Topics:   Director Education,Featured,Leadership,Strategy

Topics:   Director Education,Featured,Leadership,Strategy

November 8, 2019

“Future-Proofing” Your Board

November 8, 2019

Once upon a time, boards were akin to a highly selective men’s club that often served as a rubber stamp for the chief executive officer (CEO). Those days are long gone. Boards are now expected to take an active role as a partner to the CEO. That means being an advisor in key areas such as compensation, talent management, regulatory change, cyber risk, and a host of others determined by the company’s specific needs and strategy. Board members, thus, must bring particular talents to the table while also working together as a cohesive whole.

It’s important to note that nominating committees have already shifted away from building boards that comprise primarily directors from the same background (that is, chiefly older white male CEOs). However, they are stumbling over a major roadblock to creating diverse, future-oriented boards: age discrimination. There is a commonly held belief that people can’t add value to board discussions unless they have had a long, successful career, but directors with the most in-demand skills from a strategic perspective skew relatively young.

In addition, given the slow increase in the number of diverse executives in terms of gender and race and ethnicity, many people who would be good board members may not be far enough along in their careers to have a CEO or C-suite credential—and without one, they are perceived as lacking sufficient gravitas. Adding to the challenge, younger candidates are focused on building their careers—and many are prohibited by employers from serving on outside boards—so there’s the double whammy of conflicts and time management. But figuring out how to fold diverse candidate, including younger ones, into the board mix is essential to future-proofing boards.

A Future-Oriented Director Recruitment Process

It has become clear through our work at Heidrick & Struggles that a deliberative approach is the best way for boards to ensure they have the relevant demographic and experiential diversity they need—in terms of gender, age, ethnicity, industry, geography, and other areas. Done right, such a process provides access to desirable candidates with needed skills and experience who may not yet be highly visible in their careers or, consequently, on the board’s radar.

This director recruitment process operates on a couple of different levels. First, it helps boards to fill immediate needs for director talent. In addition, when the process is institutionalized and a regular item on their meeting agenda, boards can plan for a variety of contingencies, such as planned or unplanned director vacancies, as well as modifying their director profile to keep pace with change and ensuring they have a robust pipeline of potential directors at all times.

To be successful, any future-oriented board recruitment process must cover a few crucial bases. The board itself must also operate in an open, collaborative, and mutually accountable way to ensure that the recruitment process will meet the company’s real needs and that directors see board service as a valuable use of their time.

We suggest the following questions to spark productive board discussion on this topic:

Strategy

  • Are we building a board geared toward future challenges?
  • Are directors steeped in and aligned on the company strategy—not just generally but also in terms of ranking highest priorities and strategic imperatives?
  • Have we identified key challenges and new skills we will need as a board to support and oversee management in executing this strategy (external—e.g., cyber risk, geopolitical, shareholder activism—and internal—e.g., executive compensation, needed culture change)?

Board Succession

  • Do we have a thorough understanding of the key skills directors will need, and have we translated that into the nominating committee’s director recruitment priorities?
  • If we are anticipating adding one or more new directors in the next couple of years, have we vetted our recruitment profile to ensure criteria are relevant and not unnecessarily restricting access to appropriate candidates (e.g., requiring CEO or prior board experience)?
  • Are we maintaining a proper balance of director seniority and institutional knowledge versus specialized skills and experience? Have we addressed term limits and retirement age in this context?

Process

  • As a board, do we engage in frank discussions of strategic alternatives and attendant risks?
  • Are we committed to accountability for corporate performance for the board and the executive team?
  • Do we have in place a rigorous director assessment process geared to elevating the performance of current directors and the board as a whole? Is it linked to a systematic director recruitment process?
  • Are we open to needed change on the board, and do we welcome newer directors with the skills and experience we need going forward? Do we promote a board culture of inclusiveness, ensuing that directors from all kinds of diverse backgrounds are comfortable contributing to board debates?

The Pay-Off

It is clear that boards can represent a key competitive advantage at a time when so many of the external market and political challenges that companies must grapple with are well beyond their control. But this advantage remains unexploited unless boards actively prepare, guided by board and committee leadership, to maintain the most relevant, qualified director talent. Since that process is firmly rooted in organizational strategy, a board’s needs will vary widely by company; it will also be affected by company culture, stage of growth, industry, and other factors, making it highly individualized.

Successful board-building is, therefore, an “evergreen” process that requires regular care and feeding to maintain board effectiveness, but the result—a board that is a crucial strategic asset in an increasingly competitive global business environment—is well worth the effort.

David Hui, dhui@heidrick.com, is a partner in Heidrick & Struggles’ Hong Kong office.

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