New York Times columnist William Safire has suggested “Zealous Zeroes” as a tagline for this decade, but we can save an adjective. Let’s call this decade the “Oughts.” Wordsmiths may enjoy the pun with aught, an arcane word for zero. But we directors will hone in on its literal meaning as a synonym for should.
After centuries of relative freedom to govern themselves, boards have had to conform to a new law and related rules. Beyond this, directors have been told that we “ought” or “should” do this, that, and the other, and we’ve been graded accordingly. In fact, even individual directors are being evaluated by people who have never seen them at work in the boardroom!
It’s time for boards to generate their own “oughts.” NACD took a first step by boiling the guidance down to 10 Key Agreed Principles (www.nacdonline.org/keyprinciples). Representing the areas where boards, management, and shareholder groups already agree, the Principles are a first step in breaking away from old paradigms and warning against a culture where there is more focus on checking off boxes than engaging strategically.
One of those Principles asks boards to get more involved in individual director evaluation—both for director development and to determine director criteria. Company strategic needs change, and board composition should, too. It’s as simple as that.
Certainly, boards themselves are in a far better position than shareholders to determine the suitability of a particular director at a particular time in its history. Board evaluations provide a good way to define director criteria, the value that each director brings to the board, and articulate that to shareholders.
There is no time to waste. The need for an effective, transparent process for board and director evaluation is upon us. Most major companies today now require majority votes for directors. And proxy access is back. As we go to press, the Securities and Exchange Commission is revisiting a proposal that would put shareholder nominations for directors side by side with nominees recommended by the board. Moreover, the SEC may require companies to say more about the qualifications of director candidates, as NACD has long suggested. One way or the other, more “oughts” are coming our way. By taking evaluation seriously, we who serve on boards can determine what those “oughts” will be. And we can set the tone for the next decade.