Change from Within
In the current environment of increased transparency, where boards are being carefully watched and assessed on a handful of crucial metrics, including board composition and recruitment, boards would do well to ask themselves: With shareholders so focused on changing board composition from the outside, what can we do to ensure needed change from the inside? Board composition that will best serve our strategy and shareholders?
The nominating and governance committee represents change in the board team that can be thoughtfully planned and implemented from the inside.
Korn Ferry’s 2015 annual board study, the KFMC100, found that among the 73 directors who left or retired in 2014, the average tenure was 9.8 years. The average tenure on all boards was 7.1 years, and 28 percent of directors had been in their seats a decade or longer.
We believe these numbers will change significantly in the next several years as older directors step down and boards seize opportunities to add directors who have functional expertise that is closely linked to strategy, against the backdrop of an ever-morphing business environment.
This shift, along with an increased focus on core board responsibilities—including CEO succession and board succession—have made the nominating and corporate governance committee the center of current action for many boards.
Board succession planning and strategic recruitment are best viewed as key elements of the larger issue of board effectiveness. We think about board evolution in terms of four stages, from least to most developed, from least to most engaged. At each stage, the role of the nominating and corporate governance committee and recruitment evolves as well. (See “How Evolved and Engaged Is Your Board?”)
1. The Foundation Board is focused on basic compliance with the board providing oversight functions but little additional value. It meets essential requirements, such as independence and financial expertise, but doesn’t go beyond that minimal threshold.
2. The Development Board builds on the basic compliance function of the Foundation Board, adding a future perspective beyond merely meeting current requirements. That includes alignment between the company’s strategic objectives and the board’s skills and experience, as well as an orientation toward future growth.
3. The Advanced Board adds the building block of high performance to the assets of the Development Board. This board model is characterized by an informed, engaged and collegial board team that focuses on management leadership development, possesses a global mindset, and regularly assesses and remedies skill gaps on the board.
4. The Strategic Board—which we sometimes refer to as a tapestry board to describe its richness of different talents and backgrounds—is thoughtfully and deliberately assembled. This board further proactively leverages its members as a diverse, high-performing team capable of providing world-class insights for discussion and forward-looking decision making.
While different sorts of boards are required for different companies depending on their stage of growth, ideally the board reflects the evolution of both the company and the changing business environment.
Boards should take an active role in ensuring they evolve as a strategic resource by improving their composition and performance. Assembling an A-team will best enable the board to meet its key fiduciary responsibilities. So far, shareholders have not been flexing their new proxy access muscle, but, in any case, boards should proactively address any gaps in skills to ensure they are well-positioned when their board succession and recruitment practices come under scrutiny.