Trends in Board Refresh - NACD BoardVision
Robert Hallagan, vice chairman and managing director of Korn Ferry’s Board Leadership Services, and Steven R. Walker, general counsel, secretary, and director of Board Advisory Services at NACD, look at board refresh trends and how directors can look at refreshment as a means to strategically fine-tune the board and ensure the long-term success of the organization.
Henry Stoever: Welcome to NACD Board Vision. I'm Henry Stoever and I'm the Chief Marketing Officer for NACD. On this episode of NACD Board Vision we're going to be talking about board composition, but more specifically about board refresh. I'm joined by Bob Hallagan from Korn Ferry. Welcome Bob.
Robert Hallagan: Thank you.
Henry Stoever: And Steve Walker from NACD. Given the statistic that only 37% of boards added and/or replaced a director in the last year, what are you seeing with your clients in the marketplace? And what does this tell us about trends looking forward and looking back?
Robert Hallagan: The way you portrayed that it sounds negative. But an awful lot of good things has happened over the last 15 years. In many cases, we've had the advantage of not only board refresh, but to push a reset button. In the cases of building boards for Delphi coming out of bankruptcy or Lehman Brothers coming out of bankruptcy, what we have found is that everyone is starting to think the way we hope they're thinking. That boards should be a strategic asset and a source of long-term competitive advantage. When we built those boards, you know, frankly, our clients are the shareholders, directly. Now, I'm looking at them eyeball to eyeball. And we spend an awful lot of time thinking about the challenges over the next five to ten years. We really drill down on what the company has to extraordinarily well. And then we go around the table. The board is a team. But what collection of skills and competencies are going to add the highest value?
Henry Stoever: What are you seeing in the marketplace with your clients, Steve, as far as how to overcome that emotional challenge or the negative perceptions that an evaluation can be an indication that I might be replaced on the board?
Steven Walker: We have a very unique advantage, having conducted over a hundred engagements a year with every type of board you can imagine. So, it gives us a very unique lens into the boardroom. And the old adage is board members on the whole would find it far easier to fire a CEO than to ask another board member to leave the board. They'll all admit that. And so with that premise, it's very difficult for them to think about how do we go about refreshing the board? Now, as you'd mentioned, our new strategy Blue Ribbon Commission report on strategy is really, the focal point is that in this highly competitive world we live in, with competitive disruption, with innovative disruption, boards, like companies, have to be extremely nimble and be thinking outside of the myopic view of the next quarter and be thinking three to five years out. What could possibly come in and disrupt this company?
Henry Stoever: So, building on that, Bob, about strategy and talent and looking to the future, but what are some of the things that boards can do to make sure that the people around the board room, around the board table, are linked to that strategy?
Robert Hallagan: Obviously, I talked about the, you know, the building boards from scratch. But that's a luxury, you know, that you have. What we're doing with our clients is having them build a long-term succession plan for the board. I mean, we're asking that of our leadership team. So we're building a long-term succession plan that gets the same conversation around the table. We still do the analysis, you know, of what the drivers are. So that's on the left-hand columns. Then in the middle column, you know, we say all right, knowing that these are the drivers and this is the board agenda over the next five years, what types of skills should be required? The next column is analyzing our current board members and then saying, all right, when there are openings, you know, these are the priorities. That discussion is helpful. We're not, you know, we're not saying anyone has to leave. But you have to earn the right.
Henry Stoever: How many companies do you actually see using the skill sets matrix, Steve? Or is it kind of talk?
Steven Walker: Well, I think in reality, Henry, we have to think about who our audience is at NACD. You know, we're fortunate to have over 16,000 members from every walk of life in the corporate world as members of our association. So I tend to think we're preaching to the choir oftentimes. And of the tens of thousands of directors, public company directors out there in the world today, you know, we're seeing a subset of that who actually care about governance and want to come and learn about governance. So, I find from the group that we're talking to, and certainly our clients, they are all employing the skill sets matrix in strategic analysis. I think the key here is if we don't use evaluations as a punitive measure, but use them as an opportunity for boards to improve, to look at their individual and collective performance and use an evaluation to up their game and to fine tune the board versus the re-nomination process, which is where I believe, Bob, the reason we use the skill set analysis, is because if you use the skill set as a team exercise, and everyone is participating and cooperating and engaged in developing a skill set saying: Who are our players today? Who do our players need to be to achieve the strategic goals of the future, say 2020? How are we working towards that? And it comes as no surprise to a director when they're being phased out or perhaps their skill sets don't match what's been identified. Therefore, I think it's an easier pill to swallow, if you will, when the time comes to refresh the board and they realize themselves, having participated, that, you know, perhaps it's time to move on.
Robert Hallagan: Yeah.
Henry Stoever: Bob, is there anything else you'd like to share with us on this episode of NACD Board Vision?
Robert Hallagan: We're looking for board members that, one, have their egos in check. But, so when leadership team comes to the board meeting, they know they have to have their A game. The board should also be energizing the team, and not sapping the energy out of it. So, we have a lot of work to be done in this regard. But I am very encouraged from where we are and NACD's contribution to that. Because people are taking this, you know, very seriously. And it's all good.
Henry Stoever: Thank you for your time, Bob. Steve, thank you as well.
Robert Hallagan: My pleasure.
Steven Walker: Thanks.
Henry Stoever: On behalf of Korn Ferry and NACD, this is NACD Board Vision.
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