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Reader Profile

Sharon Allen
Chairman of the Board
Deloitte & Touche USA LLP

Editor's note: Each month, we ask a Directors & Boards reader to comment on critical issues facing directors today. If you'd like to participate in this section in the future, please email Scott Chase.

What are the most important tasks that a board should accomplish in connection with leadership succession planning?

The board should provide oversight to management’s identification and development of candidates. Often, this is done in conjunction with a succession-related committee. In addition to providing support in these areas, the board should encourage the development of diversified talent, and ensure that there are a sufficient number of qualified candidates who are reviewed and exposed to leadership.

While the board and the succession committee’s responsibility is to ensure that viable candidates are placed into leadership roles, they should not explicitly endorse specific candidates. Development plans for identified successor candidates are usually prepared by existing executive leadership, but the plans may be reviewed by the succession committee and examined for conflicts, gaps and other potential areas for improvement.

Let’s discuss the composition of boards themselves. When looking to fill board seats, risk-averse nominating committees often look at a "short list" of candidates often composed of sitting C-level executives and people who have served on other boards. Do you think nominating committees should be looking at a broader talent pool?

Nominating committees must absolutely be looking at a broader talent pool. Increasingly, board composition has become a criteria by which companies are evaluated and rated. To broaden their searches, committees will have to dig deeper than the office of the CEO to unearth new talent. Additionally, fewer CEOs are willing to take on the added time demanded by today’s boards, or are willing to take on the added financial risks of service. This scenario may actually be a good thing, however, since it creates additional opportunities for diversity.

Let’s look at the landscape. Only 2 percent of CEOs in Fortune 500 companies are women. Minorities are similarly represented in the C-suite. Neither of these situations leaves much opportunity for boards to open themselves up to nearly enough diverse candidates. The Alliance for Board Diversity, a collaboration of Catalyst, The Executive Leadership Council, and the Hispanic Association on Corporate Responsibility, has been benchmarking data to assess the current status of board diversity. The organization remains concerned about the lack of representation of minority women, as well as Asian-Americans and Hispanics on boards and is working hard to prompt dialogue on this important topic.

I’m often asked by those being recruited to the boardroom – and the search is on big time, by the way, especially for retired partners of large accounting firms – what factors should inform their decision. Perhaps the first on my list is whether or not a differing view is accepted or even encouraged. If yes, that’s a good start. If no, that’s a good place to stop. Strategies, tactics, and policies need to withstand the bright light of diverse views and opinions. I think it is imperative that board committees cast a wider net to be sure that they have an appropriate balance of viewpoints considered in any decision making process.

As shareholders and regulators raise the bar for board diligence and independence, how are women directors helping companies meet these higher standards? Do you think there are particular ways in which women contribute to good governance?

I do believe that women, and ethnic minorities, bring a diversity of thought and experience to the boardroom. Diverse perspectives help a company address more issues with greater breadth than it could with like-minded and similar thinking participants.

Culturally homogenous boards do not have the same appeal to investors, employees, customers and other stakeholders as do dynamic, vibrant, diverse boards in this new climate. Qualified female candidates on a board convey a progressive company and demonstrate that the organization considers diversity important. We can say the same thing about the participation of ethnic minorities.

Some studies show that companies with the highest percentage of women in senior management perform better than ones with the lowest. For example, Catalyst, the organization promoting women in management, found that the return to shareholders was 34 percent higher where women participated in senior management.

Despite this and other studies, I appreciate how it might be hard to show a causal link between women’s presence on a board and organizational success. For example, do the most successful companies have women on their boards, or does putting qualified women on the board make them more successful? That’s hard to tell.

At Deloitte & Touche USA, we have nearly 25 percent women sitting on our board at this time.

Is there a link between board diversity and a company’s risk management strategy?

Diverse perspectives ensure sufficient experiential diversity to weather the variety of risks that might be presented to an organization. A diverse board supports risk management. Succession planning, tied to improvements in the diversity and composition of company boards, is becoming increasingly important to meeting expectations about corporate governance and company performance.

Experiential diversity on a board creates a critical ability to address a wide variety of risks, such as strategic, operational and financial risk. That is why a strong board should have a range of expertise, ranging from IT, to financial to HR backgrounds.

What are your recommendations for mining new talent for board positions?

A first step could be to develop new board profiles for directors that outline skills, experience, learning styles and personality types so that the criteria for membership are more transparent and deeper in the experience that is being sought. Where there are gaps on the board, identify them and develop new selection criteria to help fill those gaps. Once these criteria are set into place, you are then able to reach more deeply into other organizations to find new talent that you may previously have overlooked. I also think nominating committees need to be more creative about where they go and how they search for new board members.

What should be a board's role in talent management?

Generally, boards are becoming more involved in talent development and C-level succession planning. This is true for a variety of reasons. Boards assure that a wider range of talent is considered for the leadership positions available, and are able to widely assess needs across an organization. Boards are developing stronger ties with HR and, in fact, adding strategic human resources talent to their mix.

Changing demographics, particularly with the differences that occur with Generation Y talent moving into the workforce with different demands and expectations, also is an important consideration in talent management and succession planning.

I would like to point to one management phenomenon sometimes referred to as the “grandfather” principle. Some C-level leaders may feel threatened developing the tier immediately below them, but they may feel comfortable developing talent two or three steps below – they don’t see them as quite the threat. Boards may be able to assist them in the development process by getting involved in mentoring and coaching planning – across lines of business, or by stepping in to point out opportunities where this type of effort may be appropriate and desirable. Succession planning is one of the most important topics addressed by me and the Board, and talent management is becoming part of that function.

Where will the next generation of directors come from?

The next generation of directors will come from an increasingly wide range of sources: from human resources and “chief people officers,” from the accounting professions, and from the pool of chief financial and technology officers. Directors may be selected from non-profit organizations and smaller businesses with unique specializations and not just large global companies. In other words, most boards will become increasingly vigilant as they seek to add fresh thinking to the group of directors sitting at the table.

I look forward to the boards of the future where a diversity of talent, thoughts and experience are the rule rather than the exception.

Sharon L. Allen is the Chairman of the Board of Deloitte & Touche USA LLP, an $8.8 billion organization, and chairman of the Risk Management Committee of the Board for Deloitte Touche Tohmatsu, a nearly $20 billion dollar global organization. Prior to being elected Chairman, she was Managing Partner of the firm’s Pacific Southwest practice, and she continues to serve some of the US Firms’ largest clients including The Boeing Company, Harrah’s Entertainment, Health Net, Inc., Lucent Technologies and Washington Mutual. Extending her influence, Allen received a presidential appointment to the President’s Export Council, where she serves on the services subcommittee. She also serves as Chairman of the Deloitte Foundation, a not for profit organization funded by Deloitte & Touche USA. She holds an honorary doctorate in Administrative Science from the University of Idaho.