Onboarding the First-Time Director
A robust, thorough onboarding will set new directors up to provide value quickly.
Experienced board members may recall the common wisdom from prior decades: New directors should not speak during their first year on the board. Fortunately, this advice has gone the way of other outdated advice, such as recommendations to limit the search for new board members to one’s golf club, don’t ask about talent below the C-suite and limit discussions of strategy to the annual off-site.
None of these practices work today, and new directors should aim to add value immediately. The business environment is fast-moving and complex, stakeholder expectations are high and disruption is everywhere. Many boards are considering bringing on new directors with expertise in a number of topics that are finding their way onto a board or committee agenda, including geopolitical risk, economic volatility, supply chain disruption, digital transformation, cybersecurity, ESG, human capital, culture, crisis planning and management, climate change and energy security, and activist investors can impact strategy and risk and add context to the traditional board and committee agenda topics of capital allocation and oversight of the CEO.
This breadth of responsibility presents an onboarding challenge for any new board member, no matter how experienced in the boardroom or familiar with a company’s industry. As boards enhance their governance by recruiting for diverse skill sets and backgrounds, companies are broadening their nets and recruiting from outside their immediate networks and industries. Cybersecurity and sustainability are growing as areas of expertise for directors. According to Board Monitor US 2022, a publication from executive search firm Heidrick & Struggles, 17% of the directors appointed to Fortune 500 companies in 2021 boasted cybersecurity experience, compared with 8% in 2020. And because of the increasing demand for ESG expertise, the number of appointees versed in sustainability more than doubled, from 6% in 2020 to 14% in 2021.
As boards conduct expansive searches, they are striking prior board experience from their must-have list of requirements. Board Monitor US 2022 reports that 43% of seats filled by Fortune 500 boards in 2021 went to individuals who were serving on their first board. In the KPMG survey Poised for Change?, board members were asked to rate the importance of various criteria when recruiting new directors. C-suite experience topped the list of most important at 42%, followed by industry background at 29%, with CEO and prior corporate board experience trailing far behind at 13% and 12% respectively.
First-time board members have often served on nonprofit boards. They increasingly prepare for board service by participating in the numerous board-readiness programs offered by service providers, board-focused nonprofits and universities. Indeed, the current crop of first-time board members may well be the best-prepared group of novice board members in history. And yet, there is so much to learn. Companies should rethink their onboarding practices, and new board members should take an active and strategic approach to their onboarding.
Here are some steps companies and new directors can take to smooth the transition.
From Cookie-Cutter to Bespoke
New board members may want to start by focusing on the core question of how the company makes money and expanding from there.
All directors will want to:
- Learn about the company’s business (and the industry, if not already familiar with it).
- Understand the current strategy, financials and operations, as well as the most critical risks.
- Absorb the culture of both the board and the company.
- Size up the management team and the company’s ability to execute strategy and identify and manage risk.
- Assess the competitive landscape and stakeholder interests and expectations.
In addition, onboarding programs frequently include tours of company factories and other facilities. New board members may want to know more about the supply chain early on, given the significant disruptions most businesses face. What are the current, most significant stressors to the supply chain, and how is the company managing them? Where does the company fall in the spectrum from just-in-time, global, single-source to multiple backup plans and redundancies? How does management identify emerging supply chain risk? What are the processes for addressing human rights issues to provide confidence that the supply chain is transparent and fair?
Most companies offer onboarding sessions with the CEO, CFO, corporate secretary/general counsel, and, for audit committee members, internal and external auditors. Furthermore, bespoke onboarding can help directors target specific areas aligned with their interests, expertise and knowledge gaps. For example, a board member with cyber expertise will want to get to know the CISO right away, while a board member from outside the industry may be interested in a deeper dive with marketing. Coordinating these conversations with the chair or lead director is important for board and management alignment. And for some meetings, it might be a good idea for other board members to tag along so that they can revisit a topic through the fresh eyes of a new director.
Finally, onboarding programs should not rely solely on management’s information. Experienced board members can provide a valuable perspective and alert the new director to historical challenges and unleveraged opportunities. Additionally, new board members of public companies often look at analyst reports by not only the company’s cheerleaders, but also those who are bearish on the stock. Comments by consumers and employees on public websites, such as Glassdoor or Yelp, can provide interesting insights, though individual comments should of course be taken with a grain of salt. New board members in the retail, hospitality and restaurant industries frequently visit their company’s sites as another way to soak up the company’s culture from the bottom up.
Learn the Hidden Rules of Board Culture
For first-time board members, learning about the company is one thing, but adjusting to the different cadence and culture of the boardroom is another. Cate Goethals, cofounder of Better Boards Initiative and author of the report Advice to New Board Members: Onboarding Insights From More Than 100 Sitting Corporate Directors, interviewed experienced directors and asked them what they wish they had known when they joined their first board. One interviewee wished she had had a secret decoder ring that could answer questions like: “What happens in between meetings? How are decisions made? What are the long-held values of the board? What are the sacred cows? Who knows who? How? You have to really spend dedicated time thinking about these hidden dimensions.”
This starts with internalizing the difference between running a business and serving on a board. First-time board members may benefit from conversations with others who have recently joined boards and navigated the transition. Board-readiness programs that spend time on board dynamics and offer mock board meetings can go a long way. And because every board is different, every new director should make it a point to focus intently during the first few meetings on the cadence and tone of board conversations, with a particular eye toward analyzing what is or is not received well when a board member speaks. Many first-time directors speak favorably about having a “board buddy,” someone on the board who can serve as a mentor and discuss different ways to ask questions.
Experienced board members serving as mentors will want to exercise care to help the new director become more effective without inadvertently sending signals that the board member needs to change to fit in. This is particularly true of boards for which diversity is new. The creative friction that comes from different backgrounds, styles and opinions is essential to a well-functioning boardroom. First-time board members should take the time to get the balance right but should not be so cautious that the board loses the benefit of their ideas. As the late professor Katherine Phillips says in Decision-Making in the Visionary Boardroom, “People work harder in diverse environments. They may not like it, but the hard work can lead to better outcomes.”
Onboarding is a journey, not a single event. If the amount of information seems daunting, it can be taken in pieces. New directors should ask themselves:
- What are the most important things I need to know to add value right away?
- What are my gaps in knowledge and how will I fill them over time?
A thoughtful onboarding experience will help new directors get up to speed and will benefit the company by enabling new board members to add value quickly. Board service demands continual learning. Robust onboarding provides a strong foundation.
Susan Angele is senior advisor of KPMG’s Board Leadership Center.