Directors & Boards was founded at a time when corporate governance was entering a period of significant transformation, publishing its first issue barely two years after the Model Business Corporations Act fundamentally redefined the role of the board. No longer was it true that “the business and affairs of a corporation shall be managed by a board of directors” but instead “under the direction of a board of directors” — a small change that would have a tremendous impact in the coming decades.
The wave of transformation that started 40 years ago is alive and well today. Board composition has changed dramatically over the years, as have the laws and practices that guide their work. Boards directly managing corporations? That commonly held view in the early 1970s would make a director in 2016 laugh.
Increased Focus on Long-Term
Succession Planning for the Board
In recent years, there’s a growing emphasis on the board focusing on the long term, both for the corporation and for the board itself. Not surprisingly, one recent Russell Reynolds Associates survey of directors showed that boards rated “most effective” were 38% more likely than “least effective” boards to use a planning horizon of five years or longer.
This long-term focus is leading many boards to shift away from piecemeal director searches and toward long-term board succession planning. This planning is similar to succession planning in the C-suite: Building an understanding of the current skills and experiences of the sitting directors, the culture and composition of the board as a whole, and the recruitment priorities moving forward. Once that understanding exists, boards and their advisors develop candidate pools along two or three dimensions of skills or experiences (e.g., regional expertise, digital experience) or against diversity measures, and start cultivating potential director candidates.
Growing Emphasis on Board Effectiveness
In addition to revitalizing how to identify and recruit directors, many boards are starting to undertake regular board effectiveness reviews as part of the board appraisal and refreshment process. In the U.K., where these reviews are already common, they typically occur once every three years.
Board effectiveness reviews can encompass many different aspects, but typically focus on ensuring the board is functioning properly, is fully independent, and that best practices are being followed; that there’s a good dynamic between the directors; and that the board is playing the proper role in corporate strategy and CEO succession efforts.
Board Recruitment in 2017
These trends provide clear opportunities for boards. Long-term succession planning can begin with an assessment of the skills and experiences of the current directors, and then move to broader discussions around desired composition, skill gaps, and other needs. It can provide an opportunity for boards to assess their diversity, too, and see if the board reflects the diversity of the overall corporation, or its customer base. Likewise, undertaking a board effectiveness review is a natural companion to discussions of the role of the board, and how well directors are meeting those goals. Both will help boards understand their true director recruitment needs.
The wave of change that started in the 1970s won’t stop any time soon, but 2017 will be the year that many boards begin to proactively adopt these new practices to boost their performance, improve their oversight of the business, and provide the direction their company needs.