Category: Board Composition

Today’s Board Member: Activist, Strategist, Counselor

Published by

Sanjay Gupta

More than ever, organization leaders need committed counselors—individuals who will push them to greater heights and encourage them to pursue transformation. They need objective individuals who can advise, envision, and strategize for long-term success.

To find these advisors, companies are looking to their boards. Yet at the same time, the role of the board is changing dramatically.

In eras past, leaders looked to their boards to reflect and support their efforts. More recently, boards have been called upon to have more active oversight of the wave of risk and regulatory challenges. And, today’s board is being asked for still more. Navigating through a period of constant and fast-moving change, corporate leaders need a cast of engaged, insightful, curious supporters—people who are willing to press for innovation and contribute creative, strategic thinking. It is demanding new territory for board members. And it calls for a demanding new process to identify and engage the right individuals for the job.

To understand this process better, we conducted in-depth interviews with a dozen directors—all high profile current and former executives whose board experience covers more than 40 publicly traded companies across a wide range of industries. What we found was a great deal of change in board needs—and a tremendous difficulty in articulating that change. We found that companies want and need directors with a mix of activist and strategist skills. At the same time, they have been slow to realize that what they want is a new breed of director—and that finding these new individuals will require not just a change in attitude but also a change in tactics. Boards must change their thinking now if they want any hope of being ready for the future.

What Has Changed

What we learned was that the expectations of the new board member are not so much different as they are expanded. Boards need more from their members.

In the past, ideal competencies of a board member might have been insight, intellectual curiosity, and strategic advisory skills. Yet in our interviews, directors said they need new members with all these skills—plus. They need insights plus an abstracted way of thinking, curiosity plus the ability to adapt, the ability to advise plus engage.

This is not a job that can be filled by someone seeking to boost a resume. This calls for someone who sees board membership as an opportunity to learn and grow as a person. It calls for individuals with the time and desire to invest in the board and make the business successful.

Because of the expanded demands, the search for the right board member must expand as well. Instead of reviewing the usual candidates—CEOs (former or current) with prior board experience, often from the same industry—today the search must span a wider range of experience, with more diversity in geography, job function, and company status. And while a new board member must still be compatible with the existing roster, the “fit” must be considered in the context of change making. New members will be judged on what they can bring to the board—not just to help with current problems, but to help the company think about what’s next.

“A decade ago, there was more a focus on board collegiality — everybody getting along, feeling this was such a great board,” says Phil Martens, who has served on boards such as Graphic Packaging Holding, Trinseo SA, and Plexus Corp. “Today, what’s required is very different. The whole dynamic has changed. What’s required now is all about what you bring — your confidence to speak up and provide input, your point of view.”

The New Board Member

As boards wrestle with these new demands, and a profile for the new, ideal board member is emerging:

  • Recently retired CEO: Our research found there is a “sweet spot” in the experience level of the ideal board member. The individual should not be active in his or her own company. That intense responsibility leaves them too little time to devote to this new, more demanding board role. On the other hand, an individual too far removed from active leadership may be out of touch with the fast-changing business world. Therefore: look for recently retired or about-to-retire candidates. Zero to five years out from their leadership position is ideal for many directors.
  • Originate board candidates from both in and outside the industry circle. Boards should have a mix of backgrounds with some directors from the company’s traditional orbit and some from other industries and geographies.
  • Active counselor mentality: Rather than solely focused on containing risk, board members should be focused on helping to get the most out of the business.

Edward D. Breen, courtesy DowDupont

Some experienced directors already take this new process to heart. Edward D. Breen is CEO of DowDuPont and has over two decades of board experience including prior roles as the chair of Tyco International and E.I. DuPont de Nemours & Co. and currently as the lead independent director of Comcast Corp. His watchword is “options.”

“The question I bring up in meetings is: What could you do to create long-term shareholder value and how to create options around this?” he says. This is a key role of the director, says Breen—to ensure the CEO and executive team are thinking about a range of possible futures and paths forward. If that’s not coming from the CEO, then the board has to push the subject.

There are many reasons why boards have not pressed CEOs in this manner in the past, he says. Some boards were just too nice to the CEOs. In other cases, the CEO may have been insecure or arrogant and discouraged that sort of input. But a CEO today needs directors who think like activists. “The board needs to be thinking ahead,” says Breen.

One director, who served on the board of a century-old manufacturer, has seen this forward-thinking board help executives make necessary changes. When he first came to the board, the director recalls management was stuck in outdated patterns, clinging to old product lines and markets. But the board was able to take a more forward-thinking perspective. He and other board members pushed management to be more aggressive in M&A activity and to prune lower margin product lines. Today, the company sports a wide array of new products and a renewed focus on innovation.

Directors can also provide support for companies wrestling with regulatory demands. One director joined the board of a financial services firm soon after the financial crisis of 2008. While oversight and regulatory responsibilities were still present, the director says, the board helped the company to see and pursue a broader strategy. That played out, for example, in the company’s acquisition of a regional competitor. The board was able to provide advice, support, and counsel during a time of change. This is the way the new and improved board member should approach the job, the director says.

First Steps

This new, active, counselor-director is not a pipe dream; it is possible to find these individuals. But it will require a new set of board search tactics:

  • A more thorough assessment, interview, and onboarding process led by the board or search partner. This differs from traditional processes, which may have been less detailed and demanding.
  • An increased willingness and openness of the board and the CEO to look at potential board members outside of the traditional board member profile, reaching out to candidates in different industries and different geographies.
  • A commitment to develop the existing board to adapt to this new profile of board director.
  • There is no one-size-fits-all process for boards today, but the overall goal is universal: Like the fast-moving business world around it, the search for new directors must also grow and change to meet new demands.

Boards are recognizing their need for a more nuanced profile of directors. They are acknowledging that the traditional insightful, curious, advisor who has been a CEO is no longer enough. What they really need requires a deeper level of insight into the individual candidate, a greater level of assessment of potential directors, and more time invested into the selection.

Done correctly, the results will make a significant impact on the performance of the company. The board will be working as an internal activist force to think about the future of the business and push shareholder value. It is a level of engaged support and advice no organization can afford to be without.

 

Sanjay Gupta is global industrial practice group leader at Egon Zehnder, an executive recruitment firm. 

Inclusion Could Be Uber Directors’ Key to Cultural Change

Published by

Probably the last thing Uber needs right now is to have anyone recount their recent setbacks, but the company’s quick, Icarus-like fall from grace tells us much about how technology companies going through hyper-growth can go wrong. By 2016, the ride-sharing firm was a segment leader, present in 570 cities worldwide and with 12,000 employees. Yet just since the beginning of the year, Uber’s company culture, marked by “sharp elbows,” has rapidly become a liability.

Betsy Atkins

The key is to preserve the great parts of the culture that drove Uber’s market leadership, including the company’s relentless focus on results, and now augment the culture for a larger scale. Specifically, it would be wise to add an appropriate level of processes and gender rebalance to the company’s board.

For Uber, the hits have just kept coming. First there was the video of CEO and founder Travis Kalanick chewing out one of the company’s own drivers. This was followed by lawsuits and first-person stories alleging a toxic company culture of sexual harassment. For good measure, long-time board member David Bonderman resigned after allegedly making sexist remarks at a meeting to unveil plans for reforming Uber’s sexist culture. Then, Kalanick resigned, Uber investor Benchmark Capital is suing him and the company, and Uber agreed to audits for the next 20 years by the Federal Trade Commission (FTC). The FTC’s actions demonstrate the level of long-term damage cultural problems can inflict.

Now that Uber has selected Dara Khosrowshahi to lead the company, and is likely to become a publicly-traded company in the year and a half to three years, the board has even greater impetus to change the direction of the company’s culture.

As a woman who’s served on many major tech company boards, much of this sounds like old news. Women in technology industries still push against a silicon ceiling when it comes to career advancement and cultural issues. Research from the Society of Women Engineers found that 20 percent of today’s engineering school graduates are women, yet just 11 percent continue working in the field. Women in information technology leadership roles (such as chief information officers or technology vice presidents) are just nine percent of the total, according to a survey from Harvey Nash and KPMG.

The numbers are also bleak in other Silicon Valley boardrooms. Among the Valley’s 150 largest tech firms, only 15 percent of board members are women (versus 21 percent in the S&P 500). A Korn Ferry study of the top 100 U.S. tech firms saw just three with women as CEO/chair, and five with a woman as the board’s lead director.

Changing any corporate culture is a challenge, but I’ve found bringing diversity to the tech industry is even trickier. Fast-growth “unicorn” companies can quickly outgrow their founding, venture-based startup corporate governance, and find themselves facing Uber-like crises with too few seasoned, level-headed business people in the boardroom. Yet in my own experience, I’ve seen technology companies nurture diverse, inclusive cultures, starting with a few one-on-one approaches from the boardroom.

Build internal career networks. At Volvo Car AB, where I serve on the board, we’ve launched a regular program where I have the opportunity to meet with senior and mid-level women executives on personal career development. We work with these executives to build on their strengths, clarify their career aspirations, and offer advice on advancement. This is a new program, but it is already proving a success in energizing and motivating the paths of these current and future female leaders.

Make mentoring personal. On the board of Schneider Electric, I make it a point to directly mentor a number of women on the company’s senior executive team. Women in management find it tremendously helpful to have someone in the boardroom take a personal interest in their career strategy and development. At Uber, new board member Ariana Huffington will be in an ideal position to put her mentoring and career savvy to work in helping rising women execs rebuild the company. The key is a regular ongoing program of mentoring and support.

Go beyond mentoring. The tech industry, in particular has too few role models for rising female talents. The mentoring aid above is helpful, but why not go one step better?  Companies can ask their male and female executives and board members to either mentor or sponsor promising female executives. There is a big difference between mentoring which is periodic advising and coaching and sponsoring where you take ownership for introducing and more actively helping sponsor an individual for their next step up in their career. Women who are already senior managers or board members can kick mentoring up a notch by sponsoring high-potential women. Take personal ownership of career coaching for the top talent in your organization. Give them advice, introduce them to the people they need to sharpen their skills, and introduce their names at strategic moments.

Recognize the women making a difference. When I served as chair of the board’s compensation committee at tech firm Polycom, we were active in the annual recognition event for sales staff. I noted that women were leaders in sales, making up less than 10 percent of the sales force, but were 34 percent of our “President’s Circle” top sales performers. Making an added effort to celebrate and promote this talent is crucial in sending the message that sales is not just a “guy thing” in the company.

The news emerging from Uber can serve as a spark for making the support and advancement of women in your company a boardroom mission. The talents of these women are a strategic asset to companies, and there is a growing body of research proving that firms who nurture and empower their gender diversity gain in revenues and adaptability. In any company, balance sheet results are always found downstream from company culture. When it comes to reshaping that culture to be welcoming to women, the boardroom is the ideal place to start.

 

Betsy S. Atkins is a three-time CEO, serial entrepreneur, and founder of Baja Ventures. She has co-founded technology, CPG, and energy companies, and currently is director of Cognizant Technology Solutions Corp., HD Supply Holdings, Schneider Electric SE, SL Green Realty Corp., and Volvo AB. A version of this article appeared in June on TechCrunch’s Crunch Network.

Tools & Insights for Effective Board and Director Evaluations

Published by

The practice of conducting full-board, committee, and/or individual-director evaluations has largely become commonplace. Ninety percent of respondents to the 2016─2017 NACD Public Company Governance Survey: Aggregate Results say their companies conduct full-board evaluations. Approximately 78 percent of respondents facilitate committee evaluations, and 41 percent conduct individual director evaluations, the survey finds.

The New York Stock Exchange since 2003 has required listed companies to disclose how their boards address evaluations. Although Nasdaq-listed companies have no such requirements, many conduct these assessments to enhance governance standards. NACD has long been an advocate for routine board, committee, and individual-director evaluations as part of a larger strategy of continuous improvement.

In keeping with these listing requirements and recommendations from our research, NACD recently created the Resource Center on Board Evaluations. Resource centers are repositories for NACD content, services, and events related to top-of-mind issues for directors. In these resource centers, individuals can find practical guidance, tools, and analyses on subjects varying from board diversity to cyber-risk oversight. Below we have highlighted a sample of helpful materials from our new board-evaluations resource center.

Thought Leadership & Research

The Report of the NACD Blue Ribbon Commission on Board Evaluation: Improving Director Effectiveness explores how boards and directors can use self- and peer-assessments to enhance board performance and director effectiveness. The report emphasizes that, while there is no one-size-fits-all approach to board evaluations, a commitment to ongoing assessments is indispensable when it comes to enhancing  corporate governance practices and performance.

Expert Commentary

The NACD Directorship magazine article “The Argument for Yearly Board Evaluations” by Salvatore Melilli, national audit industry leader for private markets at KPMG, examines the importance of assessments specifically for private company boards. Less than half (48%) of respondents to the 2016─2017 NACD Private Company Governance Survey say their boards conduct full-board evaluations.  Melilli’s article highlights several reasons why evaluations are critical to improving oversight evaluations. They can help vet company and board culture, identify gaps in talent or skillsets, and streamline processes for the board to engage in difficult conversations with the executive team.

Boardroom Tools & Templates

This resource center’s boardroom tools and templates are segmented by evaluation type—full-board, committee, and individual-director levels. The tools offer questions and considerations that help boards and directors ask questions that can drive healthy conversations about strengths and areas of improvement.

Videos & Webinars

An NACD video series featured in the resource center focuses on the role board evaluations play in improving governance practices. One video in the series, called “Why Confidentiality is Key,” focuses on the benefits of confidentiality in the evaluation process. Another video, “Transform Insight into Action,” discusses the value of creating tailored educational or development programs based on insights that emerge from evaluations.

If you would like help finding resources on a specific subject matter, please let us know. We welcome the opportunity to engage with directors on pressing needs and concerns.