management with long-term goals and visions in mind. All the while being cognizant of the current situation the company and overall marketplace finds itself operating within and the impact for achieving future goals.

Making sure that your board is equipped with the right mix of talent, varying expertise, and understanding of the complex intricacies of your industry are now essential elements to corporate success.

Companies and their boards are no doubt reminded by current events that their decisions impact not only their employees and shareholders, but – as we have witnessed – the economy and the global marketplace.

Thames Fulton is a principal in the Chicago office of Heidrick & Struggles, who focuses on board-of-director engagements.

While compliance and management succession are the two primary responsibilities of corporate directors, two other important duties include managing conflict and creating consensus on important decisions.

John Thompson, vice chairman of executive search firm Heidrick & Struggles, says he has observed at least two of what he calls “soft factors” that strangle a board’s effectiveness–allowing a board to be ruled by emotion rather than logic and not proactively managing conflict. “In some instances, where you have a longstanding or founding CEO or if the CEO is a significant shareholder, I see boards asking the CEO what he wants: Do you want to step up to chair? Do you want to exit the board? Too often I see the board following the CEO, and the CEO is making a decision on an emotional basis rather and shareholders are not being served.”

Leading a recent Directorship Roundtable at the Nasdaq OMX Market Site in New York on “Building Better Boards,” Thompson said that the litmus test for effective boards is how they manage conflict; ineffective ones fail to do so while effective boards work to manage agreement. In fact, “it’s something that seems counter intuitive,” Thompson said. “Boards often may not know whether they are in agreement on a topic because some directors refuse to speak up,” he said. “In many boardrooms, there is a lack of direct communication or straight talk. I’m not talking about being abrasive or disruptive, but often when there is a very dominant lead director or CEO, people don’t want to tangle with what the boss wants.”

“On a personal basis it is surprising how many times I hear directors say, ‘Gee, I can’t believe that we are thinking about doing this,’” said Thompson. “And it strikes me: why haven’t they spoken up about it?” People may not speak up for a variety of reasons, even on issues that are extraordinarily serious such as succession, or hiring a new CEO or board member. Look at some of the issues around stock-options backdating. Sometimes board members just don’t have the time or fear raising a question will result in endless debate. Newer board members may think they don’t know enough or have enough historical data to speak out. And that’s too bad because they can often bring a framework or a point of view that might propel the board to work more effectively.”

“On a personal basis it is surprising how many times I hear directors say, ‘Gee, I can’t believe that we are thinking about doing this. And it strikes me: why haven’t they spoken up about it?” –John Thompson, Heidrick & Struggles

“Having been a new board member, I do think we have to speak up. There are no stupid questions,” said Pamela J. Sheiffer, a director for New York & Co. “I do think that at times we are rushing off to catch planes, or there is a board member who perhaps sits on too many boards and doesn’t have the time to commit, so that person thinks ‘I’m not going to bring this up because it’s getting towards the end of the meeting and I don’t want to be holding people up.’”

The introduction of a new director can be the perfect time to conduct a full board review. “When you have a new board member that is a great time to review,” sad Thomas J. Clarke Jr., chairman and CEO of TheStreet.com, who was recently appointed to a board where an issue cropped up that resulted in a change of the CEO and chairman.. “I think it was because I wasn’t afraid to ask the questions that needed to be asked,” he said.

Dissonance and Dissidence

Roundtable participants John A. Ward III, chairman MAP Alternative Asset Management, and Raymond S. Troubh, a director who serves on such boards as Gentiva Health Services and Triarc Companies, have at different points in their board service careers been brought into companies in need of drastic change. Success can sometimes breed complacency, Ward noted, and the ability to be a new voice asking critical questions can become a necessary learning experience for the entire board.

Both dissonance and dissidence can be constructive, Troubh suggested. “As you get older and stronger you can speak out more as a brand new director. CEOs shouldn’t always have their way. And directors should have large personal stakes in the company, so when they’re talking about shareholders they’re talking about themselves,” he said. “With respect to succession planning, the chairman can’t pick his own successor. It’s the board that will continue under the new leader who should make that determination. This permeates my view of the independence of the nominating committees as one of the great new developments and will assure that tougher, smarter, more able, more objective people will serve on boards.”

Management of ego is also a key factor in building a constructive board. “The leadership sets the tone for all whether it’s in the boardroom, a surgical room, or on a sports field,” Thompson said. “I think in the boardroom if you’re able to manage egos—and it’s not consensus you’re aiming for—but leading a group of people in which you want intelligent discussions to arrive at the right decision.”

One tactic that Thompson has seen work to diffuse a dissident board member who may be controlling the tenor of a meeting, is to have the courage to say, “I hear people passionate about position A and I’m still having trouble with this. Can anyone help me?” or “I’m having some difficulty following the logic of this assumption. Can you help me with it?” This simple, direct approach is effective particularly for lead directors or independent committee chairs, Thompson said, “because it totally dismantles the emotions and brings it back to the group.”

Holding regularly scheduled board teleconferences, perhaps weekly, also provides “a consistency and momentum without the CEO being part of the conservation,” said Allan Grafman, president of All Media Ventures. “Week after week you begin to ferret out the issues and by the time you come to the quarterly board meeting, much of the thinking and discussion has taken place.”

Spurred by reforms in corporate governance, the number of boards that include the position of lead director, or some variant, has escalated dramatically. So has advice about what the role entails in such key areas as strategy, fiduciary responsibility, and subject matter expertise. But what of the personal attributes that a lead director must have to meet the subtle challenges of the role? A series of conversations with some outstanding lead directors has turned up surprising unanimity about the personal characteristics, as well as the technical qualifications, the role requires.

Among the technical qualifications cited by these lead directors, three stand out:

• CEO-like stature and experience: “I think it’s preferable if the person has had CEO experience,” says Dick Hanselman, Lead Director, Forward Air Corporation. “It gives the lead director a lot of credibility and a very clear understanding of the dynamics that exist between the board and the chief executive and between board members.” Nevertheless, he says it’s not an “absolute” requirement. Echoing the views of most of our interviewees, Jack Chain, General Retired USAF and Lead Director for Reynolds America, calls it “a positive, not a requirement.”
  
• Tenure on the board of approximately two years: Although some boards have attempted to parachute a new lead director in, all of our interviewees agree that it is a bad idea. Les Brun, who is Chair and CEO of Sarr Group, Chairman of the Compensation Committee for ADP, and a director for Merck and Broadridge Financial Solutions, believes that it takes nine months to a year to understand the company, and even longer to develop relationships with other board members. Corbin McNeill, Lead Director of Owens-Illinois, points out that if the board meets frequently enough the ramp-up time for becoming lead director may be as little as 18 months. In any case, he says, the potential lead director should have experienced at least two strategy sessions in order to be fully aligned with the objectives of the company.
  
• Time to devote to the job: An extensive study of board effectiveness, conducted by Heidrick & Struggles in conjunction with the Center for Effective Organizations at the University of Southern California’s Marshall School of Business, found that the average time directors spent on board matters increased from approximately 150 hours in 2001 to more than 200 hours in 2007. For lead directors today, the figure is likely to be as much as 300 hours. Further, says Dick Hanselman, the lead director must be available to the CEO “virtually at a moment’s notice.” Says Hanselman, “The CEO has to feel he can pick up the phone at any time and expect a callback within eight hours – and I have seen two instances in my career where that time was absolutely critical.”

Although “lead director” suggests “leadership,” the word heard repeatedly in our interviews was “diplomat,” which more accurately captures the subtleties of the role. The five personal characteristics that our interviews most often cited as indispensable certainly paint a portrait of the tactful emissary moving easily between the board and the CEO and judiciously helping resolve issues of mutual interest. Those characteristics, say our interviewees, include the ability to:

• Inspire trust: Bill Newlin, currently head of the Nominating Committee for the board of Kennemetal, has in the course of his career served as a non-executive chairman, a lead director, and a presiding director. “The lead director, besides having the qualities of any board member – good judgment, integrity, and the like – must have the personality to encourage trust with the board and trust with the CEO,” he says. Part of that trust, says Les Brun, is the confidence on the part of the other board members and management that the messages delivered by the lead director “won’t be filtered by the biases of the messenger.” It is in that respect, he says, that the position becomes “a diplomatic role.”
  
• Communicate effectively: As a conduit between the board and the CEO, says Rick Hernandez, formerly Lead Director of the Nordstrom board and now its chair, the lead director “must be able to convert strongly held opinions into concrete messages.” He believes that the essence of that ability lies in being a good listener, who can “extract the wisdom from other people’s statements no matter how they are expressed.” The lead director must be especially adept at synthesizing the messages that emerge from executive sessions and accurately communicating them to the CEO in a way that is non-confrontational. Bill Newlin believes that the lead director must have the make-up that allows the CEO to deal with those messages in an open, relaxed manner. “CEOs are usually strong,” he adds, “but most are also highly sensitive to what their boards say through the lead director.”
  
• Build consensus: Acting as an honest broker when it comes to communication doesn’t mean that the lead director remains eternally neutral. A board is not a debating society and at some point issues must be resolved. In many cases, delay is detrimental and the lead director performs a valuable function by building consensus on particular issues and enabling the company to act. Forward Air has made consensus-building skills one of the specifications for the position of lead director in the future. The arena for using those skills might be executive sessions or private conversations. In either case, says Rick Hernandez, “you have to be willing to invest a lot of time talking with all of the individuals involved.” Says General Chain, “The lead director must know how to work one-on-one behind the scenes and gain support for doing what’s right – it could be over the phone or over lunch, but you have to work it out.”
  
• Maintain humility: Humility means resisting the temptation to try to act as a kind of “director of directors,” says Bill Newlin; and, adds Corbin McNeill, it means also knowing where the dividing line is between overseeing and managing, especially in executive sessions. Believing that particularly outspoken people are wrong for the lead director role because they can sometimes intimidate other board members into silence, Rick Hernandez says he is careful not to speak up first with respect to an issue under discussion. McNeill, in his role on the board of Portland General Electric, makes it a point to speak last, because of his position as Chairman and because he is the sole member of the board with utility industry experience. Newlin believes that the lead director should continue to behave as any other board member would when an issue arises for discussion. Despite these differences about when to speak, the aim in each case is to take care not to inadvertently inhibit other members of the board and to elicit their views and to regard those views as equally valuable.
  
• Exhibit courage when necessary – Being humble doesn’t mean being passive, however. “You may have to confront the CEO or management on behalf of the board,” says Corbin McNeill, “and, in extreme circumstances, possibly replace a CEO.” Such courage extends to dealing with other board members, as well. “Having the courage to disagree doesn’t mean the lead director has to pound on the table,” says Dick Hanselman, “but it does mean making your point of view known to the rest of the group and then either changing them to your point of view or changing your own point of view, if that is what is clearly required.”

These five characteristics by no means exhaust the qualities that lead directors need. Our interviewees also cited such attributes as enthusiasm about staying abreast of governance issues, a high degree of self-confidence, and facilitation skills. But, taken together, their observations overwhelming suggest that it is the interpersonal skills of the diplomat that are paramount for helping directors and management find mutually acceptable solutions to common challenges. And because these skills are so subtle and don’t always come with the job description, it is hardly surprising that choosing a lead director can be one of the most difficult decisions a board can make.

Theodore L. Dysart is a managing partner at executive search firm Heidrick & Struggles, where he leads the firm’s board practice in North and South America.

Hedge fund manager’s payouts are shrinking, according to The New York Times. In recent weeks, several major funds have faltered. While numerous funds are still doing well, the average hedge fund has lost more than four percent this year, according to Hedge Fund Research. The industry is slated to have its worst year ever.

Investors are rethinking their investments or demanding lower fees from managers, who normally collect two percent and then take a 20 percent cut of any profits.

“Everyone is looking for a panacea, everyone is looking for a quick way to make money fast, and everyone is pinning their dreams on the backs of these hedge funds,” Dan McAllister, the treasurer and tax collector of San Diego County told the NYT. His pension fund lost money when a hedge fund called Amaranth collapsed two years ago. “But maybe it’s time to be a little cautious, and it’s time to look at things with a more discreet eye.”

With Wall Street banks like Lehman Brothers struggling for survival, investors are realizing that markets are becoming less predictable and costs are rising. It is now five to 10 percent more expensive for hedge funds to borrow from banks than it was a year ago. When banks do lend the cash, they do so for shorter periods of time.

Fund managers are planning for sharp declines, already slashing employee bonuses in December, according to Glocap, a hedge fund recruiting firm. Heidrick & Struggles, a recruiting firm, has 100 hedge funds on its watch list and expects 50 to 80 to fail in the coming months, said Tim Holt, the partner who oversees the firm’s Wall Street recruiting, in an interview with the NYT.

Money invested in the first half of 2008 is just under $30 billion, a significant decrease from the $118 billion raised in the first half of 2007, according to Hedge Fund Research. The numbers are expected to continue to decline.

To ensure the process runs smoothly, boards know from experience that chemistry is as important as the skills a candidate can bring to the table. “There’s nothing more damaging to a board’s deliberative process than bringing in a disruptive personality,” said Bonnie W. Gwin, partner at executive recruitment firm Heidrick & Struggles. Gwin and Tim O’Shea, H&S practice leader, led a Directorship Roundtable on the role of the nominating committee in succession planning.

Its primary roles are to create the “spec” for the nominees, to work with specialists to develop the candidate list, to review and interview the finalists, and then to share its recommendations with the full board. An important part of the development process is also to evaluate sitting directors. These evaluations can be used to measure the skill sets and contributions of sitting board members. Used routinely and in a more generic fashion, board evaluations can, in effect, provide for a degree of transparency with regard to inputs, while desensitizing the personal nature of performance appraisals, advised O’Shea. Often the lead director or the nominating committee chair will shepherd the board through the evaluation process. In this and other regards, the emergence of the independent lead director is one of the most important developments in corporate governance in recent years, said Robert C. Dinerstein, recently retired global co-chair of Greenberg Traurig and a director at Medarex.

“Quality. Quality. Quality,” said Dinerstein. “The idea that you should recruit only with the goal of finding a woman or a minority—if that’s the principal quality—is not serving the needs of the complex and multifaceted board of today. What boards should seek is true diversity of intellect and experience, in addition to background and heritage, or some combination of those.”

A big part of the equation is analyzing the mix of directors and assessing what talents and skill sets are wanting—a process that should be aligned with the company’s strategy, markets, and environment. A board also wants to make sure it contains a diversity of backgrounds and mind-sets. Other well-tested approaches that the recruitment experts recommended are appointing a lead director to oversee evaluations and troubleshooting hot spots.

They also say that it is wise to enforce a mandatory retirement age. Dealing with a director who has declined in his or her effectiveness is a very sensitive topic, one that board directors would prefer to avoid if possible. For instance, as a high percentage of directors devote some of their retirement to board service, in some cases individuals will overstay their capability. “On other boards, I have seen directors who have not kept abreast of the current marketplace and competitive demands; they should be retiring, yet they continue to hang on,” said Edwin J. McGuinn, Jr. The panel agreed. These are not easy conversations, but eventually the complexity of business will compel even the most reluctant to consider his or her fitness for continued board service. “I think it’s easier today to remove board members than it has been in the past because of the changing dynamics of the business,” said O’Shea.

The Disgruntled Director

Another particularly delicate situation is how to handle the disgruntled board member. Gwin says it depends on the nature of the concern. “It’s one thing if they’re disruptive and work can’t be accomplished or if they come in and take all of the air out of the room,” says Gwin. “But there are times when being ‘disgruntled’ is actually an indication that a courageous board director is willing to take an unpopular position to clarify something the board may not have addressed, and the result is that tough questions get answered.”

Do sitting CEOs make good directors? The consensus was that having CEOs on a board is a good thing, but the panelists also agreed that a board full of ex- CEOs would not be desirable. Diversity pertains to experience, too. “I’m a big believer that diversity in every dimension is what makes a great board,” said Gwin.

“More than diversity, I think the characteristics of what makes a great CEO may not always be the same qualities that work in the boardroom. For one, they tend to be more dominant as directors,” said veteran director Raymond S. Troubh, “and they often continue to conduct themselves as managers. Personally, I prefer to serve on boards where there’s only one outside CEO on the board.” To that point, Susan Schiffer Stautberg sees director selection as becoming more skill specific while CEOs tend to be generalists: “We think that more and more corporations are looking for specific skill sets—an executive who really knows marketing or a specific market, has proven management talent, and can work with teams and C-level people.”

One distinct advantage to having current or former CEOs on any board (although not the former CEO of the same company), said Robert Barbanell, is that “they’re important as mentors to the current CEO,” which also improves director development and succession. “I absolutely agree with that,” said Gwin. “Serving as a confidante or counsel to the CEO can be valuable, and it’s important to have that skill-set at the table. That director can be a current or sitting CEO or have experience as a division president or some other top leadership role at a world-class organization.” The issue of racial and gender diversity is one that has been long discussed by boards and governance practitioners. “Is ethnic diversity these days a primary or secondary filter?” asked one participant. Gwin advised that it is no longer a primary objective for enlightened companies that look at diversity as part of a set of values rather than diversity for diversity’s sake. In recent years, there’s been an evolution due largely to strides made by boards to be more inclusive, she said. Companies that truly pursue a diversity of backgrounds and experiences will naturally achieve gender and racial diversity.

“Quality. Quality. Quality,” said Dinerstein. “The idea that you should recruit only with the goal of finding a woman or a minority—if that’s the principal quality—is not serving the needs of the complex and multifaceted board of today. What boards should seek is true diversity of intellect and experience, in addition to background and heritage, or some combination of those.”

Today’s videoconferencing technology also makes possible greater geographical diversity, since traveling to every meeting is no longer a requirement on some boards. Stipulations for director involvement, however, have never been greater, noted Jeffrey Cunningham, chairman and CEO of Directorship and a director at TheStreet.com. “When recruiting a director, what do you tell them about the workload?” he asked.

“You need to be completely upfront on that topic,” said Gwin. “I typically tell candidates to expect 300 to 400 hours a year. You don’t want a director who isn’t prepared or is shocked by the workload. There’s no question, the director’s job is demanding.”

In the right situation, retired CEOs make outstanding board members. Not only do they tend to be more flexible and available than sitting executives, their wealth of knowledge, seasoning, and store of life’s experiences can be very beneficial to boards facing critical, strategic decisions.

Typically, retired CEOs have lived through various stages of economic and business cycles and, as a result, can provide wise counsel especially to a newer CEO. In addition, retired executives are less encumbered by both the professional and the personal conflicts that sitting executives face. Given the outside influences that are affecting boards today, having directors who are free of other external responsibilities and loyalties is valuable.

That said, inviting a retired CEO to sit on your board may not fit every situation. For instance, if you are looking for someone to come aboard for a long tenure, age may prevent a retired executive from being able to serve for as long or as many terms as current C-level executives. Retired CEOs may also not be as well versed on technology trends, and may not be aware of new regulations that have been put in place since they were members of management. Finally, some retired CEOs may have a very defined set of opinions based on their personal experiences and might be less inclined to accept ideas from other board members, particularly younger board members.

Determining who should sit on your board is all about meeting your strategic needs as well as assuring a strong cultural fit. Given the right situation, retired CEOs are often excellent board directors. They bring a wealth of valuable experience…and have the time to dedicate to your board.

Symbio named Robert E. Grady to its board. Grady is a partner and managing director at The Carlyle Group, one of the world’s leading private equity firms. Grady is chairman of Carlyle Venture Partners, which invests in high growth opportunity, medical device, and business services companies. He has served as global coordinator of and helped to build Carlyle’s global venture capital and growth investing operations.

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William Cobb has been appointed to Pacific Sunwear’s board of directors. Cobb previously worked for eBay from 2000 to 2008. His most recent position was president of eBay Marketplaces North America. Prior to his work at eBay, he worked at Pepsico/Tricon.

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Ralph V. Roberts has been appointed to Pinnacle Data System’s board. Roberts has served as senior vice president of marketing for Worthington Industries, a global company with $3 billion in annual sales.

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JetBlue named Stephan Gemkow to its board. Gemkow is the CFO of Deutsche Lufthansa. Gemkow joined Deutsche Luftansa in 1990. He was appointed senior vice president of corporate finance and in February 2004, he joined the executive board of Luftansa Cargo, where he was responsible for finance and human resources.

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ATS appointed Jack Tomarchio to its board. Tomarchio is a former Department of Homeland Security senior official. He most recently served as the principal deputy assistant secretary in the office of intelligence and analysis at DHS.

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Georgia Power named Beverly Daniel Tatum to its board. Tatum has been president of Spelman College since August 2002. She previously served 13 years at Mount Holyoke College as a psychology professor, department chair, dean of the college, and acting president. Steve Green, president and CEO of Stephen Green Properties, was also named to the board. Green serves on the boards of Savannah/Hilton Head International Airport Commission and the Savannah International Trade and Convention Authority.

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TidalWave Holdings named Mark Klok to its board. Klok has over a decade of experience in investment banking, mergers and acquisitions, equity and debt structure, and capitalization as a seasoned financial professional in the public market arena.

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Sojern, the first company to bring customized, destination-oriented content to travelers via the online and printed boarding pass, named Stephen M. Bennett to its board. Bennett serves as president and CEO of Intuit and served in several executive positions at General Electric.

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MocoSpace named Bebo pioneer Jim Scheinman to its board. Scheinman shaped the first social networking space as an early employee of Friendster and the first employee of Bebo, helping to launch the world’s third largest social networking site which was sold to AOL last year for $850 million.

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