Functional Diversity, Not Just Diversity

Focusing on finding the right skills leads to better boards

By Howard Fischer

At the recent Directors Dialogue Dinner, hosted by Drexel University, The Vanguard Group’s former and  current CEO spoke extensively about the importance of diversity as both a corporate governance and corporate performance issue.

While an organization certainly benefits from having a team of people who approach things differently in terms of the ways in which they think and act, functional diversity is also an important consideration.

Nominating committees often specify that they are looking for sitting or recently retired CEOs or COOs. As we all know, CEOs and COOs rise to that position through different functional areas. Some come up through the financial area, some come up through sales and marketing, and others through technology.

Before searching for a candidate, the search committee needs to specify which functional area(s) these CEOs or COOs should ascend from on their way to becoming CEO. The goal is to have a board that is well balanced from an experience and functional perspective, so that its members collectively possess skills that complement one another and so that the board can become more of a strategic asset.

During the Q&A, I asked Jack Brennan, Vanguard’s Chairman Emeritus and lead independent director of General Electric Co, Director of LPL Financial Holdings Inc. and Guardian Life Insurance Co., and Vanguard CEO and Chairman Bill McNabb if they considered functional diversity when recruiting new board members.

Brennan, being a “spreadsheet fanatic,” talked about how he makes a spreadsheet of the functional backgrounds of his current directors and of candidates to make sure that the functional expertise is considered and not duplicated too often.

McNabb goes through a similar process when looking for new directors for Vanguard.

The lesson here is that the search process should begin by taking inventory of the functional expertise of the current board. Identify areas of duplication or gaps in experience and build these considerations into the specifications of new potential candidates.

Once you identify and understand the mix of functional strengths among your current directors, you're in a better position to recognize what additional functional expertise would complement the existing board. It is important to recognize that I'm not advocating for the “expert director” or anyone who has only a functional specialty. I am suggesting that as you look for strong business generalists, you should consider their functional strengths and their background in order to achieve the best balance and the highest possible value from your team.

Ultimately, you want to build a team of directors whose functional expertise and industry expertise complement one another so that you have   diversity of gender, race, ethnicity, thought and functional diversity.
 

Howard Fischer is the Founder and President of Howard Fischer Associates, one of the country's leading executive search firms with a national reach and a reputation for helping clients attract outstanding leaders. The firm has offices in Philadelphia, Silicon Valley, and Boston. For 35 years, Howard has consulted with CEO's, Boards of Directors, and Senior Executives on the process of identifying, evaluating, and attracting leaders. Clients range from Fortune 100 companies like Comcast to UGI, Triumph, Wawa and Penn Mutual Life Insurance to high-tech startups and mid-sized companies. HFA has completed over 2,500 leadership assignments, ranging from CEO's to VP's and Board member searches.