Most every company has one. And even those who do not currently have one think they might benefit from one. What are we talking about? No, it is not as*holes, it is a board of directors.
Sometimes these boards are made up of owners/founders, friends and family, or employees. Sometimes boards are structured more as advisory bodies (think “free consultants”) and some boards are independent of owners and executives (a majority of independent directors is required for companies whose stock trades on the New York Stock Exchange (NYSE) and NASDAQ).
So how do you go from having no board to having a board? And if you already have a board, how do you help it mature as the company grows?
Assembling a board one piece at a time
For smaller companies, first consider what type of board you are seeking.
If it’s advisory (typically engaged to provide specialist or strategic advice to help solve a range of difficult or complex business problems), consider the types of expertise that you are going to need, the relationships you would like to foster, the markets you would like access to, and the financial acumen that you may not have inside the organization.
If it is a fiduciary board, consider the various areas of expertise and oversight that you might need down the road in order for the board to be legally responsible for the governance, control, direction, and management of an organization (including the ability to hire and fire the CEO, etc).
Once you know the “initial” goal, understanding the company’s scalability and progression will be critical to refining the board and its role as time goes on. For example, as companies grow and have more revenue available (or take on additional investment from outsiders, etc.), they often migrate from an advisory board to a fiduciary board. In addition, as a company moves from smaller to larger markets, takes on increased risk, or needs connections in government or other areas of expansion, this may also drive the makeup of the board.
A great way to organize your thoughts about what skills and experiences your board may need is a board skills matrix. Board skills matrices began with publicly traded companies looking for ways to better report the skills and diversity of company directors. These charts (usually in a proxy like the one for Regions Bank linked here) tend to show composition (length of tenure, gender, other visible indicators of diversity) and technical (M&A, governance, security, IT) and specific industry skills (ex: insurance industry). In theory, companies utilize these summaries to identify desired categories where representation on the board is weaker, and then actively recruit candidates to fill those gaps.
Even if it’s not required, a chart like this can be a lifesaver. Spending some time determining what areas you need expertise in and anticipating changes in the future (as well as potential timing) will ensure that your board recruiting efforts are targeted and efficient.
Your company will likely change dramatically over time, and thus your board should too.
Board refreshment for changing needs: It’s not you, it’s me
Board refreshment is a desirable ongoing process, but it can be daunting for boards and company leadership. Especially difficult for boards is the challenge of choosing to not re-elect board members, even though those directors have talent and value (much like the internal turmoil that is created during a reduction in force, where a company lays people off due to changing needs and conditions).
In a recent study by PWC, 89% of public company executives suggest that at least one of their directors should be replaced (and 41% of executives suggest that more than two should be replaced). As a company grows and evolves, board refreshment becomes more critical because the board the company needs in year one will not necessarily be the one it needs in year five and so on.
Step 1: It is imperative to set the culture early so that directors understand that they may be asked to depart the board before they might otherwise be required to (such as what might be required by triggers from term limits or if the company sets a mandatory director retirement age). If the topic is a regular conversation, and not one that only happens when a change is urgently needed, directors will get comfortable with the thought process and should accept the need for change easier (even when that change might include their own departure). To make the decisions even more tolerable, treat your departing directors as “alumni” and maintain strong, ongoing relationships with former directors.
Step 2: Board refreshment is a lot like initial board selection, and can be effective if the company uses similar practices. Thus, continuing to ask yourself nontraditional “tough” questions (like those below) is the key to achieving board effectiveness throughout the lifecycle of your company.
Would you choose this director again today? If not, for whatever reason, it may be time to make a change.
The board shopping list: going beyond the skills matrix
It is more than skillsets, experience, and basic diversity categories that will drive the quality of your board. It is also the unique and powerful combinations that yield exponential results.
Some nontraditional questions to ask yourself (or have your existing board consider) when you are shopping for a new director are:
BUSINESS ACUMEN:
Do you have someone who has grown/run a business through several different climates?
Do you have someone who would qualify as a financial expert if your company were publicly traded (this is a high bar)?
Do you have someone who worked in your industry, preferably at a competitor? Equally valuable, has the individual been part of a less than successful enterprise (which can often teach more than being successful)?
Do you have someone from an industry that is not yours but has faced similar challenges?
Do you have a good mix of people who are deep in single functional areas as well as those who’ve developed broader experience by working in multiple industries and functions? The latter can likely spot interdependencies between areas that someone focused on just one might miss.
CUSTOMER/CONSTITUENT REPRESENTATION:
Do you have at least two board members who represent your customer avatars? Targeted new markets? Affinity groups?
Even in nonprofits, do you have directors who utilized the nonprofits’ services or had similar experiences to the people the nonprofit serves?
Do you have a marketing/sales expert? Someone with expertise in reaching your targeted customers through the noise of the modern world?
GOVERNMENT/REGULATORY:
Do you have someone with proven government or regulatory connections who understands the intricacies of how this works? Are their relationships verifiable?
GENERATIONAL REPRESENTATION AND TENURE:
Do you have a Boomer, a GenX, a millennial and a Gen Z member?
Do you have a good balance of “currently working” and “retirees”?
Is there an equally solid portion of directors with longer (such as more than 5 years of service) and shorter tenures?
APPROACH:
Do you have a skeptic? A cheerleader? Someone who thinks like an activist?
Do you have at least one person who is a great issue spotter?
Do you have a nice mix of risk-averse “analyzer types” and risk-tolerant “enthusiast types” comfortable with minimum viable product approaches?
Do you have at least one teacher/trainer who can help expedite the learning/knowledge of the rest of the group?
Do you have a conversation facilitator who is skilled at keeping the skeptics, cheerleaders, risk analyzers, and enthusiasts from derailing the conversation individually?
More concerning data from PWC C-suite survey: only 33% of boards ask “probing questions.”
OTHER DIVERSITY CHARACTERISTICS:
Do you have a good balance of regional representation? I speak from experience; the business world is vastly different depending on what region you are operating in.
Do you have at least one person for whom English is a second language?
Do you have a broad range of political and social perspectives?
Have you considered all of the groups protected from employment discrimination as targets for inclusion on your board? The EEOC focuses on discrimination based on race, color, religion, sex (including pregnancy, sexual orientation, or gender identity), national origin, age (40 or older), disability and genetic information (including family medical history).
Do you actively pursue neurodiversity?
SHIFTING FOCUS IN A COMPLEX TECHNOLOGY WORLD
In a recent article by the Harvard Business Review, the authors focused on board effectiveness related to security and technology: “The composition of most boards today creates vulnerability rather than stronger oversight. Many boards we studied are composed of very seasoned executives … who have extensive experience in operations, finance, sales, and their industries. But few have cybersecurity knowledge or experience.”
In addition, according to the PWC C-Suite survey, digital transformation, emerging technology and cyber and data policy vulnerabilities are some of the areas where oversight by directors is much weaker:
It is more than just having someone on your board who claims to have technical or IT experience. A great test is:
Do you have someone who has recent cyber experience at a level where they actually understand the inner workings of security programs, the latest trends in threats, various standards, reporting and breach response?
Do you have someone who understands machine learning, blockchain, and AI who can call “bullsh*t” on all the pitches for these areas that will not work, and who will spot when teams go rogue leveraging tools that increase risk without proper oversight?
Shouldn’t your board reflect a number of these more nontraditional “outsider” categories?
Four Things That Can Trip Up Your Board Recruiting Efforts
1. Eliminate “Referral” Programs - Follow the Lead of Corporate HR
Most board positions tend to be the result of a referral from an existing network, either the network of current board members or the recruiter that the board retains. And, this is problematic for a couple of reasons. First, “friends” tend to feel the need to repay the person who referred them, and thus, referrals from a director’s network create an inherent conflict of interest because a new director might be hesitant to vote against or in opposition to the person who referred them.
More problematic is the impact of a referral-based process on diversity. Years ago, before diversity and inclusion programs had the sustainability that they have today, I went to a training that included a bead experiment. This experiment, while rudimentary, illustrated an important point. Most people, even those with the best intentions, are surrounded by people who are “like” them in race, gender, religion, viewpoint, and social/economic background, among other characteristics. Because of this, referrals at the board level, while intended to uncover strong candidates, may ensure “groupthink” within the board and reduce the likelihood of diversity. Instead of relying on current directors or “well-connected” recruiters who utilize an insulated network, utilize the HR department (many of whom have abandoned their own employee referral programs due to the irreparable damage to diversity and inclusion efforts), their processes, and their technology tools to enhance candidate identification and cast a wider net for diverse candidates.
If you need to leverage a recruiter, try to use a different one each time. Also, you will benefit from seeking out recruiters who represent diverse groups and industries themselves, as they are more likely to have access to the untapped candidates that best fit your goals.
And finally, remember that some of the best directors may not even be actively looking for board roles, so use your creative networking skills to find the best candidates in any industry/profession/level.
Practice insight: Have you tested how each director arrived on your board? Do you know who “introduced” the individual for consideration? If the majority of your board is tied to one or two individuals, it is likely not diverse enough. Need more proof, the National Football League is famous for its diversity problem, where 93 coaches (13%) have a father, son or brother who is a current or former NFL coach.
2. The Fallacy of “Executive Presence”
What is executive presence anyway? For some, it’s charisma and the ability to capture the hearts and minds of a room full of people. For others, it’s certain mannerisms and capabilities related to communication, swagger, or the manner in which someone chooses to illustrate a critical point. And, it can even be something as simple as a standard of professionalism that is specific to what the “assessor” thinks is important, which could be anything from wearing a suit to not having tattoos to any number of other irrelevant factors to leadership success. The true definition of executive presence is how a person makes the room feel, and how they are able to engage and inspire a diverse group of people for the best possible outcomes.
Confession. I have always hated “executive presence” terminology because I have watched it deployed to cloak inconsequential opinions related to appearance or perspective as constructive feedback, and worse, to root out the person that is not perceived to “belong.”
Unfortunately, using executive presence as a descriptor is often the “childproof cap” that keeps women, people of color, introverts, those with disabilities, and anyone who does not have the swagger of a 1990s CEO out of the boardroom. Without representative individuals in the boardroom, you are putting your organization at risk for homogenous thinking and a lack of innovation, among other things.
3. C-Suite v. Non C-Suite Experience
Consider the following, excerpted from the Society of Human Resource Management:
1 in 4 key executive roles was held by women in 2019, but the CEO job is still dominated by men, according to management consulting firm Korn Ferry. Still, women hold a majority of only one of those spots, CHRO, and only 6 percent of CEO spots.
Black and Indigenous people and other people of color (BIPOC) make up 17 percent of the C-suite, according to Gartner, a technology research and consulting company.
Less than 1 percent of Fortune 500 CEOs publicly identify as LGBTQ.
Often, my clients ask if they should require directors to be current or recent C-suite leaders. With the stats above, it is unlikely that a “C-suite only” focus will be the best director recruiting strategy.
A better focus: refer back to some of the questions above about generational representation and tenure, as well as the needs of the board, and use those insights to guide the rest of the conversation. For example, C-suite leaders do not always have the day-to-day insights to issue spot and ask critical questions about risks or implementations. In addition, especially in fields like technology or security, their leadership role may have removed them from the constant learning needed to stay current on the trends that change daily.
4. The “First Time” Board Member
Some companies are reticent to hire a “first time” director. However, one of the most consistent things that I have observed is that many first time board members come with a dynamic leadership view, current experience with other boards through their executive functions, and expertise in one or more industries. Since they haven’t been “trained” by other companies, they also are able to provide valuable insight into the quality and effectiveness of your company’s board onboarding and development programs, and the way information is presented. As an added plus, their “non-insider” questions (many of which seasoned board members are afraid to ask) often help the entire board develop a stronger understanding of the business. The challenge for the existing board is to ensure that the first time board member understands the differences between management and board roles and are able to make the transition from (a) a position of authority to (b) a position requiring nuanced leadership with influence that does not have day-to-day responsibility for outcomes.
Final thoughts: Think like a professional sports team (sometimes)
A lot of professional sports teams have been plagued by a lack of diversity among the coaching and leadership staff. Their response has been lopsided at best, but there are a few things that have been implemented successfully that could be used in a board setting.
For example:
the National Football League has been hiring more coaches in younger generations, partnering them with more seasoned leaders, to ensure teams benefit from the technical acumen, connection, and inclusion that having a strong mix of coaches brings.
You may be able to use this philosophy to build strength into your board with a cross section of generations and organizational levels.
And:
The Major League Soccer (MLS) Advance Program includes the following three part approach:
Access: Created a global database of qualified underrepresented candidates by working with expert consultants both domestically and internationally.
Network: Provides underrepresented job candidates and MLS decision makers with the opportunity to network and build relationships.
Development: year-round, in-person and virtual professional development programming.
Since its launch in 2022, 42% of candidates participating in this program have received job offers in sports positions.
Can you make some of these smart moves at your company?