Quality directors must be collaborative, committed and courageous.
To help companies navigate disruptive technology, a global pandemic and other major challenges facing companies today, a high-performing board of directors is more essential than ever.
“The level of change and disruption has accelerated,” says Sheila Hooda, independent director of Enact Holdings Inc., ScION Tech Growth and Mutual of Omaha Insurance Company. “The number of risks is higher, as are the number of opportunities.”
Boards must be able to work collaboratively to make decisions in fast-changing, unpredictable situations.
“A few years ago, it seemed like the only way to light a fire under some boards was by having an investor activist knocking at the door,” says Antonio Garza, former U.S. Ambassador to Mexico and current board member for Kansas City Southern Railways and MoneyGram. “But think about it: pandemic, civil and human rights issues, near economic collapse and now the Russians. Sounds like a hundred years’ worth of issues, not three. It’s clear to me that, if a board isn’t thinking hard — and fast — about how to deal with the big issues and fallout, they’re simply not doing their job.”
COVID-19 not only has presented companies with unprecedented challenges but also has sped up the changes.
“Technology development that would have taken five years got expedited to three months,” Hooda says. Consumers now expect greater customization and faster delivery. Supply chain, talent, culture, cyber risk, climate change and societal issues are even more critical. Predictive analytics helps accelerate decision-making. “So much has changed, and COVID gave everything a super-big jump start.”
The result: The days of boards being a rubber stamp for the CEO — or an easy way for a retired executive to earn some money — are over.
“I don’t think it would be an exaggeration to say that, often, our expectations for what directors bring to a board are exponentially more difficult than perhaps 50 years ago,” says Adis Vila, second vice chair of the Latino Corporate Directors Association, NACD board leadership fellow, and a member of the inaugural class of the Herndon Directors Institute.
What does this mean for those selecting new board members? What are the essential qualities of a good board member today?
“Increasingly, boards appreciate the importance of having a diverse group of directors, with the various subject-matter strengths you generally see on the talent matrix,” Garza says. “But what you’re looking for, in addition to those sorts of things, is the ability to exercise sound judgment on a whole range of topics, many of which will be outside one’s personal expertise.”
Collaboration is key
One of the most frequently cited qualities of a productive board member is the ability to collaborate. A good board will have members who offer diverse perspectives — and occasionally disagree. However, collaboration should not take the place of healthy debate, among board members or with management.
“You have to be able to influence others,” Vila says.
“Being collaborative in nature does not mean you’re not willing to debate tough issues,” says Calvin G. Butler Jr., senior executive vice president and chief operating officer of Exelon and a board member for both RLI Corp and M&T Bank Corporation.
How can those selecting board members assess whether a potential new member will be collaborative while still asking tough questions?
One way, suggests Valerie Frederickson, who recruits chief human resources officers (CHROs) and board members in her role as founder and CEO of Frederickson Partners, is by looking beyond CEOs and CFOs when recruiting board members and including, for example, CHROs.
“CHROs tend to be great collaborators and also great at encouraging collaboration and best practices among others,” said Frederickson, who also serves on two outside boards, the advisory board for Surprise HR Inc. and the board of Search Guaranty Corporation.
Essential qualities for every director
The ability to collaborate is just one of the important qualities of a board member. There are others that apply to all board members, and they have generally not changed with the times.
“Because the world is so much more fast-moving and business is now much more global, some of the competencies that board members bring have changed — but not qualities like integrity, courage, commitment to lifelong learning and dedication to the work,” Vila says.
Commitment. Board members need to stay on top of developments across the industry and inside the company — in addition to preparing for each meeting. It’s typical for governance organizations to describe directors’ time commitment as 250 to 300 hours per year, the equivalent of five or six weeks.
But Hooda estimates that it could take twice or even three times that amount of time to do the job well: “If I’m a board member of a financial institution, I need to be on top of all the regulations, technology, governance trends, competitors, emerging risks and opportunities. That’s the external world. I also need to know as much as I can about the company — and what Wall Street analysts and institutional investors are saying.”
Enthusiasm for learning. Hooda has attended conferences or taken courses to learn about subjects such as ESG, cybersecurity, artificial intelligence, cryptocurrency and digital transformation.
“You have to have a love of learning” to be a good board member, Vila says.
To prepare for the next disruption, it’s important to “look outward and look forward,” Hooda adds. “Management takes care of the day-to-day stuff. As a board director, you’re supposed to look one step ahead.”
Courage and integrity. “The most important characteristic for an excellent director is to have integrity,” Vila says. “Without integrity, you’ve got nothing. The next-most-important characteristic for a director is to have courage. You’ve got to have the courage of your convictions because you have to be able to say no.”
But courage does not mean a “my way or the highway” attitude, she adds. “Decisions on boards are collegial. For a board to work well, people have to have an understanding, an acceptance and a commitment to a certain set of values, strategies, goals and objectives.”
Customer-centric focus. Board members must understand how the company intersects with its customers. “People are looking more now at community orientation and community engagement,” Butler says. “There’s a deeper understanding of connections with the customers and getting that perspective.”
Understanding how the industry intersects with its customers and having a customer-centric approach “helps the board connect with the management team and helps you understand how the company makes its money,” he adds.
Critical qualities for the board as a whole
In addition to qualities like collaboration and courage, which all board members must have if the board is to function well, there are other qualities that are critical for the board as a whole, though each director may demonstrate these qualities in a different way.
“A board is like any other management team — you have to complement each other’s skill sets,” Butler says.
These qualities may vary depending on the industry, and they also change over time.
“Years ago, you would never have thought that cybersecurity would be at the top of your list. And when I was a young lawyer, few of my counterparts had any understanding of international law,” Vila says, citing two of many topics that today’s directors must understand.
Diversity. A diverse board — one that reflects the company’s customer base and employees — is critical. Several states have passed laws encouraging or even requiring gender or ethnic diversity on corporate boards.
One reason diversity has been a struggle is that directors often recruit their friends to join them when there is an opening on the board, Frederickson says.
“Selecting from the board members’ personal social networks is hardly a path toward diversity.”
While having women and people of color on a board is an important way to encourage diverse voices, there are other types of diversity to consider as well, including job function or expertise.
“For too long, most board members have been CEOs and CFOs. We are finally seeing people from different backgrounds get on boards, including some CHROs and some business unit leaders,” Frederickson says.
Community commitment. The importance of community connections will vary by industry. Butler chairs Exelon’s local utility boards, for example, so connections with the community mean connections with customers. Having at least some board members who are well connected in the community is important.
“When I have business leaders who are also community leaders, the discussion around the table is much more rich and robust,” Butler says.
Connections. “Board members can be an important source of connections to potential customers, partners or suppliers,” Frederickson says. These “intangible qualities” are an important part of the search for board directors, though not all directors will provide the same number, or type, of connection.
Empowering high-performing boards
It’s easy for boards to fall into the trap of looking for candidates who will be friendly with the CEO, Frederickson says. “CEOs are naturally inclined to want to hire friendly bosses for themselves. Most people would rather spend time with people who agree with them and share their values.”
To overcome this inclination, it’s important for board searches to focus on the qualities that will make a member effective, as well as on the specific expertise each member brings — so that they can fulfill the responsibilities of today’s boards of directors.
“In order to hire more modern board members, you need to empower them through specific job requirements,” Frederickson says. “These need to include them sharing their opinions, pushing back on the CEO, holding the CEO accountable and holding themselves and other board members accountable.”
Margaret Steen is a freelance writer, editor and writing instructor in the San Francisco Bay area.