CEOs as Directors? Maybe Not.

In a surprise shift, fewer firms are picking CEOs as outside directors. Is it a trend that makes sense?

It used to be that the surest way to a board seat was to serve as a CEO. Now it might not actually be the best role to have on one’s resume.

In a little-noticed but remarkable shift, many firms are skipping the corner suite and looking elsewhere for directors, choking off what once a wide-open path for current and former corporate CEOs. In fact, recent data shows that nearly two-thirds of the more than 400 director seats filled last year were taken by someone other than a CEO. Experts say since both the pandemic and the racial-equality protests of last year, companies are determined to create boards with more diverse faces and more specific skill sets.

With those trends only gaining more momentum, Charles Elson, a professor of corporate governance at the University of Delaware, expects the number of CEOs on corporate boards to keep shrinking this year. Or, as Elson puts it, “there will be a lot more CEOs playing a lot more golf in the future.”

That said, moving away from CEOs, with all the experience they typically bring, worries some experts. Dennis Carey, a Korn Ferry vice chairman and the firm’s co leader of Board and CEO Services, says CEOs generally bring the most value and impact to boards because “they can relate to problems all companies face by having been in the chair before.” Carey also says CEOs are best positioned to tie all the specialized skills of the other directors together strategically, which is critical to board performance, particularly in light of the ongoing pandemic.

For many firms, the decline in new CEO director appointments is partly a matter of simple math that started some years ago, when boards began to focus on adding more women and ethnically diverse directors. Female representation on boards has nearly doubled since 2010, for instance, and the unfortunate lack of CEOs in those categories means boards naturally have to look elsewhere to fulfill their mandate. Similarly, as boards have become more strategic about filling vacant seats with directors from specialized fields that align with business objectives—such as sustainability, cybersecurity, or artificial intelligence—they have fewer vacancies left for the broad-based unifying expertise of CEOs. Experts say that need has only grown as pandemic-related pressures on everything from the supply chain to finances have mounted.

Michelle Lowry, academic director at Drexel University’s Gupta Governance Institute, says boards could accommodate the need for diversity and specialized skills without sacrificing CEO directors by expanding board size. But that doesn’t seem to be happening. Korn Ferry data shows that board size has remained relatively constant at between 10 and 11 directors for the last decade. Lowry says rather than just adding more directors—which could lead to coordination problems or less accountability—boards are being more thoughtful about aligning vacancies with business priorities. “It’s not a matter of replacing the type of director they had before,” she says. “Now it is a matter of business needs and who is available to meet them.”

To be sure, some current CEOs, exhausted by today’s mounting pressures, appear to be opting out of this role too, with Korn Ferry data showing that fewer than half of CEOs now serve on an outside board. Experts say that, at least anecdotally, there’s evidence that the unprecedented demands posed by the pandemic led many CEO directors to resign from outside boards to focus on their own organizations. Joe Griesedieck, a Korn Ferry vice chairman and managing director of the firm’s Board and CEO Services practice, says many CEOs have also found second careers serving as mentors to start-up founders or operating partners in private equity and hedge funds. “There are more opportunities available to CEOs to serve their interests beyond sitting on a corporate board,” he says.

CEOs have always had some limits on board roles—limits that grew over the years from shareholder pressure. Proxy advisory services like Institutional Shareholder Services, for example, now recommends that CEOs sit on no more than two outside boards. Even so, Carey believes interest in CEOs for boards will never wane completely. Where he draws a distinction, however, is between successful top-tier CEOs and mediocre, lower-tier leaders. “Successful CEOs are still getting calls and aren’t having trouble filling their dance cards,” he says. “Mediocre ones are another story.”