Corporate boards serve to protect the interest of shareholders and investors—but does the board’s responsibility end there? In today’s fractious business world, maybe the time has come to rethink board members’ responsibilities to consider other company stakeholders. New research from The Conference Board‘s Governance Center examines what corporate board directors believe their role entails.
In this new report, Just What is the Corporate Director’s Job? Directors’ Perspectives on the Board Member’s Job Description, the viewpoints featured result from individual interviews and a panel discussion with board directors of companies from multiple sectors.
“As our report points out, over the past six decades, the evolution of our capital markets and legal and regulatory regimes has had the effect of changing how different stakeholder groups view the director’s role in fundamental ways,” said Doug Chia, executive director of the Governance Center at The Conference Board, in a news release. “By achieving greater consensus around this position, companies of all sectors will benefit from boards with greater clarity and focus—absolute musts amid heightened global competition.”
Highlights from those conversations include these viewpoints:
Directors need to communicate regularly with each other and management about complex issues to be effective
They also need the skills necessary to compromise and gain consensus on important issues such as executive compensation, capital allocation, and shareholder engagement.
CEO succession planning is one of the corporate board’s most important jobs
Director panelists agreed that there must be a regular process the board and management stick to over several years, and that it needs to go beyond just the CEO.
While disclosure of shareholder engagement plans is not a regular practice, directors understand the importance of having such a plan
One director panelist offered three things a board can do before engaging a shareholder: determine how much company stock the shareholder owns, communicate with the company’s investor relations department, and understand if the shareholder has an issue with a particular governance area.
There should be a balance of generalist and specialist directors
While there was not a consensus on whether boards need any specialist directors versus hiring outside consultants, most directors that shared their thoughts believe all directors should have basic knowledge about certain areas: the company’s business, its industry, its competition, and how to run a business.
Boards can stand to develop a gap analysis of what skills directors have and what skills they need
One director explained the reason for a third-party evaluation: “The skills of board members from 15 years ago may not be what the board needs now.”
Board diversity should not be considered a separate goal, but rather it should be part of the regular talent search
At least two directors who shared their thoughts believe that the best way to address the issue of having a low number of women and minorities on a board is to consider a larger talent pool of director nominees that doesn’t have to always include CEOs.
While new activist directors may tend to have their own constituency, incumbent directors should proactively open lines of communication
One director panelist opted to take such an activist director out to lunch to acclimate herself and found that person had some valuable insight into the company.
It is difficult for boards to remove a fellow director because of the collegiality and respect they have for each other
Directors are conflicted about this. On one hand, they say it is awkward to initiate a discussion to remove someone from the board who is not working out, but on the other, they acknowledge the problem with leaving someone on a board who is no longer contributing.
“Directors we have spoken with agree that it is awkward to discuss replacing a current director who is not competent,” said Gary Larkin, report author and research associate at The Conference Board, in the release. “They also stress how boards can ascertain the skill sets of their board by conducting a gap analysis. And most agree that while the days of the ‘country club’ boards are over, more needs to be done to make boards more diverse.”
The report marks the second of several Governance Center reports that feature insights from boardroom stakeholders about the role of the corporate director. In addition to highlights from conversations with directors, the report includes results of a Conference Board CEO succession practices survey, a review and example of Fortune 500 company shareholder engagement plans, and examples of board diversity policies.