There’s often no better source of information than a person who has stood in your shoes. So in that spirit, consummate boardroom insider Betsy Atkins returns with responses to several of our readers’ questions. This quarter, she tackles issues related to board composition and refreshment, how to handle disruption and innovation, dividing and conquering board committee work, and the importance of board diversity.
Our board is having a hard time with the whole concept of board refreshment. About half our board is made up of members who have been on the board for more than 10 years. Some of us think that collective experience is a valuable asset and are against instituting a board tenure policy. Others(the younger directors) believe boards today should definitely have a tenure policy that limits time served. What are your thoughts?
Board refreshment is an emotionally charged subject and one that is taking hold among boardrooms globally. A growing number of countries in Europe, for example, are embracing guidelines that recommend tenures between nine and 12 years as a best practice, and many European boards have defined term limits.
While there is value in the institutional memory around the board table, it is important to augment the board with new perspectives, especially since the rate of change corporations face in the competitive marketplace has increased geometrically. I think the best way to thread the needle is to put in a term limit but allow the governance committee to make an exception where needed, just as the governance committee has the same authority to grant an exception on retirement age policies and auto resignations triggered by a role change for board members. This way, your board has a mechanism for renewing itself but has some flexibility to keep its most exceptional members. This is also a proactive way to demonstrate to shareholders that your board is not sitting idly by without addressing the topic.–B
I sit on the board of a $500 million financial outsourcing firm. We often have discussions about the risk of disruptive innovations and what they will mean to the growth of our company. In your view, how often should we be talking about topics like this? Once a year? More often? How can we address disruption risk in an organized manner?
I believe it is time for boards to consider either adding a strategy/technology committee or augmenting the scope of one of the current standing committees to include a specific mandate to regularly review the company’s strategy through the lens of innovative business models like the “marketplace model” of eBay, VRBO, and Uber. The committee could review the use of software enablement, cyber, mobile, social, artificial intelligence, analytics, and other major themes and look at how the company is using technology to either take costs out or engage more deeply with its customers, since these technologies are definitely disrupting businesses.
Additionally, the committee could better understand the company’s future development road map for products and services, with an eye to the external competitive landscape. I would suggest that this strategy/tech oversight be performed regularly, i.e., as part of a quarterly committee review. –B
It’s important to our board that each member be grounded in as many critical governance areas as possible, so we’ve started asking directors to sit in and listen to various committee meetings,even though they are not active members of those committees. Some directors are beginning to grumble that this is asking too much of their time and believe additional compensation should be afforded. Have you had experience with this, and can you offer any recommendations?
I recommend you have an environment that is open and allows members to sit in on other committees–where there is interest and desire. I think you go too far in asking members to listen in on all of the committees. The reason I do not support this is that it undermines the
primary responsibility of the committee if noncommittee members are sitting in, because, inevitably, noncommittee members opine and participate.
Expecting board members to sit mutely on a committee and not engage is not realistic in my view. Additionally, the purpose of having committees is for the board to be efficient and to allow a subset of the board to be deeply engaged and “own” an important responsibility on behalf of the whole board and then report back. In this instance, I do think your colleagues are right to grumble, so you should rethink this expectation. –B
There is considerable discussion about diversity among directors. How does a board make sure that diverse members are not regarded as placeholders but seen as important contributors to the board, equal in value and importance to all other directors?
Strong boards are built upon a diversity of experience, viewpoints, and perspectives. Diversity comes in a range of backgrounds: minorities, gender diversity, and, critically, diversity of thought. Gender diversity is currently being mandated in the EU; for example, Harvard Business Review’s recent article cites mandatory quotas of 25% to 40% for female board member representation in Germany, France, Belgium, Iceland, and Italy, with a recommended female diversity target of 25% for the UK. America’s free market has not embraced government mandates, but we have seen an increase to 18.7% gender diversity in the S&P 500 (19.7% in the Fortune 500). Institutional shareholders are urging more diversity, thus boards must be able to communicate clearly how they are addressing diversity of thought and perspective and may want to consider proactively adding gender and minority diversity as part of their profile for board refreshment. However, it is essential to bring on qualified members to avoid the label of “placeholders.” –B
To submit a boardroom question for Betsy Atkins, email CBMEditorial@ChiefExecutive.net.