Who's on Your Board?

Due to Sarbanes-Oxley and the SEC, ‘Tone at the Top’ has become a common place discussion in today’s corporate board rooms. We have succeeded in regulating a practice that has long been recognized as common sense: authenticity in leadership. From the regulator’s perspective, ‘Tone at the Top’ addresses the ethics of leadership: the financial control environment, transparency and integrity.

But, authenticity in leadership doesn’t stop at ethics and compliance…authenticity in leadership applies to all of the values of the organization, including innovation.

I once went on a job interview at a consumer products company and was asked what type of watch I was wearing. The interviewer explained that my potential employer valued innovation and wanted to make sure that all of its employees were ‘cutting edge’ (even the finance department ☺); they believed that your watch was indicative of your values and personality. Fortunately for me, Swatch watches were in vogue at the time, and I was sporting a particularly vibrant bright white and neon orange watch. I didn’t get the job, but, it was an important lesson in how values permeate through an organization.

If innovation is a key value of your organization, don’t forget to include it in your ‘Tone at the Top’ and don’t under-estimate the role that the Board of Directors can play in embodying the values of your organization to your customers, employees and investors. Embracing innovation at the top is more than just window-dressing (e.g. wearing the right watch). An authentic culture of innovation should address the whole spectrum of governance, from board composition to meeting agendas and venues to engaging the board in the organization’s activities outside of the board room.

Let’s start with who’s on your board.

Not Your Father’s Boardroom

Who’s on your board? Does your board represent a diversity of backgrounds, experiences and skill sets? Do the individual board members embrace and reflect the values of your organization? Are they equipped to add value? Have they faced similar strategic challenges? Do they have relevant functional experience? How does your board identify prospective new members? Can your board understand and relate to your customer base? Is your board truly ‘independent’ of the organization and the CEO? Has your board separated the Board Chair role from the CEO role? What is the structure and role of your Committees?

My last blog post highlighted that corporate boards remain largely homogenous and are dramatically aging (‘Innovation in the Board Room – The Time is Now’). But, the homogeneity in the board room goes beyond demographics. ‘Old School’ recruiting for a board member is generally biased towards current CEO’s who bring marquis status to the boards they joined and organizations they served. In an August 2011 article titled ‘Do CEO’s Make the Best Board Members?’ , Stanford University’s Rock Center and Heidrick and Struggles analyzed the responses of 163 directors of public and private companies on the effectiveness of board members based on their job experience (i.e. CEO’s vs. non-CEO’s). Highlights from the article:

• “Seventy-nine percent of directors said that, in practice, active CEOs are no better than non-CEO board members. Companies need to differentiate between a CEO who brings cache to the board and one who will actively contribute real work as a director.”
• “More than half of directors think that board turnover is too low”
• “Forty-six percent of companies do not engage in succession planning for their board of directors”
• “Nearly 20% of lead directors are chosen by the CEO or chairman”

Yikes! Our corporate boards are demographically homogenous, aging AND made up of CEO’s who think they are appointed for life and might be independent as defined by the letter of the law, but, not the spirit of the law. Does this sound like a group that exemplifies innovation?

Building a ‘New School’ board requires focus on acquiring talent that can satisfy governance criteria (e.g. independence, financial expertise, compensation expertise) but also includes individuals who can add value to addressing the organization’s strategic challenges. An organization that values innovation as a key driver of success should have a board that reflects and fosters innovation. Innovation is aided by diversity in thought, experience and demographics. Accordingly, the board should reflect just that.

When considering succession planning for the board of directors (unlike the 46% of directors surveyed who don’t engage in succession planning!), approach it as you would any other talent search. Think about the skills and experiences that will help your organization achieve its vision. This might include seasoned CEO’s who have a wealth of leadership experience, but, depending on your strategic plan, it might also include technology, marketing, human resources, financial executives or subject matter experts from education or civic arenas. It might include younger executives who reflect your customer base as well as bring strategic expertise in their functional area to the table. Consider the impact of your board on your ‘Tone at the Top’. Overtly, build your board to reflect and role model your corporate values. Consider non-traditional candidates who can think strategically and passionately about your business…candidates can be educated on compliance and regulatory matters.

Board Room Innovation: It Starts with You

Be the change agent. Get involved in boards. Become familiar with and comfortable in a board setting. I dislike hearing from board members who are conducting a search that there are no qualified women/ minorities/younger executives with the appropriate financial/technology/compensation/marketing experience or board room exposure. I’ve had board members tell me that they would love to add a woman to their board who is a qualified financial expert; they then continue to tell me that their search committee (and/or recruiter) cannot find a woman to fill that role. Funny, I need two hands to count the number of women who are CFO’s of publicly-traded companies and that’s just in Minneapolis.

If you are interested in serving on a board, remember, it is service work. Board service can be demanding, especially in a time of crisis. Be realistic, it is highly unlikely that your first board experience will be with Exxon-Mobil. Consider joining the board of a non-profit organization that matches your passions and can benefit from your talent. Network. Get involved on projects that will give you exposure to boards of directors. Make it known and make it happen.

image credit: mustangdaily.net

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Kaye O’Leary is a founding partner of Tevera Consulting. Tevera Consulting is dedicated to helping companies strengthen the link between strategy and governance and drive the execution of strategy and value-added governance. With Tevera Consulting, Kaye has served as the interim CFO of Shock Doctor Inc. and Caribou Coffee (NASDAQ: CBOU), and has advised a number of public and private companies on a variety of board governance and strategic growth projects.