The Changing of the Board?

By Ostro-Landau, Nilly | Chief Executive (U.S.), June 1, 1996 | Go to article overview

The Changing of the Board?

Ostro-Landau, Nilly, Chief Executive (U.S.)

Who will be your next director? Probably a white, male, American baby boomer who's already a corporate executive, according to a CE/Heidrick & Struggles survey. What are respondents looking for? Specific expertise wins out over international representation and diversity for diversity's sake.

Whether corporations are actively seeking a complete and radical transformation of their boardrooms or are reasonably happy with the characters who are currently assembling there several times a year, one thing is clear: The boardroom has become increasingly hallowed ground, with both corporations and board members taking both board composition and board responsibilities more seriously than ever before. Gone are the days when a board was simply an "old boys club" devoid of real authority or responsibility. Today's directors are playing a demanding, hands-on role, helping to determine the strategic direction of the organizations under their stewardship, as well as to resolve ongoing operational issues.

Increasingly, companies are seeking directors with defined sets of skills and expertise who can add real value to their strategic objectives, not just rubber-stamp decisions. As a result, finding the best candidate has become a tougher job; not just "anyone" will do. Indeed, a recent survey by Chief Executive in partnership with Heidrick & Struggles found that slightly more than half of 709 respondent companies are finding it more difficult to locate qualified directors. Why? "There's a general decline in the available pool of talent," explains Robert W. Lear, executive-in-residence at Columbia Business School, former F.&M. Schaefer CEO, and longtime corporate-governance expert. "As the director's job gets more complicated, many executives find they have less time or inclination to serve on multiple boards." Indeed, the primary reason for declining invitations to serve on boards-cited by 43 percent of respondents-was "lack of time."


At first glance, companies appear to be split down the middle on just how difficult it is to find the right candidates. But of the 44 percent actively planning to change their board composition in the near future, 58 percent said they are having trouble finding Rood directors.

These "active seekers" also expressed a keener interest in issues of diversity and expertise on their boards. Clearly, those companies that are currently looking for directors are much more likely to run into some of the critical issues affecting boards today (see chart). They are, for example, much more likely than the general sample to be seeking minorities, women, and non-U.S. executives for their boards: 53 percent, 58 percent, and 53 percent respectively, compared with 18 percent, 30 percent, and 15 percent for the broader but generally less involved sample.

The divergence can be partly explained by the fact that more than 80 percent of all respondents head small to midsized companies-those with $500 million or less in annual revenues. Such companies often are able to escape the public spotlight and do not face the same pressure as lae companies to adopt leading-edge corporate-governance practices such as diversity and international representation. While some smaller companies are following in the footsteps of their larger brethren in terms of board diversity, most seem content with the status quo, despite the disapproval of governance gurus. Thus, with more directors sitting on the boards of the 10,000 smaller listed companies than there are on the 500 boards of the largest ones, the question of who is setting the trend is open for debate. "It may be the case of the tail wagging the dog," says Lear.

Nevertheless, though the percentage of respondent companies interested in hiring minorities and women is relatively small, Lear points out, it is much higher than it used to be. "Five years ago, it may have been that only 5 percent would have expressed interest in hiring women and 1 percent in minorities. …

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