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Published: May 29, 2007

 
 

The Empty Boardroom

Like a coach building a sports team, many companies now seek a broad mix of complementary skills and talents that are mutually reinforcing and that contribute to a whole that is greater than the sum of its parts. Such companies start with an assessment of their existing board’s composition, cataloging members’ skills and experience and identifying potential upcoming vacancies owing to retirement or resignation.

They then compare the existing board’s inventory of qualifications with a wish list of desired skills and experience (which might include consumer marketing capability, M&A experience, executive compensation expertise, or in-depth knowledge of a region like China) to develop a clear picture of the gaps. The gaps become the driving criteria for the specifications that the nominating committee assembles with input from the CEO and other board members.

Then, with or without the assistance of an executive search firm, boards develop a list of candidates based on input from a wide range of sources. This list is typically reviewed for potential conflicts and narrowed to perhaps five preferred prospects. The nominating committee or search firm researches these candidates’ backgrounds, assesses the candidates’ fit with the board’s culture, and decides who will be approached and in what sequence. As an interested candidate emerges, an interview process commences with the CEO, nominating committee, and, in some cases, the full board. Before a formal offer is extended, a final due diligence check is conducted. Pending his or her own due diligence, the candidate, it is hoped, accepts.

Whereas many of these steps might have been skipped or ignored in years past, they are almost always observed today, resulting in a more transparent and inclusive search process and a better outcome: a more productive and engaged board.

In looking beyond the usual suspects — the increasingly unavailable CEOs — companies are unearthing hidden gems a level or two below. These highly accomplished executives may not be household names, but they head business units often equivalent in size to a large company, and their responsibilities approach those of a CEO. To build a pipeline of such candidates, boards should track these potential future directors before they are widely known and in great demand. This approach requires a continuous commitment of time and resources, but the payoff is a self-renewing wellspring of director talent that feeds future board needs.

In short, the prospect of an empty boardroom has forced conversations about corporate governance to expand from an emphasis on rules and procedures to a focus on finding the right talent. And we believe that’s where the dialogue should be headed. Certainly boardroom members deserve a level of attention to issues of talent, skills, and team capability that is comparable to what they themselves give to the executive teams they help oversee. In thinking about their own membership, boards may need to concede that they can’t always get what they want. But they are discovering ingenious new ways to get what they need.

Reprint No. 07206

Author Profiles:


Thomas Neff (TNeff@SpencerStuart.com) is chairman of the global executive search firm Spencer Stuart U.S. and a former managing partner of the firm. He founded the board services practice in the U.S. His work focuses on CEO and director searches. He has been with the Spencer Stuart since 1976.


Julie Hembrock Daum (JDaum@SpencerStuart.com) is the North American board services practice leader for Spencer Stuart. She consults with corporate boards, working with companies of all sizes, and has worked on more than 450 director assignments. She serves on Spencer Stuart’s board of directors.


Also contributing to this article was Consulting Editor Tara Owen.

 
 
 
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Resources

  1. Ram Charan, Boards that Deliver: Advancing Corporate Governance from Compliance to Competitive Advantage (Jossey-Bass, 2005): CEO advisor Charan charts the steps that boards can take to evolve from ceremonial to liberated to progressive.
  2. Julie Hembrock Daum, Tom Neff, Julie Cohen Norris, “Spencer Stuart 2006 Board Diversity Report,” February 2006: Companies have gotten the message on board diversity, but the numbers have yet to catch up. Click here.
  3. Paul F. Kocourek, Christian Burger, and Bill Birchard, “Corporate Governance: Hard Facts about Soft Behaviors,” s+b, Spring 2003: Well-honed guidelines for boards that want to use “debate, dissent, and active engagement” to foster better performance. Click here.
  4. David A. Nadler, Beverly A. Behan, and Mark B. Nadler, eds., Building Better Boards: A Blueprint for Effective Governance (Jossey-Bass, 2005): Cogent example of the new wave of books proposing a constructive working relationship between CEOs and their boards.
  5. Thomas J. Neff and Robert L. Heidrick, “Why Board Service Is Still Attractive,” The Corporate Board, vol. 27, no. 158 (May/June 2006): Despite new board burdens, the right opportunities continue to tempt a majority of the 350 directors whom Spencer Stuart surveyed. Click here.
  6. Spencer Stuart Board Index, “The Changing Profile of Directors,” 2006: Spencer Stuart’s annual research survey of S&P 500 boards. Much of the data in this article comes from this report. Click here.
  7. Spencer Stuart Governance Lexicon, “Corporate Governance in the United States of America,” January 2007: As active CEOs take on fewer directorships, boards are looking harder and farther for a defined set of skills or specific experience relevant to their companies’ strategy. Click here.
  8. For more articles on strategy, sign up for s+b’s RSS feed. Click here.
 
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