More than 35 directors and corporate governance experts gathered at the recent NACD Directorship Peer Exchange Roundtable, presented in conjunction with Heidrick & Struggles, to compare notes on the lead director position and gain a better understanding of what characteristics an appointee needs and how best to select a new leader.
Stephen A. Miles
“During the first round of selection, I heard people say, ‘Well, we’re not really sure how we ended up with Bob or Jane as our lead director,’” said Theodore L. Dysart, vice chairman of Heidrick & Struggles. “We want to make sure that the success of our next selection of leadership is something in which everyone around the boardroom table is invested.”
The roundtable’s participants discussed numerous characteristics of a good lead director, but the main focus was on the importance of performing a company self-evaluation, examining both the long-term strategic plan and the personality types already represented on the board.
“I’d start at the other end of the project, I’d say, ‘What do we want this individual to do?’ before I try to define the individual’s characteristics,” said Mitchell Saranow.
Stephen A. Miles, vice chairman of Heidrick & Struggles, also agreed that a potential director could not be effectively evaluated by a list of check-the-box criteria. “Having a process for lead director or chair succession is number one; good process can lead to good outcomes,” he noted. “Clearly, there’s an element of ‘fit’ that needs to happen between the CEO and the chair or lead director, because there needs to be trust in that relationship.”
Cheryl Krongard
Since lead directors’ roles inherently require him or her to become a bridge between the independent board members and the CEO, one of the most common prerequisites cited was the ability to communicate effectively and facilitate consensus building. “You build your board not to be of one opinion, but of many different opinions,” said William Bolinder. “Smart people can disagree, as we see quite regularly, so you really have to work to build that consensus to help communicate to management and back to the board.”
Although the duties of a lead director can vary from company to company, it is “critical for a lead director to be someone that’s willing to make the time commitment,” said Cheryl Krongard.
A proximity commitment is also necessary, noted Andrew Berger. “Even in this digital age, geographic proximity to the headquarters, the ability to drop by and have lunch with the CEO or with the executive committee and the management committee once in a while is very important,” he said. “It takes some time to build the confidence of both constituencies.”
“I sort of view the lead director,” said Richard Beckler, “not as somebody who’s aspiring to be CEO, but rather a more senior kind of really seasoned, savvy person.”
“It’s one thing to have somebody available to step in if there’s a disaster,” concurred Berger. “They could be the interim CEO for three months or six months, but having someone who management, including the CEO, views as a possible successor or competitor goes against my view, which is that the lead director needs to be someone who has the respect of management as well as the respect of the board.”
Stephen Wasserman
Whether there is a crisis, scandal or illness, lead directors must not only be able to lead a meeting of independent directors, but also must be able to lead the company. If there is a situation where management is accused of involvement in a scandal “and has to be taken out of the investigation, the
board has to step up,” said Saranow. “Who leads that process
of the board stepping up and investigating and retaining the law firms, retaining the accounting firms—you’re not going to have the CEO do that in these instances; there has to be another person in that office.”
Since the lead director is often expected to oversee the company when a CEO or chairman is unavailable, Dysart noted that lead director selection and executive succession should be planned to occur at separate times whenever possible.
“It’s much more difficult, because you don’t have an anchorperson who’s stewarding the process and leading the process,” if both successions occur simultaneously, he said. “You need to have someone in a position who can help you to get to the place where the board has consensus and alignment around the candidate.”
Lead directors must be able to balance the interests of management, the board and shareholders, said Royce Winsten. “A good lead director understands the role of the board as the protector of shareholders’ interests.”
Richard Beckler
“Accepting that the role of the board is protecting shareholder interests,” said Kevin Collins, “I think that it’s important for the lead director, in that context, knowing how intense the different constituencies can be, to have a high level of emotional maturity.”
Many noted that the lead director must have experience in the company’s industry. Stephen Wasserman said an industry outsider may be a perfectly good director on an audit or governance and nominating committee, “but the lead director has to have some basis for understanding what the strategy of the company is and really assessing it and helping provide oversight to management, as well as to the board, in that role.”
Whether in regard to a company’s strategy, how it chooses its directors or what jobs those directors perform, the most commonly agreed-upon principle at the roundtable was that each board must decide what works best for them. Said Miles, “You have to think about the circumstances. There’s no manila envelope you can open with the right answer.”
Participants:
Neil Baron – Director, Assured Guaranty
Richard Beckler – Director, Rosetta Resources
Andrew Berger – Director, Thermadyne Holdings Corp.
William Bolinder – Director, Endurance Specialty Holdings, Genworth Financial
David Bushnell – Director, RenaissanceRe Holdings
Loren Carroll – Director, KBR, Inc.; CGG Veritas, Forest Oil Corp.
Thomas Chorman – Director, Standex International Corp., Symmetry Medical
Betsy Cohen – Director, CEO, The Bancorp; Director, Aetna
Lynn Coleman – Director, Key Energy Services
Kevin Collins – Director, Key Energy Services, PowerSecure International, Applied Natural Gas Fuels
Joseph Coradino – Director, A.C. Moore Arts & Crafts
Edward Cox – Director, Noble Energy
Rodman Drake – Director, Crystal River Capital, Inc., Celgene Corp., Jackson Hewitt Tax Service, Student Loan Corp.
Theodore L. Dysart – Vice Chairman, Heidrick & Struggles
Malcolm Elvey – Director, Children’s Place Retail Stores
Hon. Barbara Hackman Franklin – Chairman, NACD; Director, Aetna, Dow Chemical
Allan Grafman – Chairman, Majesco Entertainment
Patrick Kenny – Director, Assured Guaranty
Lynn Krominga – Lead Director, Sunrise Senior Living; Director, Avis Budget Group
Cheryl Krongard – Director, Legg Mason, US Airways Group
IIene Lang – President, CEO, Catalyst
Michael Mardy – Director, Green Mountain Coffee, ModusLink Global Solutions
Stephen Miles – Vice Chairman, Heidrick & Struggles
Kathleen Misunas – Director, Tech Data Corp.
Joseph O’Donnell – Director, Comverse Technology, ModusLink Global Solutions, Comverge
Dr. Warren Phillips – Lead Independent Director, CACI International
Mitchell Saranow – Director, Telephone & Data Systems
Laurie Shahon – Director, Knight Capital Group
Melvin Spigelman – Director, The Medicines Company, Synergy Pharmaceuticals
James Swartwout – Director, Sparton Corp., ATS Corp.
Gretchen Teichgraeber – Director, Forrester Research
Howard Tischler – Lead Independent Director, DealerTrack Holdings
Stephen Ward – Director, Carpenter Technology Corp.
Stephen Wasserman – Director, IRIS International, Inc.
Heywood Wilansky – Director, DSW
Royce Winsten – Director, Duckwall-ALCO Stores