Failure, it’s often said, can be a great motivator. Such was the case for TK Kerstetter, who emerged from a bumpy tenure in board service early in his career determined to help other directors improve their game. The experience inspired him to write a book on governance in the banking industry—more on that later—which, in turn, led to cofounding this magazine in 1998 and, ultimately, pioneering the field of board education.
Over the past three decades, Kerstetter has tirelessly advocated for—and been a champion of—best practices in governance. Along the way, he’s been instrumental the creation of myriad programs for the director community, from Corporate Board Member’s Boardroom Summit and Peer Exchange to the NYSE’s Moving the Needle forum and Diligent’s Next Gen Board Leaders event series. He also launched and hosted a weekly web series, “This Week in the Boardroom,” subsequently acquired by Diligent and renamed “Inside America’s Boardroom.”
CBM recently spoke with Kerstetter, who retired in 2023 but has agreed to serve as co-chair of the 20th anniversary Boardroom Summit in New York, about board education and the challenges facing the director community. Excerpts of that conversation, edited for clarity and length, follow.
Your passion for effective governance began with your first director role. What did that experience teach you about governance?
I was president of a fairly good-sized publicly held community bank that was challenged by activist shareholders when it went public. That was quite an education. I was surprised at how little my community bank directors knew about their fiduciary duties or the FDIC regulations. It put a lot of pressure on me to work with the management team and lawyers to deal with that situation, which the bank eventually lost.
That led me out of banking, and I ended up writing Ten Commandments for Bank Directors: the “Official” Guide Regulators Won’t Publish. I got so much interest afterward that I started the first official director training center. At the time, banking industry directors were getting sued by the FDIC after the savings and loan crisis. My business caught the attention of an entrepreneur in Nashville who was publishing Bank Director Magazine. He invited me to move to Nashville, fold my training and conference business into the magazine and run his magazine.
We had great success in launching new programs around banking that had great attendance at a time of merger activity in banking. So we said to ourselves, “If we can do it in the banking industry, which is sinking, why can’t we do it for all industries?” That gave birth to Corporate Board Member.
Tell us a little about the magazine’s expansion over the years. What do you view as the most significant milestones?
When we got started, other industries that had not gone through the challenges banking had saw very little value in a soft topic like governance. If I spoke at a conference in the late ’90s, I was put last on the agenda so people who left early wouldn’t miss much.
That changed in the early 2000s when the fraud and audit debacles of Enron and WorldCom put Corporate Board Member on the map. Those headlines weren’t just in business sections of the papers; they were on the front pages. That got the attention of Congress and led to the Sarbanes-Oxley Act of 2002. Those events put Corporate Board Member and its events at the top of everyone’s watch list.
All of a sudden, budgets were used to help directors and management. I moved from being the last speaker at conferences to being the first. Directors really got the message that they have fiduciary responsibility to the shareholders and investors they were put there to represent and would be held accountable.
Another milestone was the introduction of the Boardroom Summit. I knew that the most valuable thing a director could spend time on was communicating with peers in a confidential setting. I just needed to figure out a way to pull that off. I also realized the optimal number for a meaningful discussion was seven to nine directors in a room. Anything less wouldn’t surface enough ideas. Any more meant you had to wait too long to contribute.
That gave birth to the concept of the Board Committee Peer Exchange, which resonated for directors trying to figure things out about accountability and their duties. The Committee Peer Exchange just took off like a rocket. In year or two or three of the Summit—around 2004—we had over 300 chairs in 26 boardrooms at the Waldorf Astoria. It was an amazing representation of businesses across the spectrum. That was when we knew we had created something special—that, and that everyone started to copy it.
You’ve spent decades working with directors in various capacities—including governance-related roles at NYSE Governance Services and Diligent—on navigating the challenges of effective board service. How has the role of the director evolved?
I can’t tell you how much the engagement commitment has changed in 30 years. Everyone played a role in that. Congress, regulations and the Delaware Court of Chancery framed how directors should act; the big four accounting firms had multiple pressures on them during that time and sort of made sure audit committees were in line. Everyone contributed to the [change from] when a board used to be a good old boys’ group that wasn’t much focused on, didn’t get sued much, and that no one really cared [about].
One particularly interesting change has been the role of the committees and committee chairs. Board meetings are so full now that a lot of the work is done by the committees. The committee chairs have to do so much work between the meetings and be on top of the issues. So the process of recruiting and picking the right people to be the chairs is now one of the key success factors of a board.
Chairs used to be chosen based on who had the most seniority and time to do it. That is no longer the case. Just ask David Calhoun at Boeing, who was a chairman who ended up as CEO and then subsequently found himself in quite a pickle.
The other thing is that everyone is asking for so much transparency of the board. Investors, media—everybody wants to know what is happening, to have total transparency. In the beginning that was a good thing, but it has gotten to the point where people want you to share your strategic plan even though it doesn’t make sense to tell your competition exactly what you are going to be working on. The pendulum swung a bit too far. Initially, that bright light was good, but as people just kept asking for more, the proxy advisory firms and the activists just kept probing, I think the needle moved a little far. It’s coming back the other way now, which is good.
You were instrumental in working toward bringing diversity into boardrooms with initiatives like the Moving the Needle event you introduced while leading NYSE Governance Services, and the Next Gen Board Leaders initiative. What inspired those initiatives?
Moving the Needle was a response to people telling us that there were no qualified minority or women candidates to serve on boards. I knew there were great candidates out there. So the question was, “How can we use the NYSE platform to debunk that theory?” One of the benefits I’ve had in the jobs I have held is that my leaders were always willing to throw all the rope on the deck and say, “Do what you think is right, just don’t hang yourselves.”
We came up with the concept of bringing to the exchange a few hundred qualified women and minority candidates and inviting heads of the nominating committees to come and meet these people. We had tremendous response from candidates and only lukewarm from nominating committees. But we published a guidebook that listed 220 qualified women and minority candidates with their short résumés and sent it to every public company. For a while we also kept track of the people who attended who got board assignments. One of the best stories was that of Sharon Bowen, who today is independent chair of NYSE.
Moving the Needle was our shot across the bow saying, “We are not going to listen anymore to this myth that there just aren’t women and minority candidates.”
The concept for next-gen board leaders came about when I was interviewing Caroline Tsay, who sits on Coca-Cola’s board today but at the time was 36 years old and sitting on three boards. She shared with me that most of her peers were 20- 25 years older. That got me thinking that we needed to figure out how best to transition away from that gap so that boards can be as effective as possible.
I called Julie Daum at Spencer Stuart and said, “Hey, would you be willing to partner with an effort to not only educate boards but to bring directors in their 30s and 40s and train them to be more effective?” We launched Next Gen Board Leaders in 2017, which ended up being the most enjoyable and interesting project that I took on. I can only hope they learned as much from me as I learned from them about how to view the next few decades. Their thought process was so enlightening for me, particularly as the father of two daughters close to their ages.
Looking ahead, what do you see as the biggest challenge for corporate boards moving forward, and why?
For directors looking ahead, this period of time could be one of the most challenging of all because of the technology issues, things like AI and quantum computing and evolving cyber risks. We’ve always had challenges like that, but I’m not sure we have ever had challenges that were so different from what those directors faced in the past. Veteran directors haven’t had to deal with those issues, so they have no experiences to really rely on. In some ways, that makes them less valuable, because in the past, it was experiences you could share that added value.
Does that make them unqualified? No. Because they still have plenty of experiences to share on other topics. But it does mandate them to become educated enough to know what companies should be doing around those topics.
That is a big mountain to climb. So, subsequently, what should lie ahead is some really strong consideration about who is sitting in those seats in the boardroom.
As we know, while nominating committees and boards have been good about doing evaluations, they haven’t been good about taking action from those evaluations. But the importance of who’s sitting in those seats is going to be as critical as ever going forward.
I feel for board members who will be mandated to learn all they can about AI and quantum computing. We’ve already seen how tough it is to get your arms around cyber risk when you don’t know where it’s coming from or what it’s doing—and it’s only going to get harder with these [emerging] technologies.
What makes a great board?
Constantly adding to shareholder value over the long term is the mark of a great board. Overseeing an environment of accountability, trust and candor is certainly important, and engaging management constructively on any facet of the company. All of those things one would expect to be part of a definition of a great board.
But to me, a great board is one that never stops evaluating how it can improve on all the facets of its duties and responsibilities and then makes changes as necessary. Never be satisfied with where you are, because you don’t know what’s around the corner.
The best example of that was when the subprime [collapse] of 2008 and 2009 hit, when everybody was fat and happy and nobody was looking at the risk that almost put America on its ear. A great board is just never satisfied. It’s always looking at what lies ahead, assessing how it should be preparing and adapting and then pursuing those changes.
