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A board member’s guide to knowing when to go

Monday, November 7, 2016   (0 Comments)
Posted by: Kristen Persaud

One global resource seems unlikely ever to dry up: candidates for board membership. Forget the warnings about the deterrent effect of increasing workload, growing risks and uncertainties, burdensome regulations and intensifying scrutiny — all of which, by the way, are true, and have been for at least the past 15 years. Nothing seems to drive directors away from the boardroom once they have had a taste of it.

There is, however, one shadow that hangs over board members’ ambitions to stay put: refreshment — the need for companies to bring new and different directors into the boardroom.

More than a third of US board directors believe someone on their board should step down, a figure that has stayed steady since PwC started asking the question for its annual survey of US boards in 2012. But while boards assess directors’ skills more than they used to, only half of directors said their company had made any changes to the board after these self-evaluations.

Board membership still grants access to a powerful and stimulating network; unsurprisingly, few want to step off the governance carousel, let alone tell others to leave. As one board member told me last week at the Financial Times’s Outstanding Directors Exchange conference in New York, it is hard to tell your spouse that you cannot meet that friendly director and his wife for dinner this weekend because you just conspired to vote him off.

ISS, the advisory company, points out that among the top 1,500 listed US companies, fewer than 15 per cent of board seats are held by directors who joined in the past two years. That is in spite of the strong awareness of the need to fish for new members from a wider pool, and many initiatives to encourage more women and ethnic minorities to apply.

Here, then, is a guide to the types of directors who should be first in line for refreshment, based on the off-the-record comments of participants at the ODX event.

The Slackers. A quarter of directors surveyed by PwC cited lack of preparedness for meetings as a reason why a board member should be replaced. That percentage is up sharply since 2012 — perhaps in line with the quantity of work now served up to directors. Much reading matter is now put into appendices to the meeting papers, according to one director I talked to — which seems a sure-fire way to encourage board members to skip it.

The One-up Men and Women. These are the directors that, in the words of one US chief executive, “see conversation with the CEO as a test of intelligence, a battle of wits”. Very often, this person said, this can “deteriorate into huge dysfunction”.

The Silent Majority. One chair specialising in troubled companies told me she was astonished to discover when she quizzed directors on her new board for the first time that each had individually decided long ago that the chief executive was inadequate. None had dared tell him.

The Old Guard. Neither age nor long service should be an automatic disqualification for office. In fact, in the words of one director who sits on several S&P 500 boards, “folks that have been around” find it easier to shrug off the potential impact of specific decisions on their personal reputation.

“They’re more worried [than newer members] about finding the right answer” for the company, she added. Even so, those long-serving members who have lost the ability or the desire to ask the difficult questions should be, in her over-polite phrase, “transitioned out”.

The Stiflers. In the worst case, chief executives who move up to take the chair smother their successors. “My chairman … didn’t believe anybody could run the company but him,” said one former chief executive last week, while the serving chief added: “If you define yourself over your role [as CEO] and the role changes, it will be very painful — and you might actually not recover.”

But corporate leaders who resent the oversight of board members can also become a liability. Another non-executive recalled how a chief executive grew so suspicious that, if he saw a board member trying to talk with one of the executive team at a reception, he would stride over to shut down the conversation.

What happens on boards mostly stays within boards. That is both a virtue and a handicap. Directors ought to be the best judges of fellow directors’ behaviour and best placed to call out a weak board member. The alternative is to wait for an aggressive activist with a slate of replacements to do it for them.

Directors at the ODX event said they thought they would be mature enough to realise when their own time was up. But as the surprisingly static data on turnover show, it is one thing to call for boards to be refreshed, quite another to admit that you are the one that needs refreshing.