Challenging The Status Quo To Optimize Performance

The “good ol’ boys’ club” that used to be the fabric of America’s corporate boardrooms has been under siege for some time now, as shareholders and the general public push for more diversity. But even after decades of conversations focusing on the importance of a wide mix of age, gender and ethnicity, progress has been sluggish at best.

A snapshot of current public company boards in the United States reveals an average age of 61, with the lowest bracket occurring in mid-market tech companies where the average is 56 years of age. A five-year differential is hardly what most would consider to be “diversified,” particularly in an industry that is moving so rapidly.

Similarly, when looking at gender distribution, the 2017 male/female ratio of public company boards across all industries was 85% males compared to 15% females—a gap that finds its narrowest point in the retail/trade industry with a split of 79% to 21%.

The pace of progress in these areas is undoubtedly part of the rationale behind institutional investors such as BlackRock officially mandating boards to include a diverse mix of genders, ethnicities, career experiences and ways of thinking as a way to avoid succumbing to groupthink or missing new threats to a company’s business model. After all, whether or not a company will survive the speed at which new technologies are emerging comes down to the experience, knowledge and expertise of those who sit at the table.

“Ensuring the board has the right skill sets, committee structures and mix of experience to adapt to the changing environment is what most shareholders want to see.”

Yet, boards’ argument against the implementation of mandatory age or term limits, gender ratios or any other rule that would dictate a board’s composition has always been to insist that turnover for the sake of turnover is counterproductive, especially if it means letting go of high-performing, heavily invested members. After all, refreshment is no longer positive if it’s done at the expense of knowledge and experience. The focus of board composition, many have disputed, should remain on finding the best person for the job.

If that’s the case—and it appears to be so, as a recent survey conducted by Corporate Board Member and Spencer Stuart found that the concept of age in board composition is gradually becoming moot—directors need to be held accountable for the underperformance of members who don’t or no longer perform as expected.

Several of our past studies have addressed the importance of refreshing a board to sustain performance, and, contrary to popular belief, this doesn’t necessarily mean letting directors go. Ensuring the board has the right skill sets, committee structures and mix of experience to adapt to the changing environment is what most shareholders want to see.

Julie Hembrock Daum, leader of the North American Board Practice at Spencer Stuart, says investors view peer and self-assessments as best practice for providing feedback to directors on their performance, identifying gaps in boardroom skills and perspectives, and facilitating boardroom succession. And while the collegiate climate of most boards may pose a challenge to this rigorous and objective process, a little discomfort in shifting roles and responsibilities may just be what the doctor ordered to gain new perspectives.

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