Category: Board Composition

How Does Your Board Define Age Diversity?

Published by

Paula Loop

Age diversity is an important factor to achieving diversity of thought. That’s how 91 percent of directors responded in our 2017 Annual Corporate Directors Survey. They even rated age diversity higher than any other element of diversity, including gender and race. However, we noticed that more than half (52%) of directors said they have age diversity on their board and don’t need any more of it. Herein lies the disconnect: Our definition of age diversity differs from that of most directors.

So what does age diversity mean to corporate directors? Maybe it means their board has directors who are in their 50s, 60s and 70s. Or perhaps they have one director who is 55 and one who is 80. With an average age of 63 for independent directors on S&P 500 boards (and going up), what it likely means is that they don’t have many directors who are 50 or younger. In fact, there are more directors aged 75 or older in S&P 500 boardrooms than there are 50 or under, according to our new research paper, Board composition: Consider the value of younger directors on your board. That figure demonstrates that there really isn’t a broad definition of age diversity.

To find out more about age diversity on US public company boards, we analyzed the population of directors aged 50 or under serving on boards of S&P 500 companies as of the end of 2017. We wanted to see who these directors are and what their board service looks like. What we found out is that there really aren’t many of them at all: According to our analysis of BoardEx data, directors aged 50 or under make up only 6 percent of the seats on S&P 500 company boards.

What does this mean for your board? First, if it hasn’t already, your board should consider age diversity and determine what it means for your company. Second, you might consider adding a younger director or two to the board. Most younger directors (96%) have active jobs or roles, so they can bring critical workforce skills and know-how back to the boardroom. They are more likely to have hands-on experience with newer technologies like artificial intelligence or the internet of things, technologies that companies are investing in and adopting to get ahead and stay competitive. And, in many cases, younger directors are closer to the consumers that their companies are targeting. They’re also closer to millennials, whose spending habits and workplace expectations are turning traditional marketing and human resources processes and plans on their heads.

We know that board composition and refreshment is a hot topic today, and the topic of age diversity is a good conversation for boards to have. Though there’s not one accepted dictionary definition of what age diversity is, boards may also want to develop an agreed-upon understanding about what it means to their board—and why all aspects of diversity make for healthy board discussions and better board performance.

One of the most interesting data points that came out of our new report details how companies made room for younger directors. For 62 percent of the S&P 500 board seats held by independent directors 50 and under, companies increased their board size to accommodate them. The board did not wait for traditional succession planning tools to play out, such as a director leaving the board due to retirement or term limits. Increasing board size to bring younger directors on as soon as possible indicates a real desire for and appreciation of the value those individuals would bring to the boardroom. That alone should tell you that age diversity is something to consider for your board.

It’s Time to Get Uncomfortable in the Boardroom

Published by

Kimberly Simpson

Two NACD panels recently tackled issues surrounding sexual harassment in the corporate setting, and how directors should act and react to issues that could have profoundly negative impacts on company reputation and workforce satisfaction.

Key takeaways for directors ranged from careful CEO hiring to board composition. The following concepts could be readily applied to your own board’s conversation about overseeing this risk.

  • Aggregate Data to Spot Problems Before They Happen. Given that the board is ultimately responsible for overseeing company culture (including a culture that tolerates sexual harassment), the board should work to mitigate risks rather than taking up sexual harassment issues once a problem has surfaced, according to Michael Aiello, chair of the corporate department at Weil, Gostshal & Manges LLP. Lucy Fato, executive vice president and general counsel for American International Group (AIG), stated that boards should aggregate information to get the full picture, including:
    • Internal audit findings related to culture;
    • Employee relations/human resources reporting, including hiring trends, turnover statistics, and reports from exit interviews;
    • Hotline reporting, including whether there are too many or too few complaints; and
    • Company legal settlements and insurance payouts.
      Board members should also probe whether the company’s investigative processes are fair and thorough.
  • Go the Extra Mile in CEO Hiring. In light of the board’s primary role of hiring and firing the CEO, along with the fact that fallout from CEO misconduct can significantly impact shareholder value, a board should take steps to ensure that its candidate of choice does not have a history of sexual misconduct or even tolerance for a culture in which harassment is an open secret. According to Sabina Menschel, president and chief operating officer at Nardello & Co., to really know who you are hiring into the corner office, conduct an investigation that includes public records, social media, and supplemented standard reference checks. With regard to CEO hiring, Fato stressed, “Ethics, integrity, and how you carry yourself as a public figure should be a factor in whether you can lead the brand.”
  • Risk Starts at the Top. The CEO and senior management are not alone in the potential spotlight of the #MeToo movement. Board members also must be vetted fully, and once in place, board members should receive code of conduct training, just as employees do, said Fato. In addition, the board should pick one corporate policy per year on which to do a deep dive as part of its oversight duties. Tabletop crisis preparedness exercises also should be conducted.
  • Superstar? Irrelevant. A board may face a difficult choice if a superstar CEO is found to have violated the company’s code of conduct, fearing that a dismissal could impact short-term shareholder value. According to Brenda Gaines, director, Tenet Healthcare, Southern Co. Gas, and NACD, superstar status is always irrelevant when investigating misconduct. She suggests that the board should take action to remove an offending CEO and then have a separate conversation about revenue and valuation implications. She added that the company must be clear about its culture and key principles, and should have zero tolerance for misconduct, applied to everyone in the company equally. “Board members have to keep each other honest,” she said.
  • Expand the Company’s Enterprise Risk Management (ERM) Framework. Sexual harassment should be a part of each company’s ERM framework, given that fallout from a misstep can be quite severe, emphasized Fato. Also, when doing employee surveys, ask specifically about harassment issues. To do so demonstrates that the company cares about these issues, said Menschel. Also, in terms of monitoring potential issues with long-tenured employees or even board members, consider updating background checks at regular intervals, stressed Fato.
  • Diverse Boards Matter. The #MeToo movement will have an impact on the boardroom, as well as on investor relations, according to Renee Glover, director, Fannie Mae, Enterprise Community Partners, and NACD Atlanta. Indeed, large shareholders are asking about diversity on the board, and they may request sexual harassment policies and pay equity measures. Gaines emphasized the clear-cut nature of the need for more diverse boards. “Diversity is good business,” she said, “and we are nowhere near where we should be. We need more gender diversity and more people of color on boards. Don’t miss this in the search for skill sets.”
  • Find an Ally. Rochelle Campbell, manager for board recruitment services at NACD, says that she encourages boards to have at least two diverse members on the board, as such boards tend to be more successful. For women and people of color who are new to a board, they can play an important role in discussions about sexual harassment and equal pay for equal work. When asked for practical advice for new board members, Gaines shared best-practice approaches to oversight of misconduct:
    • Get the facts right.
    • Take the emotion away.
    • Look for an ally on the board.
    • Be persistent.

Glover summed up the issue: “We can do better. And when we do, we can get on with realizing the deeper value that a diverse board can deliver.”

Kimberly Simpson is an NACD regional director, providing strategic support to NACD chapters in the Capital Area, Atlanta, Florida, the Carolinas, North Texas and the Research Triangle. Simpson, a former general counsel, was a U.S. Marshall Memorial Fellow to Europe in 2005.

What to Look for in an Effective Audit Committee Chair

Published by

Paula Loop

The entire board relies on the hard work of the audit committee to meet its overall objectives. But audit committees today are faced with the heavy burden of regulatory mandates and growing investor expectations. Workloads are increasing, and they have to oversee more complex areas. Many audit committees are asking whether they have the right approach to meet the demands.

One way to ensure the effectiveness of the audit committee is to have a strong chair. Good leadership and effectiveness go hand in hand, and a strong chair can get the most out of the committee members. By choosing a strong leader for this essential role, your entire board will be able to have greater confidence that the audit committee is on top of the issues.

So what makes a strong audit committee chair? Audit committee chairs need to have experience, healthy skepticism, integrity, and strong communication skills. And to be a truly effective, he or she has to take the time to really work on the committee agenda and make sure meetings run well. They also need to be able to effectively coordinate with other board committees, such as the risk and compensation committees.

Here are six other attributes that I have observed in great audit committee chairs:

  • Highly experienced: Strong audit committee chairs need to have a good understanding of the business, its risks, and controls. They also know what topics to elevate to the full board, and when to do so.
  • Professionally skeptical: They’re willing to provide an independent point of view and are intellectually curious. They will look for additional information when they aren’t happy with the answers they get frommanagementand
  • Possesses integrity and confidence: They promote a strong “tone at the top” for the company and for the committee. They also need to ensure that all elements of the charter are being addressed.
  • Organized and proactive: They’re able to prioritize the most important items on the agenda. They’re good discussion facilitators and know when to cut off low-value discussions.
  • Strong communication and interpersonal skills: They provide clear updates of issues to the full board. They’re not afraid to ask difficult questions and have uncomfortable conversations with members of management, service providers, and even other committee members.
  • Willing to devote the time and energy: Chairing the audit committee requires a big time commitment—agendas are denser, filings are more voluminous, and compliance is more time-consuming. So the chair has to be ready, willing, and able to dedicate the time to the job. Strong chairs take the time to develop the agenda and effectively execute meetings. They also make themselves available to management and other board members. The time commitment of the audit committee chair goes well beyond just the meeting time dedicated to that committee, not to mention meetings of the full board.

Strong audit committee chairs understand that an effective audit committee means more than simply meeting stock exchange composition requirements. They recognize the importance of having a diverse committee made up of members with the right experience, expertise, and both hard and soft skills. They keep the committee refreshed and use the assessment process to ensure that all committee members are functioning effectively.

Having a strong audit committee chair at the helm can help ensure that the audit committee not only keeps up but excels.

For more on this topic, read the latest in our Audit Committee Excellence Series, Audit committee effectiveness: practical tips for the chair. You can also find more audit committee resources on our website.