As pandemic recovery continues, recession fears loom, climate change wreaks havoc and a new regulatory environment emerges, boards are being tasked with more work and face more uncertainty than ever.
While boards in previous decades generally preferred to recruit CEOs and CFOs, modern boards have been shifting their recruiting efforts to target skills that align better with a dynamic environment. Boards are now looking for a mix of both technical and soft skills so new board members can contribute broadly across an organization's strategy and deeply in a specific functional role. Sought-after additions to board skill set matrices include human capital, ESG, DEI, tech, dynamic thinking, soft skills and innovation.
Tracy Harris, board member of Bally's Corporation, CareFirst BlueCross BlueShield, 1847 Holdings and the Council of Institutional Investors, thinks broadly about how her boards reflect their communities. “We are talking about DEI, ESG and making sure that our customers, our employees and our board resemble the communities we serve.” Her boards are also focused on how to ensure success and growth, using a skill set matrix to answer questions such as “What do we need, what should we be thinking about and what are we missing?”
Human Capital
Talent issues have been front and center for boards for years. Issues like the fake accounts at Wells Fargo and Bank of America, transitioning people to remote work during the pandemic, quiet quitting, the Great Resignation, record low unemployment, and technology and AI are changing the way business is done.
A board's role is to ensure effective strategy and growth. To that end, boards are increasingly recognizing how important deep human capital skills are at the board level. Paul Williams, who currently sits on the boards of Public Storage and Air Transport Services Group Inc. and has held seats on seven public boards over two decades, agrees. According to Williams, “You’re going to need to have a very purposeful focus on human capital.” Williams has seen a greater focus on succession planning and human capital in the last decade than in his previous decade of service, and he suggests this trend will only accelerate. One of his most recent boards focused their recruiting on a CHRO, given the urgency of this skill.
Williams has seen many board members who understand sophisticated financial or technical processes, “but when it comes to people, who are inherently complex and unpredictable, there may be a little bit of discomfort.” He underscores that it is important to “ensure there's a critical mass of people on the board who are very interested in the psychological elements and interpersonal dynamics.” He suggests at least one third of board members be comfortable talking about human capital issues.
“Some people have very high emotional intelligence, even though they’ve never specifically worked in the human capital arena. They just kind of get it.”
Britt Ide, who sits on several boards across the energy, automotive and technology sectors, including Nxu Inc. and NorthWestern Energy, agrees with Williams. She thinks innovation and workforce development, talent management and talent retention are critical strategic skills. When recruiting board members, she focuses on strategic workforce perspectives.
“We’re all about earnings per share, but so much of that is driven by your people. And that’s only going to get more important with workforce shortages and changes in workforce demands.”
Environment and Governance
The SEC has proposed new rules for public companies that focus heavily on climate-related disclosures and reporting. While some see it as onerous, Ide proactively considers climate risks and climate opportunities when recruiting new board members. She has seen companies get bogged down by viewing climate as a compliance task. For her, it's more important for boards to ask, “What is our strategy around climate? How is climate going to affect us? Whether it’s the weather at our plants, how our locations are going to be affected or how’s it going to affect our customers, I think that strategic long-term vision has always been important for boards, but it’s even more important for boards now.”
Robert Shapiro, an economist who specializes in working with government, sits on the board of Overstock.com Inc. Shapiro views his knowledge of economics and experience in government as the most pertinent skills he brings to his board. Depending on the size of the company, Shapiro feels that because regulatory issues are constant, public boards should have at least one member with a background in the skills needed to address the specific risks a given company may encounter.
Technology
A recent article from the Harvard Law School Forum on Corporate Governance noted the percentage of directors with technology experience increased from 22.1% in 2020 to 23.9% in 2022. “The operations of virtually every company occur substantially through the Internet and also substantially through information technologies connected to the Internet, so I think cybersecurity has a growing importance to the operation and success of most companies,” says Shapiro. In March 2023, Overstock appointed Joanna McDaniel Burkey as its first board member with a cybersecurity background — her day job is as the CISO of HP.
The SEC has also proposed changes to its cybersecurity guidelines that will likely require public companies to have a board member with significant technology experience. Williams also sees a real need for boards to have this expertise. “I don’t believe that, in the case of cyber, boards should bring on one cyber expert. And then, somehow, that person bears the burden of principal responsibility for that issue. I think it’s a board-wide responsibility.” Williams suggests that a board should have multiple technology-focused members who can address cyber, tech or privacy-related issues.
Diversity
Diversity continues to be a trending board recruitment topic, with numbers rising steadily since 2010. Driven in part by requirements from Nasdaq, State Street and Goldman Sachs, plus a slew of state legislation, gains have been as high as 10% since 2020. Ide has seen recent Nasdaq reporting rules “driving increased conversations around diversity. Even on boards that have strong diversity, they’re saying, ‘Okay, well, here’s what we’re going to have to report, so how does that affect what we’re looking for?' I think that’s a good process.”
Harris is also an advocate of diversity on boards. “The demographics of the world are changing, and if you want to stay competitive, you're going to need different opinions in the room. It's a proven fact that diverse organizations tend to be more successful. Harnessing the strength and the power of diversity is one way to support success. Not only at the staff, customer and management levels, but also at the board level.” Harris notes that diversity doesn't lower standards; rather, it adds varying points of view.
Shapiro agrees. “What you want is a wide range of experience to provide a fully differentiated judgment by the board.”
Williams suggests age diversity should also be a modern feature of the board. “There’s just such a wealth of talent out there in their 30s and 40s. If we’re honest, they have a different orientation and sensibility. It’s just palpably different from how people in their 50s are thinking.” Williams notes that there has always been a sense that generations are different, “but it feels as if that’s particularly true right now. I think technology is intertwined with that.”
Innovation and Soft Skills
Ide is focused on innovation as a skill she adds to her matrix. She always asks, “How do you foster innovation and how do you foster inclusion of diverse perspectives?” suggesting that it is also important that directors ensure innovation around office hours, talent development and even investor strategy.
“We went public through direct listing, and we were very successful with crowdfunding, which is unique. That’s all innovative. But as you think about the board perspective and the strategy of going forward, we should ask, ‘How do we continue to innovate?' Not just technically, but from a capital perspective, from a relationship perspective, from a strategy perspective? And that innovation comes in all sorts of ways. It’s not just tech. It's communication. It's connections.” Ide also thinks innovation can come in areas like taking advantage of government regulation, rethinking old structures and programs, and integrating technologies and communities.
The dynamic environment can feel like a moving target, and soft skills and broad thinking have emerged as necessary recruiting and interviewing topics. When searching for new members, boards are increasingly seeking candidates that are not only adaptable and congenial, but agile thinkers and quick decision-makers.
Ide suggests board members should be able to see how to connect the dots, collaborate with others and build relationships in a very polarizing time. “Boards can get bogged down in discussions that can get polarized or politicized. Having thoughtful board members that are looking for collaboration, looking for win-wins, looking for how to do things uniquely, taking advantage of our strengths and understanding our weaknesses is key.”
Shapiro focuses on the importance of disposition. “One thing I have learned is that temperament is often as important as expertise and experience. An effective board member has to have a collegial way of operating and has to understand and be comfortable with the limits of their function.”
Moving Forward
Ide urges boards to look toward the future. “I love the quote, ‘The best boards spend 80% of their time looking forward and 20% looking back.' But most boards do it the other way,” she says. “I remind our boards that, yes, we have compliance obligations, but our real value is for the future strategy.”
In May 2014, an AI robot named Vital was appointed as a board member of the Japanese venture capital firm, Deep Knowledge, “for its ability to pick up on market trends not immediately obvious to humans.” Artists, authors and unions have recently expressed the fear that AI will render their jobs obsolete. Will we also see this in the boardroom? Will modern U.S. boards also lean on AI not only as a new skill, but also as a board candidate? Only time and regulation will tell.
Board members are savvy, but when it comes to recruiting, the trend we see has been a two-year delay between when a potential economic issue hits the front page and when the requisite skills can be found in the boardroom. While we may not be able to predict the next global crisis, board members can fulfill their fiduciary duty by keeping one eye fixed squarely on the future and the other on their skill set matrix.