There has been a dull roar over the past few months about the need to get new blood on Boards of Directors. This is an old issue that keeps bubbling to the surface. There are bigger issues to deal with so why don’t we solve this one and move on? Headlines over the past month: “The Push for new blood in the boardroom”; “Women on boards improve a bank’s performance”; “Female board directors found to keep M&A costs down”; “Percentage of visible minority directors on Canadian corporate boards dropping.” Boards of Directors continue to be full of the old establishment. Wise Boards go for diversity.
In May 2013, the Ontario government stated that it strongly supports broader gender diversity on the boards and in senior management of major businesses, not for profit firms and other organizations. It is interesting, if not discouraging, that in the year 2013 the government has to encourage gender representation. What’s next – a quota system? I don’t think a single element makes for improved governance performance. Women have, for eons, been value added contributors in all sectors – business, health, education, banking, on and on. Yet whenever one of them sneaks through to the top level of a corporation it is a banner headline. The new chair of the Royal Bank is the first female chair of the major banks. But why should an appointment of a female at this level have to be the exception? Another issue is Directors who are long in the tooth.
There are many Boards particularly in the corporate world where Directors have been on the Board for 12 plus years. I recently came across a situation where the term limit for a person serving as a Director is set at 30 years. So if you get elected to that Board at age 50, you will step off at age 80. Does this provide for the best talent at the governance level? Some argue that a Director assessment process will move people off the Board. Effective assessment processes for individual Directors remain a challenge. If Director assessments were really effective, then we would not be seeing the same Directors stuck in the chair for years and years while they are not contributing. They enjoy the fellowship and feel that they provide the corporate knowledge at the Board table – this is not what any organization needs from the governance level.
Studies suggest that around year 10, complacency, both by the Board and the Director settles in. This dampens strategy, creativity, innovation, and oversight at the Board table. There has been an over emphasis on skills-based boards. While talent is needed in order to have an effectively contributing Director, having someone with specific skills and expertise means the person may think and act within that particular paradigm. People with singly focused skills, whether they be legal, accounting, risk management, can be hired in as advisors. Directors need to be wary about using their expertise to second guess the staff specialists’ decisions. Boards need to address two issues: Succession planning for Directors; and creating a continuously talented Board. Effective succession planning requires a combination of tools to be in place and effective including appropriate term limits for each Director, term limits for Board Chairs, and effective performance evaluation systems for the Board as a whole AND for each Director. A talented Board is created through diversity. And I mean diversity in the broadest sense – gender, age, ethnicity, experience, geography, education, skills, broad knowledge, as well as individual qualities and attributes. A Board comprised of 12 accountants all with business degrees, all with an urban experience, regardless of ethnicity and gender, will still process information and think with similar views. Effective Boards need diversity of thought developed through the elements of diversity.
A challenge for Boards is the nominating process. Board members solicit new Directors from their existing networks. Unfortunately this often results in friends of existing Directors joining the Board – friends who think the same and have similar backgrounds. At one time organizations would advertise for new Directors but that has gone out of style and now you might get called up if you know the right people.
Boards are limiting their talent search by relying on the network of the same people. We need smart processes seeking the right talent for the governance level. If a Board is serious about doing what is best for the organization, which it is governing, then it will expand its horizon and embrace diversity. It will be a disappointment if quota systems become a requirement in this day and age in order to force Boards to bring the diverse talent to the table.
By: Fay Booker