Building Better Board of Directors

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Information about Building Better Board of Directors
Business & Mgmt

Published on March 3, 2014

Author: AngieSalmonasalmonef



Angie Salmon leads the Corporate Directors Search practice at EFL Associates. She facilitated a panel discussion at a recent National Association of Corporate Directors (NACD) meeting covering corporate board succession planning, director recruitment, composition and diversity, board leadership structures and board assessments.

©Copyright 2007. CBIZ, Inc. NYSE Listed: CBZ. All rights reserve d. Building Better Boards Angie Salmon, EFL Associates CBIZ Human Capital Services, Inc. February 27, 2014

Trends in Board Governance • Leadership Structures • Succession Planning • Board Composition/Diversity • Director Development • Service Restrictions

Board Leadership • Define board/committee chair qualifications to utilize for evaluation and recruitment • Independent chairs are a hot topic for shareholders – Ranked third for proposals put forth in the 2012 proxy season • Boards are trending toward splitting chair and CEO roles – 45% in 2013 versus 23% ten years ago Deloitte. “The Split CEO/Chairman Structure Debate.” The Wall Street Journal, CFO Journal 2012 Spencer Stuart US Board Index 2013

Board Succession Planning • Responsibility of nominating/governance committees • Lack of planning can lead to: – Entrenchment – Challenges to re-election of directors – Shareholder proposals • Institutional investors are increasingly expecting boards to have and disclose director succession plans Respelier, Patrick and Scott Gootee “Nominating & Corporate Governance Committee Update” Stinson Morrison Hecker Director’s Institute & 2014 Proxy Season Workshop. 4 December 2014

Board Succession Planning • Plan ahead • Determine preferences rather than replicating background of departing directors • Consider long term company strategy and emerging trends against the current and future board composition Hanson, Lee & Les Csorba. Heidrick & Struggles Governance Letter “Be Strategic…” 2013

Board Composition Matrix Critical Requirements Director/Candidate Cultural/Gender Diversity Financial Expert (Audit Chair) Industry Operations 1 Illbe There 1 Justin Case Helen Back 1 Ima Example 1 1 Social Media Totals Preferred Attributes Entrepreneurial Customer Knowledge IPO Experience 1 1 M&A Sales/Business Development Total Critical Overall Total 1 1 3 1 1 2 3 4 3 4 2 3 1 1 1 John Doe 1 1 1 Brian Melby 1 1 1 1 2 Jack Nimble 1 1 Industry, financial, and operational expertise cited most often

Board Composition - Diversity • Boardroom diversity is progressing slowly • Customer demographics ≠ director diversity – 73% of Fortune 500 directors are white men and four of five new board appointments are filled by men • Lack of diverse perspectives can pose a governance risk…and PR problems (Apple, Twitter, Facebook) • Forward-thinking boards consider skills/experience not just titles Alliance for Board Diversity. “Missing Pieces: Women & Minorities on Fortune 500 Boards” August 2013 Catalyst, “Setting the Record Straight.” 2012

Director Development • Orientation needs to prepare new directors for more immediate impact • Continued director education is critical in dynamic business environments • Board Assessments & Evaluations – Most significant listed companies in the US have an annual assessment process – not all are robust – 35% of directors believe that someone on their board should be replaced Rogers, Mark. Forbes “Sarbanes-Oxley Ten Years Later” July 2012 Spencer Stuart US Board Index 2012

Service Restrictions • Limitations on executive outside board service are becoming more prevalent • US companies are trending away from mandatory retirement and term limits – Companies with a mandatory retirement age dropped from 79% to 73% in the past five years – Only 16 companies on the S&P 500 had director term limits in 2013, none shorter than 10 years (down from 25 companies in 2009) – 64% of directors have served 10-15 years and another 5% have served 15+ years Hymowitz, Carol & Jeff Green. Businessnweek “Corporate Directors Get Older, Hold Their Seats Longer” May 2013

Panel • Tim Barton – Executive Chairman & Founder, • Robert Druten – Audit, Finance, and Nominating/Corporate Governance Committee Member, Kansas City Southern – Board Chair & Nominating/Corporate Governance Committee Member, EPR Properties • William Lyons – Nominating/Governance Committee Chair, NIC, Inc. – Nominating/Governance and Compensation Committee Member, Morningstar, Inc.


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