It's back to school for directors

In a world where uncertainty seems to hover over every business decision corporate executives make, a company is often only as good as its board of directors. Boards are expected to help companies protect against – and navigate through the aftermath of – potential fraud and financial scandals, changing regulations, shareholder activism, natural disasters, cyber threats, reputation risks and more.

Who’s prepared to deal with all of that? Your board had better be. Many directors will tell you they feel their responsibilities are expanding and the liability they are subject to increasing, so it is important that companies make sure their board members receive the best preparation available to help them handle a tough job that is only getting tougher.

Director education programs are one way corporate secretaries can help board members enhance their abilities to deal with today’s more complex business challenges. Whether through a program at a top university or a conference- styled program offered by a governance organization or regulator, director education pays immediate dividends.

‘Unless a board’s members stay on top of governance issues, the company is going to become obsolete,’ warns Patricia La Malfa, associate director of executive education at the University of Chicago Booth School of Business. ‘They need to understand the emerging trends and conditions so they can improve the future performance of their company.’

Educated boards can affect profitability

When the world’s biggest commodity trader, Glencore, announced that it was going public earlier this year, the company was immediately pushed into the spotlight. Glencore’s $11 billion stock offering in May was the largest ever on the London Stock Exchange. But the historic event could have been far less successful because of a slip of the tongue by the Swiss company’s chairman, Simon Murray.

Murray’s comments in a newspaper weeks before the offering suggesting that women were a risk to hire because they get married and become pregnant had analysts and industry experts fearing the company’s initial offering price would be substantially lowered.
Furthermore, many analysts questioned whether Glencore’s board of directors was sexist and possibly unprepared to take on the pressures of going public.

Lord Davies, the former British banker who carried out the government’s review into women in boardrooms, told UK newspaper the Guardian: ‘I’m very surprised by the comments. They are disappointing and I think are illjudged and inappropriate.’ Although Murray was able to make a public apology that allowed Glencore’s offering to go off as planned, his slip of the lip shows how a board member who is not properly educated about dealing with the press can unwittingly sink an organization.

Selecting the right director program

Corporate secretaries are not only charged with upholding the high standards of a corporation’s legal department, but are also responsible for preparing their company’s board of directors for communicating with shareholders and clients, among other duties. Director education programs can be used to strengthen the weaknesses of individual board members and update directors’ knowledge on corporate governance issues, compliance matters and industry trends.

Although the best-known director education programs are run by universities, there are also some highly regarded customized programs run by governance institutes and other entities. Corporate secretaries will have to determine whether a classroom-styled education featuring professors or a more personalized approach that uses industry speakers and experts is a better fit for their board members.

Stephen Brown, associate general counsel and director of corporate governance for New York-based TIAACREF, says corporate secretaries ought to suggest when board members receive education, and how much. He recommends that corporate secretaries work with directors to find the right courses to address the group’s weaknesses.

‘Corporate secretaries not only provide advice to boards, but also have to make sure directors are up to speed with the changing regulatory environment,’ explains Brown. ‘Additionally, there is increasing pressure from shareholders to hear directly from the board. No corporate secretary is going to allow a director to talk to shareholders unless he or she is aware of current best practices
and is able to respond to the new demands placed upon him or her.’

Brown, who also advises the management and boards of the TIAA-CREF group of companies on internal corporate governance operations and director education, believes new directors should ‘focus broadly and take more than one [director education] course’, while experienced directors should take ‘a deeper dive into a specific subject area.’

While Brown leans more toward university programs, Lucy Marcus, founder and chief executive of Marcus Venturing Consulting, suggests corporate secretaries take a more customized approach to educating their boards. While acknowledging that there are some very good course offerings at universities like ‘Yale, Harvard, Stanford and UK-based Cranfield’, she says there is an
economic reality to enrolling in such programs. ‘Directors are very busy and they don’t always have the time to go off to courses,’ Marcus explains. The board chairman also says it can be costly for one director who serves on multiple boards to take courses, which can cost thousands of dollars each.

According to global executive search firm Spencer Stuart, the average large US corporation has a board comprising approximately 11 directors. Since a corporate board of that size would rack up many thousands of dollars in course tuition and expenses – before you even factor in the relative cost of all that time spent out of the office – it follows that university courses can be an expensive route for larger companies.

Instead of sending directors off to college, however, Marcus advocates hiring speakers (even someone internally from a different department) to deliver a tailored discussion with the board. She suggests that speakers can visit the board once or twice a month or even quarterly. In turn, this will allow the board members to work together and receive guidance to overcome any challenges they might encounter.

‘I had someone come in and talk to my board and noticed that this method helped focus the mind of the directors around the table,’ says Marcus. It also helped her determine whether the board chemistry and interaction between the board members themselves was improving. ‘[The speakers] were able to see whether the whole board can operate together,’ she adds.

Janet McGinness, senior vice president and corporate secretary for NYSE Euronext, also prefers a more specialized approach to director education. At NYSE Euronext, internal peer-exchange conversations are valued, and oneon-one meetings with senior management teams to learn more about business structures are encouraged. ‘If the board says it would like to take a dive into a particular area, we provide a program for the directors led by the person who has the particular expertise in that area,’ McGinness says. NYSE Euronext also offers this type of customized director education program to all companies that are listed on the exchange.

Whichever way corporate secretaries decide their companies should educate their boards, the process must be ongoing and always improving. La Malfa says that while all board members are committed to boardroom excellence, they need to make a greater commitment to improving their knowledge and the collective knowledge of their entire board. ‘They do take serious the job of reducing the risks for the shareholders, but they can only do that if they are on top of the latest trends in governance,’ she points out. 'But they can only do that if they are on top of the latest trends in governance.'