What Directors are Thinking

Charles Zimmerman, DMin

Independent Director: 
Univest, Clemens Family Corporation

As a lead director and governance committee chair, board composition and development and director recruitment and succession are always on my mind.  

ESG and DEI are hot topics in every public company boardroom these days, and they should be. But we must not focus so intently on the regulation trees that we lose sight of the board composition forest: balance. In fact, board balance is a crucial component of governance and diversity.  

Balance is defined as a state in which opposing forces harmonize. Opposing forces may be too strong to describe the typical public boardroom, but there certainly are competing concerns and very different personalities around the board table.  

In my experience, the highest-functioning boards are boards that are balanced. There needs to be a blend of people with different perspectives and informed points of view, and they need to feel empowered to express their thoughts openly.  

Board development is part science and part art. There are certain skill sets, experiences and expertise that must be represented on your board, and these are quantifiable and measurable. Other qualities and characteristics take wisdom and informed intuition to ascertain and evaluate.  

These are a few qualities and characteristics that should be balanced on every public company board. 

Character and competence. Nominating and governance committees acknowledge that character and integrity are nonnegotiable characteristics of a board prospect or director, but they should also have a track record of competence, which is effective leadership in an area that adds value to the board. We all can cite examples of supercompetent executives who have played fast and loose with regulations and policies. But often it is harder to evaluate relational competencies without a clear director profile and qualities of corporate culture against which you are assessing the prospect. Competence in one area does not guarantee expertise and competence in another; after all, no one is omnicompetent.  

Challenge and support. Directors are responsible for offering credible challenge to the strategies and plans of management, but sometimes that challenge can become imbalanced to the point that management feels no support at all from the board. The board may be seen as an obstacle to overcome rather than a friendly partner who appropriately asks questions and pressure-tests ideas to ensure the most successful outcome.  

Credible challenge necessitates knowledge, expertise and appropriate background. Every director will not be a financial expert or someone with vast risk-mitigation experience, but every director needs to know how the company makes money and how to allocate resources to the most valuable and strategic goals and initiatives.  

Straight talk with empathy builds community and growth, and makes for better decisions and outcomes. Directors must speak up and share their perspective and opinion but must do so in ways that build up rather than tear down. Candor and care are necessary for boards to excel.  

Confidence and humility. If directors are going to challenge and support other board members and senior management, they must possess confidence and humility.  

Directors are recruited and elected to boards because of past accomplishments, achievements and successes. A potential problem is that their past history may cause the director to think more highly of himself or herself than they ought to, and arrogance begins to grow. As arrogance grows, the need to listen, learn and respect others diminishes.  

Humility is required because paradigms and assumptions are ever-changing. Yesterday’s solutions will not answer today’s questions or address tomorrow’s challenges. In fact, our world is so different today that we often do not even know the right questions to ask. This environment calls for great curiosity and humility. Yet directors can look to their past experiences and learn from the processes put in place to address old concerns and then face the new situation with confidence and humility.  

Humility requires that we learn to listen to each other and celebrate our diversity not just tolerate it. Without curiosity and humility, we will never learn.  
  
People and results. Some companies are criticized for not caring about their people because they are consumed with generating revenue and increasing profits. Other organizations seem to care for their team members, but don’t have the resources to increase compensation to match inflation, or to have competitive incentive programs because profits are lagging.  

In business, it’s not people or results, it must be people and results. Team members are the greatest resource of an organization but financial results and effectively accomplishing the mission are necessary in order for a business to have the resources to engage and care well for the people.  

A board is responsible to keep HR and finance in dynamic tension and harmony.  

Short-term vs. long-term. Public companies are sometimes criticized for caring only about the next quarter’s numbers and not the long-term health of the corporation. From my experience, that critique is often unjustified and, if it is not, eventually the long term becomes the short term and the shortfall is dramatic. The truth is that directors must have one eye on the short term and the other on the long term. 

I could continue to tease out continuums of balance, but I think you get the point. Don’t settle for the easy “either/or.” Aim for the difficult “both/and,” and you will build a balanced board.

It may be a good exercise for your board to discuss board balance, along with what changes may need to be made to achieve that balance.