The piece below first appeared in the Q2 issue of Corporate Board Member, before the pandemic struck. In the aftermath of this crisis, the argument for generalists appears even more compelling as boards lean heavily on their seasoned directors, who may lack micro expertise in, say, cybersecurity, but possess the confidence, savvy and well-honed governance skills to help usher a company through a global catastrophe.
To be sure, heavy logistics expertise on the board could be a great asset to a company experiencing supply-chain meltdown. And as cybersecurity concerns have heightened with expanded remote network access to accommodate at-home work, cyber-specialist skills could come in quite handy.
But, arguably, not at the expense of veteran wisdom. As Shellye Archambeau, who sits on Verizon, Nordstrom and Roper Technologies boards, told us in a more recent followup: “Board directors with broad experience managing organizations through multiple crises have perspectives and experiences that can be very helpful to companies on which they serve. When an unplanned for risk emerges, it typically triggers other risks. Working through the first, second and third order implications of the Covid-19 crisis is aided by this experience.”
Further, in a crisis, it is all the more crucial for directors to remember their roles—yet it may be too tempting (as noted in the piece below) for specialists to confuse the line between management and oversight, getting deep into the weeds, when what is needed, says RHR’s Paul Winum, is “to bring calm and clear leadership in support of a management team to think through key strategic choices about how to to set priorities, allocate resources and make difficult decisions. Narrow, technical specialists usually cannot bring that breadth as well as highly seasoned generalists.”
We invite you to read the following and—if you somehow find yourself with a spare moment in the trenches—please send your comments to Digital Editor C.J. Prince.
In Generalists We Trust
Once upon a time, corporate boards were filled with generalists. Typically sitting or retired CEOs, these chieftains had run multi-million-dollar businesses, held plenty of P&L responsibility, managed teams of thousands and knew their way around a balance sheet. They weren’t experts, per se, in any one specific area, but as generalists, they knew how to ask the right questions, evaluate answers critically and challenge management for more.
Then, the world got complicated. Globalization, technology, data ubiquity, social media and more came together to make generalist skills seem inadequate to keep up with the whiplash-inducing pace of change—nobody but the deepest experts who lived and breathed that topic could be expected to be current. As board responsibilities grew, directors attempting to manage a host of new risks—skills shortage, ESG, data privacy, disruption—began hearing from governance gurus that they had to have more expertise in residence. Without a cybersecurity expert on the board, how would they be able to determine whether management was adequately handling the company’s risk of being hacked? With no technologists or marketing savants in the room, how could the board be sure the company’s leaders were keeping their fingers on the erratic pulse of consumer demand and safeguarding against disruption?
So, boards began hunting for techies who could make them smarter. “There was a big rush to get anybody who had experience in Silicon Valley,” says Gaurdie Banister, retired CEO of Aera Energy and lead director of Russell Reynolds, with previous directorships at Bristow Group and Marathon Oil. “That was actually a bad idea.” Boards, he says, began snapping up those newly minted tech veterans without asking the critical questions: “What are they doing in Silicon Valley? Are they an entrepreneur? Or a disruptor? And then, by the way, can they hold their own in other spaces?”
As it turns out, the answers are often no. Specialists brought on to the board for one specific purpose typically can’t contribute much on the other areas of risk that the board is tasked with overseeing, and their presence can also inhibit dialogue on critical topics, says Paul Winum, co-head of board & CEO services for RHR International. “When something comes up in the boardroom that relates to that particular topic area, everyone kind of defers to the resident expert on the board, as opposed to a whole group process of everyone being engaged on topics that are important to the governance of the organization.”
And in some cases, the specialist brought in may have understood the tech world, but they didn’t actually understand the business—a big problem, to put it mildly. “You can’t be credible in governance if you really don’t understand the scale or the complexity or the multidimensionality of the business,” says Tierney Remick, vice chairman and co-leader of board & CEO services for Korn Ferry.
Now the pendulum is swinging back. Although warnings still abound as far as the kind of expertise boards “must” have in residence, many are balking—searching instead for directors who can bring some expertise in, but with a lot more to add. “Board seats are precious,” says Shellye Archambeau, who sits on Verizon, Nordstrom and Roper Technologies boards. “There are not that many for all that you’re trying to accomplish. People say, ‘Oh, you need a cybersecurity person on the board.’ Well, I think you need somebody on the board who has cybersecurity expertise, but if that’s the only expertise they’re bringing, then it’s going to be hard within a space of eight to 12 board members to meet all the skills you’re going to need.”
Boards also realize that specialists have a harder time grasping governance. “When you bring in somebody that has deep, deep, deep expertise, it’s hard to differentiate between the board and management,” says Susan Skerritt, director with Tanger Outlet Stores and Royal Bank of Canada. She notes that there are cases where boards might be tempted to hire a specialist, but “we’re moving away from that focus” because, while those with deep expertise have valuable insights, their myopic view is just too dangerous. “Bringing on somebody with a singular focus just seems like, to me, a recipe for disaster.”
That’s particularly true when it comes to digital transformation, which requires a whole lot more than tech expertise, says Anthony Goodman, senior member of Russell Reynolds Associates’ board & CEO advisory partners division. “You’ve got to be thinking about talent and the development of the people you have and recruitment of the people you need. There’s a huge human capital piece to it. So, it’s really being able to take a much more holistic view of digital transformation than purely a technological one.”
Instead, boards are looking for those people who are conversant in the challenges around, say, cybersecurity, and who can ask the right questions, says Banister. “It’s less about, ‘Are you an expert?’, and more, ‘Can you talk about cyber intelligently? Do you have experiences that relate to this? Were you in a company that got hacked, and what did they do right?’”
But as boards move away from specialists, some are getting pushback from CEOs who want that expertise on the board. Winum is currently working with one such board to align on strategy for the next few board hires. “The CEO thinks his board is very light in direct domain experience in some areas in which the company is doing business, so I think he is wishing he had more people who were up to speed” on topics such as digital transformation, says Winum. “But those fighting that inclination are saying, ‘You need to hire more of that in house. Don’t use board seats to replace the capability you should have on your management team.’”
Not surprisingly, he adds, those aligned with the CEO’s view are “the younger, newer board members who also have some specific domain expertise.”
Boards also feel exposed in risk areas that, for some directors, are more than a bit foreign. “Most directors are older, retired, because that’s when you have time to sit on a board,” says Kaj Ahlmann, director for specialty insurer RLI, “and cyber is a tough one—the whole digital world, really—because it changes every day.”
Given that there are not enough seats for pure specialists or pure generalists, but boards still need a host of specific skills in residence—as well as diversity—the nom/gov role has clearly gotten more challenging. But finding that overlapping of skills and governance gravitas is not impossible. When recruiting new directors, keep the following in mind:
Look for generalists—with a twist. Boards need to find those directors “who have both the general acumen that you need to be a good director and some specific domain expertise that maps to the company’s business and strategy,” says Winum. It’s not an easy task, he adds, “but those are the two needles that need to be threaded.”
Archambeau offers an example from Verizon’s board, which, in 2018, needed to check a host of boxes with its next director hire, including strong finance knowledge, global experience and cybersecurity expertise. They found all of those in Dan Schulman, who was both CEO of global payments company PayPal and chairman of cybersecurity software outfit Symantec. “Is he a CISO? No. But he brings that knowledge to the board,” she says.
Similarly, Nordstrom, seeking to outlive Amazon disruption, has been embarking on digital transformation for several years, a strategy reflected in the talent they’ve brought on the board, including Microsoft’s former COO Kevin Turner, Brad Smith, former CEO of Intuit, TaskRabbit CEO Stacy Brown-Philpot and Archambeau, former CEO of Silicon Valley-based MetricStream. “If you look at other boards [in retail], I don’t think you’ll find many retailers that have had that many people in tech that early.”
Be super strategic (and merciless). Since it is no longer sufficient to look for a sitting or former CEO with directorship experience, boards have to be highly strategic in their searches, making sure that all those serving are meeting the requirements both for today and for the future—and identifying the skills that may have passed their sell-by date, says Archambeau. “That requires sometimes tough conversations—but that’s what leadership requires.”
Goodman recommends, in some cases, establishing term expectations up front with a board member who is bringing some specific expertise that the board needs now but may not need several years on. “Because these skills actually can go out of date more quickly than you would think,” he says. On the plus side, because so many more companies today have embarked on digital transformation, the pool of potential directors with that experience has widened—even if that only means an edge of a year or two, he says, adding: “In the land of the blind, the one-eyed man is king.”
If the CEO insists that the board must have a specific skillset or domain expertise, he or she needs to make a strong case to the board, says Banister. “And then I would push that back to the CEO and say, ‘Okay, what kind of skills do you need on this? Let’s set up board succession to ensure that we deliver those skills.’”
Prioritize director education. In addition to hiring consultants to brief the board on industry trends and new developments, the board’s corporate secretary, working with the nominating committee, should identify topics for director education, arrange for specialists to speak at board meetings and distribute articles on topics directors need to be up to speed on, says Winum. “In addition, every director has a responsibility on their own to make sure they are continuing to identify areas they need to learn more about and going to conferences.”
That’s why Skerritt puts intellectual curiosity high on the list of qualities she looks for in a new director. “Because I believe that as intelligent, thoughtful contributors in the boardroom, you need to be asking questions. You need to be interested. You need to be reading. You need to be constantly learning,” she says. “That intellectual curiosity, that engagement, that willingness to say, ‘I don’t know everything’ is a really, really important attribute.”
Consider unusual suspects. Boards are increasingly looking at candidates one level down from the top, business unit heads who have led through transformation or have had to answer to the board on related issues. “If you want demographic diversity, you’ve got to look beyond CEOs and CFOs,” says Goodman, but typically that still means somebody with P&L ownership. “They’re running their own businesses, and maybe they report to the CEO.” According to the 2019 U.S. Spencer Stuart Board Index, 65 percent of S&P 500 directors in 2019 came from outside the C-Suite ranks, and 27 percent are first-time directors.
Archambeau also points to government and the military. “They bring specialties that can absolutely add value on the commercial side, especially if you’re talking about technology and cyber,” she says. “And everybody on the board does not have to be a CEO.”
She adds that boards have to reach outside their comfort zone to find diverse candidates, not for diversity’s sake, but “to make sure you’re looking at things from different angles,” she says. “If everybody is looking from the same vantage point, the odds are higher that you’ll miss something.”
But there is no one-size-fits-all approach to finding the right mix—each board has to base that not on the latest trend, but on the company’s strategic and operational goals, says Remick. “Having individuals who are current in the market as well as those who may be recently retired or bring that gravitas of experience in governance— that balance is really important.”