A look at the expanding skill set required of today's corporate directors
With increasing numbers of corporations finding themselves plagued by regulatory and corporate governance issues, corporate directors are finding that a coveted board seat can quickly become an uncomfortable ‘hot seat’. The board must balance achieving stellar financial performance with protecting the organization against attacks on its brand, reputation and overall viability.
A director’s job in contributing to the board’s success has become more difficult than ever, and experts say all directors must be armed with enough knowledge and expertise to navigate the current economic and political landscape while anticipating any challenges that may lie ahead. Simply put, the job requires a higher level of skills than ever before.
‘The world is changing constantly, so [directors] have to know the external factors that affect how their organization operates,’ explains Marjorie Singley-Hall, chief executive of Ampersand Associates, an Atlanta-based firm specializing in board creation and development. She sits on several for-profit and non-profit boards and trains leaders internationally for board service.
Singley-Hall says fluctuating economic conditions, workplace trends and technological advancements are just some of the issues having an effect on an organization’s choice of board members. New board candidates must be seen as individuals who can steer the company clear of financial scandals, regulatory missteps and cyber-threats. Calls for greater transparency and accountability also mean new directors must have a thorough understanding of governance, compliance and legal issues in order to uphold their fiduciary responsibility.
These days, there is greater demand for directors to possess a wealth of specialized skills, from industry-specific knowledge to financial, legal, accounting, IT and marketing expertise. The skills needed vary from organization to organization, but a candidate will likely need multiple skill sets to make the grade.
According to the National Association of Corporate Directors’ (NACD) 2013-2014 public company governance survey, when respondents were asked, ‘What attributes were most important for director recruitment in the last year?’, the top five answers were financial expertise, specific industry experience, leadership experience, international/global experience and diversity (see chart, opposite). The study also reveals that many boards lack members with experience in handling IT risks, making IT experience a highly sought-after skill in new directors. More than 60 percent of respondents also say they believe their current directors could improve their understanding of IT risk.
On time
Peter Gleason, managing director and CFO of NACD, says higher skills levels for directors are important because ‘directors are expected to oversee a broader and more complex set of issues and to respond by spending more time on all activities, particularly attending board and committee meetings and reviewing reports and materials.’ The average time directors spend on board matters annually jumped significantly over the last year, from 218.6 hours per board to 235.9 hours – the largest time commitment an NACD survey has ever recorded.
Gleason further notes that skills acquisition has become a priority for companies as a way to mitigate future risk.
Boards realize that more sophisticated expertise can help execute a more efficient business strategy. The NACD survey notes that executive talent management/leadership development now ranks fifth among the leading issues facing corporations, while five years ago it didn’t even make the top 10. This reflects corporate boards’ recognition that talent is one of the most critical corporate risks, as well as a source of opportunity for companies. ‘Boards have begun to recognize talent development as a foundation for corporate performance and success,’ Gleason says.
The issue of board renewal is also becoming a growing concern for corporations. ‘Given the relatively low director turnover from 2008 to 2012, boards need to think about how they can refresh their composition. They need new skills to compete in today’s changing times, particularly in technology,’ says Julie Hembrock Daum, co-leader of executive search consulting firm Spencer Stuart’s North American board and CEO practice. ‘It is essential for boards to have the right expertise in the boardroom. Natural director turnover provides opportunities to refresh a board with new skills as the economic and competitive landscape changes – and to increase the diversity of perspectives.’
Increased shareholder activism can sometimes force boards to look at the skills and experience of their directors. If there are certain issues investors continue to push the company to adapt or change, boards may want to consider bringing on a director with experience to help deal with those specific issues or designating a few directors to increase their knowledge in those areas in order to find a solution.
Counting the costs
In addition, companies are realizing that a board without the right expertise can be an expensive one. Board members can be held personally liable if their actions are found to have caused harm, and the cost of directors’ and officers’ insurance has consequently increased. Lawsuits challenging board actions that negatively affect the stock price are also on the rise, and litigating such cases can be expensive.
‘It is important to have all of the facts when advising a company these days,’ Singley-Hall warns. ‘Boards need to be more deliberate and intentional about who is on the board Ö and people are being very careful about how they are prepared for board service.’
Experts suggest that boards make skills development and director education ongoing throughout the year. This can be done through monthly meetings (with outside experts presenting on specific topics), committee meetings and company retreats. In addition to education and training provided by the board, directors should seek out their own education through formal seminars and classes.
Many companies opt for director education programs. Offered by universities, professional organizations, consultants, regulators and law firms, these programs attempt to equip directors with insight to help them navigate the changing landscape of complex market fluctuations and industry trends. Once considered time-consuming and costly, online webinars afford directors an array of courses designed to help them understand compliance issues and their fiduciary, legal and even risk-oversight responsibilities.
Directors can also receive information from senior management and the corporate secretary that can help enhance their knowledge on industry issues and other matters important to board service. Senior management should engage the board about the quality and quantity of information the C-suite is providing to them.
‘We’re hearing that in many cases, boards are simply given the PowerPoint slides and materials from the last quarterly presentations,’ Gleason says. ‘Instead, management should work with the board to determine the information best suited for effective oversight.’
