Building a better boardroom

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Jane Edison Stevenson Korn FerryBy Jane Edison Stevenson, Global leader for CEO Succession and Vice Chairman, Board & CEO Services at Korn Ferry

 

If you watch boards as closely as we do, you will note a couple of current trends that are reshaping boards and the way they work:  a significant need for boards to acquire new skills that enable them to meet the challenges of a dramatically shifting marketplace while they also replace the core skills that are transitioning out due to age or tenure. 

The fact that director changes happen infrequently makes board succession planning an imperative, requiring proactive planning that is difficult to achieve without holistic thought and creative discipline. It also means thinking about director selection with more depth and analysis. 

Based on our ongoing work with board clients, this article offers a perspective on ways you might add non-traditional director candidates to your board, including how to go beyond surface experience to reveal and assess the traits and drivers that will be required to contribute maximum value to boards as they evolve. That is what we mean by shifting from ‘what’ to ‘who’ as you add new directors to your board.

A sea change

Viewed as increasingly distinctive and active resources to CEOs and their teams, today’s best directors not only provide guardrails for management reporting, they enhance the capabilities of the executive team by providing deep insights on a range of topics that can either enhance or derail a company’s future. This can vary from asking the right questions on the needs of a broad range of stakeholders (including activists) to the risk quotient around expanding into new products and markets, to protecting the enterprise from new and emerging threats, such as ISIS or cyber breaches, or a host of other considerations.

Korn Ferry board members trainingIn the exclusive ‘old boys club’ of the not-too-distant past, boards sought a limited profile of directors: CEOs (virtually all white males) who could lend valuable operating knowledge, as well as marquee names from other sectors that added a luster to the board’s roster. While the invaluable operating experience of CEOs is still indispensable, boards increasingly recognise the need to add more targeted expertise that is often not typical in the heritage of a successful CEO. That might include, for example, cybersecurity, digital commerce, or social media – as well as other areas that specifically link to a company’s business strategy.

At the same time, boards have aged and as veteran directors retire, age is becoming an area of diversity that is every bit as important as gender diversity or ethnic diversity. Identifying and integrating nontraditional directors into the board team can be a challenge, but also a significant opportunity to add much younger directors to address some of these more targeted areas of expertise that often don’t fit the traditional director profile of CEO. 

A snapshot from our 2015 Korn Ferry Market Cap100 (KFMC100) board survey captures some of the fundamental changes we are seeing in board recruitment. Data includes the following: 17 per cent of new directors are 65 and older, while 16 per cent are 49 or younger; on boards as a whole, including both new and incumbent directors, 51 per cent of directors are 65 and older, while four per cent are 49 or younger.

Our conclusion: the largest companies in the US are making significant efforts to add next-generation directors who bring the fresh ideas and insights that are crucial in a rapidly changing business environment. 

Seeking different? Look differently

Age is merely one dimension of the new director profile. Boards are not just seeking younger directors, but diversity of all sorts to broaden their skill base and to assist in creating innovative strategies and problem-solving. To achieve that goal, boards will have to start thinking differently about board recruiting criteria, focussing far less singularly on the experience represented in a resume and far more on a deep understanding of who the candidate is to help predict how they will operate in the boardroom.

Focussing on CEOs of stature with publicly understood track records, created a form of screening that does not necessarily translate to the focussed depth of capabilities a candidate who has not been a CEO will bring. That said, their experience in key areas of the marketplace, if married with exceptional judgement and a level of insight gained from a P&L track record, can be advantageous if the complement of other board members rounds out the equation. As with most things in life, there are trade-offs to consider.

That is where the degree of challenge increases, because the track record on the resume is relatively easy to capture. The personal judgement and characteristics – so crucial to identify in a prospective director – are more elusive. But they are also more significant, as they ultimately are the keys to the right fit.

There is no need to reinvent the wheel, however. Boards can borrow from what has become standard operating procedure in hiring operating executives when it is necessary to go beyond the individual’s track record and illuminate the personal characteristics and motivation that determine the likelihood of success for the future.

Here is the epiphany we have had at Korn Ferry: if it’s important to know who an individual is when considering him or her for a CEO or major operating role, it’s doubly important for a governance role. While an operating executive can sometimes ‘get by’ on his or her ability to execute effectively, a director only brings who they are to the table. There is no executing trade-off. If you don’t believe me, ask directors who have been through a high-stakes situation and they will tell you about the unpleasant and unconstructive personality traits that emerge in fellow board members once the pressure is on and the boardroom door closed.

Assessment science enters the boardroom

In seeking to add new directors, there is a great deal boards can learn from the assessment process that leading companies have been using – with a history of success, including the scientific validation to back it up – for a number of years.

Whether a board is seeking to hire a new CEO or to add a new director to its ranks, the challenge is the same: how to gain a view of the whole person. While some competencies and experiences may represent must-haves, they only constitute half the equation. Boards should strive for what we call a four-dimensional view that integrates competencies and experiences, or what an executive has done, with traits and drivers, or who an executive is (see graphic, top right).

It’s the board’s duty to assemble as complete a picture as possible so that it can select a board member with the relevant skills, background and personal traits, including ethical dimensions. Yes, they, too, can and should be measured, because it’s not just the bottom line that’s important to investors and to consumers of goods and services. Companies that do ‘good’ as corporate citizens are increasingly likely to do well, too. Moreover, boards must take great care to avoid both the appearance and the reality of any ethical scandals, which can quickly derail the company and sink its value.

Getting beneath the surface

When constructing an ideal profile for a new director, boards should take a number of criteria into account. Start with a view of the entire ‘chessboard’, that is take stock of the skills and experience currently represented on the board against the backdrop of what the strategy calls for and determine where the gaps are. That represents the relatively straightforward part of the process, the essential but surface easier-to-identify attributes a new director should possess – the upper half of our four-dimensional graphic, or the ‘competencies’ and ‘experiences’.

“It’s the board’s duty to assemble as complete a picture as possible so that it can select a board member with the relevant skills, background and personal traits”

Following are six questions to contemplate as you interview board candidates. The answers won’t show up on a resume and they go to the heart of personality and potential to be an effective director:

Why does this individual want to be on your board? Conversations with a director candidate can be geared to identifying the person’s primary motivation for serving on a board. The desire merely to add board experience to the resume is not only a poor reason, it is totally useless when one is in the boardroom and expected to work with other directors. Those who are motivated by getting another ‘notch in their belt’ usually come across as self-promoting networkers and are less effective in contributing as team members and immersing themselves in tasks at hand. Highly successful operating executives can make lousy directors – or not. It’s all about what motivates them and their ability to shift gears to a different role that must be equally fulfilling for them.

Can this person step out of the accustomed role as an operating leader and work effectively as a peer on a team of leaders? Many CEOs make great directors, others are unable to step outside their operating role as the one in charge to being on a team of CEOs and other senior executives where peer-to-peer collaboration is required, not a hierarchical decision-making structure. No one ascends to the CEO spot without a healthy measure of ego, but director candidates must be secure enough in their own skin to take on different roles where they will not be calling the shots. Verbosity can be an annoying trait in a CEO, in a director it can be a disaster, serving as a roadblock to needed discussion.

Is the director candidate able to see new situations and challenges through a variety of lenses, not just through the lens of his or her own experience?  One’s background and experience should inform but not dictate discussions and decision-making on the board. We know of very capable, successful executives whose view is limited only to their own operating experience. Some even resort to disparaging other directors in boardroom discussion when they express different views. Effective directors are able to start with a blank sheet of paper, considering various options with an open mind as they hear others’ views, recognising that, while much can be learned from others, each company’s culture, stakeholder mix and experience are unique and the best decisions emerge from spirited discussion where everyone contributes.

What is this person’s comfort level with ambiguity, when decisions are not cut-and-dried? When the buck stops with the CEO, as operating leader, decisions have to be made – often quickly – even amid imperfect data, but the governance arena is very different because you are not executing against specific goals. There is far less that is obviously black and white and far more grey with ambiguity that has to be viewed in terms of ratios – and that is not a bad thing. Decisions must be made in the boardroom, nonetheless, so it is important that directors are able to capably assess risk and move forward, ever conscious of their fiduciary duty to protect the interests of shareholders. That is why learning agility is such a crucial competency in all leaders, but especially in the boardroom.

Board members Korn FerryDoes this person derive significant satisfaction from being a co-creator? Not everyone does. Some people are motivated by putting in the hard work and gaining individual recognition and rewards for their efforts. Great directors enjoy the interpersonal relationships developed as a board member as well as the experience of being part of a unique senior team of peers where there is not always a clear leader and everyone may be equally accomplished. The reward is more internal satisfaction for a job well done, rather than public accolades, so, again, attempts to reveal those quadrants of ‘hard-wired dispositions’ and ‘motivators and interests’ will provide strong clues to someone’s suitability to contribute on a board.

How high is this individual’s service quotient? Contrary to conventional wisdom, most directors don’t serve for the glory or the compensation. Directorship today is a far more time-consuming, riskier proposition than in years past. So why do people commit to serving on boards? Many of the best directors derive the greatest ‘compensation’ from the success and accomplishments of others. In the capacity of board member that may translate into serving as a coach and advisor to the CEO – or even to others on the senior team or to novice directors, ensuring that they build capacity to up their game.

Assessing the whole person

As we suggest with the above questions, certain types of people make strong board members, while others do not and success derives from their essence – the personality traits and characteristics that make them who they are. Fortunately for nominating and governance committees, addressing those questions with prospective directors that are designed to illuminate the traits that correlate with success in the boardroom can help predict with a significant degree of accuracy what sort of director someone will make.

That should be welcome news since removing an underperforming director is notoriously difficult and something many boards avoid. But even a mediocre director, one that may take a spot that could have gone to a more targeted choice, represents a lost opportunity and can be a drag on the board’s ability to fulfill its strategic objectives.

These suggestions should help boards jump-start the process of identifying and attracting directors with the personality attributes they require, not solely the resume attributes. They should also enable boards to assess candidates who represent diversity – in skills, gender, ethnicity and age – and whose resumes may not represent as lengthy a track record as the traditional CEO candidate. Having served for 20 years as a CEO may not be a key requirement, whereas a particular skill that millennials are more likely to possess, for example, that is not yet represented on the board may be.

Sometimes described in the shorthand ‘EQ’, this constellation of traits that effective board members possess includes a personal pay-off from being part of a team, not the star of the show – listening to others, asking important questions and helping to create insights and bring out the best in others.

The pace and depth of change that characterise today’s and tomorrow’s business environment make these considerations more important than ever in the director selection process as boards increasingly feel the urgency to create the diverse teams they require to serve as real strategic assets to the companies. That will entail an assessment of the whole person, not only the labels that signify business success, but who they are – defined by the crucial personal qualities that lie beneath the surface.

About the Author:

Ms. Stevenson leads the firm’s Global CEO Succession Practice and regularly serves Fortune 500 clients and high-growth companies on C-suite succession, top team effectiveness, and innovation leadership issues. She has been acknowledged byBusinessWeek as one of the “100 Most Influential Search Consultants in the World.”