Future Proofing Director Skill Sets

HOW TO USE THIS TOOL: As directors focus on the future strategic direction of the company, it's critical to ensure board members have the right skills for the future. Lead directors and others can use this tool to help future proof board skills. 

ARE YOU ‘FUTURE PROOFING’ YOUR BOARD?

Boards have focused a great deal on strategy development in recent years. Working closely with their CEOs at regular board meetings and at off-site strategy retreats, boards have been charged with overseeing company direction as well as the opportunities and risks pertaining to investments in the markets, facilities, technologies, and people that can make that strategic vision a reality, fueling future growth and rewarding shareholders.

Less effort, however, has been expended on assessing the composition of boards to determine how well equipped current directors are to help companies navigate, today and tomorrow, a challenging global business environment characterized by rapid and continuous economic and political transformation.

In sum, boards represent a key competitive advantage for their companies, but there’s a catch: only if they comprise directors with suitable skills, so that they are able to evolve and adapt as the world around them continues to undergo disruptive change.

CHANGING TIMES REQUIRE CHANGING BOARDS

Once upon a time, boards were akin to a highly selective men’s club that often served as a rubber stamp for the CEO. Those days are long gone. Boards are now expected to take an active role as a partner to the CEO. Moreover, directors are now selected and valued as advisors in key areas related to the strategy.

Think of a board today as somewhat like a professional sports team. There are certain fundamental skills and personal attributes that all directors will possess. But boards now also require specialists to cover certain bases, including compensation, talent management, regulatory change, cyber risk, and a host of other skills determined by the needs of the individual company and its strategy. Thus, board members must bring particular talents to the table and also contribute to working together as a cohesive whole.

While the trend toward recruiting directors with diverse backgrounds and skills may have been ignited by external pressure from shareholders and the media, given the speed and complexity of change now—and the growing need for directors who are specialists in addition to possessing traditional operating experience—it is not surprising that nominating committees have shifted away from building boards that primarily comprise directors from the same background (that is, chiefly CEOs); gender (chiefly men); ethnicity (chiefly white); and age (chiefly older, at or toward the end of their careers). Yet boards with broader diversity in their ranks are clearly correlated with greater board effectiveness and company profitability, as study after study shows.

A major roadblock to creating diverse, future-oriented boards is age discrimination. There is a commonly held belief that people can’t add value to board discussions unless they have had a long, successful career, but directors with the most in-demand skills—in areas such as cybersecurity, online retailing, and social media—skew relatively young. In addition, diverse candidates in terms of gender or race and ethnicity may not be far enough along in their careers to have a CEO or C-suite credential, and without one they are perceived as lacking sufficient gravitas. Adding to the challenge, younger candidates are focused on building their careers, and many are prohibited by employers from serving on outside boards, so there’s the double whammy of conflicts and time management. But figuring out how to fold younger candidates into the board mix is essential to future proofing boards.

A FUTURE-ORIENTED DIRECTOR RECRUITMENT PROCESS

To build a board oriented toward the future, there is a growing need for a more systematic, thoughtfully planned and executed board-building process that casts a wider net to enable the board to consider a range of board candidates. It has become clear through our work that a deliberative approach is the best way to ensure the relevant demographic and experiential diversity a board needs: gender, age, ethnicity, industry, geography, and others. And, done right, it provides access to desirable candidates with needed skills and experience who may not yet be highly visible in their careers, or, consequently, on the board’s radar.

This director-recruitment process operates on a couple of different levels. First, it helps boards to fill immediate needs for director talent. In addition, when the process is institutionalized and a regular item on the meeting agenda, boards can plan for a variety of contingencies, whether director vacancies are planned or unplanned; can modify their director profile to keep pace with change; and can ensure that they have a robust pipeline of potential directors at all times.

DIRECTION CHECK—QUESTIONS FOR BOARD DISCUSSION

To be successful, any future-oriented board recruitment process must cover a few crucial bases. The board itself must also operate in an open, collaborative, and mutually accountable way to ensure that the recruitment process will meet the company’s real needs and that directors see board service as a valuable use of their time.

Following, we suggest questions to spark productive board discussion on this topic with the goal of building a board, and an ongoing process, that is fit for the future:

Strategy

• Are we building a board geared to future challenges?

• Are directors steeped in and aligned on the company strategy? Not just generally, but in terms of ranking highest priorities and strategic imperatives?

• Have we identified the key challenges and new skills we will need as a board to support and oversee management in executing this strategy? 

  • External: e.g., cyber risk, geopolitical, shareholder activism

  • Internal: e.g., executive compensation, needed culture change

Board succession

• Do we have a thorough understanding of the key skills directors will need, and have we translated that into the nominating committee’s director-recruitment priorities?

• If we are anticipating adding one or more new directors in the next couple of years, have we vetted our recruitment profile to ensure criteria are relevant and not unnecessarily restricting access to appropriate candidates (e.g., requiring CEO or prior board experience)?

• Are we maintaining a proper balance of director seniority and institutional knowledge vs. specialized skills and experience? Have we addressed term limits and retirement age in this context?

Process

• As a board, do we engage in frank discussions of strategic alternatives and attendant risks?

• Are we committed to accountability for corporate performance, for the board and for the executive team?

• Do we have in place a rigorous director assessment process geared to elevating the performance of current directors and the board as a whole? Is it linked to a systematic director recruitment process?

• Are we open to needed change on the board, and do we welcome newer directors with the skills and experience we need going forward? Do we promote a board culture of inclusiveness?

THE PAYOFF

It is clear that boards can represent a key competitive advantage at a time when so many of the external market and political challenges that companies must grapple with are well beyond their control. But this advantage remains unexploited unless boards actively prepare, guided by board and committee leadership, to maintain the most relevant, qualified director talent. Since that process is firmly rooted in the strategy, a board’s needs will vary widely by company, and will also be affected by company culture, stage of growth, industry, and other factors, making it highly individualized.

Successful board building is, therefore, an “evergreen” process that requires regular care and feeding to maintain board effectiveness, but the result—a board that is a crucial strategic asset in an increasingly competitive global business environment—is well worth the effort.