Anthony Goodman is the leader of the North American Board Effectiveness Practice for Korn Ferry, and he understands the challenges boards face meeting the challenge of becoming a high performing board – and maintaining excellence. In this episode we discuss some of those challenges.
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Analyzing emerging trends in board evaluation practices
How boards can adapt to support ESG efforts
Quotes
Who is responsible for ESG?
The idea that ESG is not going to impact the entire board and every committee is a mistake. If you think about ESG as it’s supposed to be, it is about the company’s strategy and its risk management. What you’re really asking is, “what are the material risks and opportunities of ESG.”
ESG Expertise
Question: With the increasing emphasis on ESG, does that mean board need a new set of skills and tools and, if so, what are some of the skills and tools they should be considering?
What boards need to do first is understand “what are the material risks and opportunities for our company, and when they have done that assessment, or management has done that assessment for them.” Then the next question they need to ask is, “As we look at the issues for which we need to provide oversight, do we have the skills and experiences on the board to do that?
If there’s something glaringly missing, how do we get that skill into the board? But maybe it’s about the whole board upskilling. Maybe it’s about the fact that everyone on the board actually needs to understand what the material risks to the business are.
Michelle Edkins, who runs the stewardship team globally at BlackRock, has this wonderful saying: “A board made up of one trick ponies is a circus.”
Board Effectiveness
How involved is the board in the strategy how involved has the board been in helping to develop the strategy and overseeing the strategy? How involved are they in risk management and identifying and making sure that risks are being dealt with? How effective have they been in hiring and firing CEOs
The question is who can the board get feedback from? It’s often just within the board itself, but you could, for instance, ask senior managers whether the board is actually adding any value to them. Is it providing guidance? Is it providing challenge? Do they feel stretched by this board or not?
You could ask your investors. You could ask your audit firm. You could ask your law firm. There are a number of stakeholders that are in and around the boardroom that observe how the board is doing.
Board meeting agenda
It takes a certain amount of courage to ask for an outside-in view of the board. It’s much easier to do than an inside-out view and just ask the other directors how you’re doing.
People have got a lot of choices these days. The idea that boards are the buyer, actually no, boards now have to sell themselves to candidates, particularly good candidates who are women – who are people of color, who are digital natives – because those are the people everyone want on their board, and the real question is, why should they want to come on your board?
I think we’ve all got to be grownups about this, that sometimes it’s just our time and we have to be willing to let go, but I think a lot of people’s personal identity is tied up with being a board director, and if this is your last public company board, you’re going to try and hang on to it as long as you can. Otherwise, what are you going to tell people down at the golf club that you do? You’re a board director.
I sometimes say collegiality is a mask that covers up a lot of problems underlying in the board, and one of them is the inability to let go and allow people to make a dignified exit from the board.
Big Ideas/Thoughts
Board Culture
The question that comes to my mind here is accountability: how does a board hold management accountable for building the culture.
I think it’s very hard to draw a straight line between an effective board and an effective company, but I think when the board is ineffective, it starts to erode what the company can do, what kind of strategic opportunities it has, the quality of the people it can recruit into senior management. A bad board, I think, can create a lot of havoc inside a company, but a good board doesn’t necessarily make for a good company.
Boards are often lagging indicators around strategic change. They’re not always leading indicators and we often see companies where the board is quite a way adrift of where the company has evolved to.
I want to give you another C-word that boards should be thinking about and that’s courage. If we had courageous conversations between board chairs and board directors, between non-gov chairs and board directors, this [off-boarding] would be so much easier. But collegiality often trumps courage, and I think that’s a big problem for boards.
Diversity
Just to go back a little bit, so why is there this focus on diversity? A lot of it actually came via the investors, the investor community. Why did they want boards to become more diverse? What they’re really trying to do, I think, is to make sure that boards are cognitively diverse, but that is something that is really hard to do from outside.
You can’t assess whether a board is cognitively diverse from the outside, and by the way, there’s nobody trying to assess whether they’re cognitively diverse on the inside either. What do investors say? They’ve said, “Okay, if we knew that the people on the board who definitely come from different backgrounds and different approaches to life, then we could imagine there might also be cognitive diversity.”
Our own practice, our board practice over the last couple of years, has been running at about 55% of all the people we put on boards in the US are women or people of color, I think that’s pretty consistent across all the search firms.
A lot of first-time directors, women and people of color, are not perhaps being heard as much in the boardroom as they would have liked. I think a lot of board chairs probably think they’re doing a good job trying to get everybody’s voices to be heard, but I think that boards have to work quite hard to be inclusive and to make sure everyone feels comfortable in the boardroom.
Board Succession Planning
They ought to be looking at the strategy of the company, thinking about where it’s heading over the next three to five years, and then looking at the skills and experiences that they have today and understanding the gaps. Let’s say 10 years ago, the company might’ve been a purely domestic company. Now it’s made a number of acquisitions globally, and there’s nobody on the board with international experience.
Think about what next three, four, five directors are going to look like, and wouldn’t it be great if out of those five, at least two, maybe three were going to be women that a certain number would be people of color, a certain number of them would be under the age of 56. In that way, if we land on some fantastic former CEO today, happens to be a white male and doesn’t check any of those other boxes, we can still have that person on our board because we know we’ve got four more slots to fill, and we’re going to make sure that in that batch of five people that we’ve got all the skills, experiences, and backgrounds that we want as opposed to trying to load them all on one person.
Episode Transcript
Joe: [00:00:00] Hello, and welcome to On Boards, a deep dive at what drives business success. I’m Joe Ayoub and I’m here with my co-host, Raza Shaikh. On Boards is about boards of directors and advisors and all aspects of governance. Twice a month this is the place to learn about one of the most critically important aspects of any company or organization; its board of directors or advisors, as well as the important issues that are facing boards, company leadership and stakeholders.
Raza: Joe and I speak with a wide range of guests and talk about what makes a board successful or unsuccessful, what it takes to be an effective board member, what challenges boards are facing and how they’re assessing those challenges, and how to make your board one of the most valuable assets of your organization.
Joe: Our guest today is Anthony Goodman. [00:01:00] Anthony is a senior partner with Korn Ferry where he is the leader of the North American Board Effectiveness Practice. He advises public and private company boards, including large non-profits, mutual funds and family-influenced businesses on a range of confidential matters from board chair succession to board composition. He’s an experienced advisor to non-executive directors and C-suite executive teams in the United States and Europe on organizational and leadership strategies, the alignment of leaders and organizations for effective oversight of environmental, social, and governance opportunities and risks, that’s ESG, and improved relationship with stakeholders.
Raza: Anthony spent more than 12 years as a partner at Tapestry Networks, an organization convening board directors, investors, and regulator for peer learning and mutual understanding. He was the [00:02:00] founder and co-chair of the Shareholder Director Exchange ,that’s SDX, which developed the first protocol for board-shareholder engagement in the United States. For five years, from 2009 to 2014, Anthony wrote the leading viewed column for Financial Times.
Joe: Anthony is a board director of Boston Scores, a non-profit providing after-school programs in public schools. He is a member of the National Association of Corporate Directors (NACD) and the International Corporate Governance Network. (ICGN). Welcome, Anthony. It’s great to have you today on On Boards.
Anthony: Thank you, Joe. And thank you, Raza.
Joe: As the head of Board Effectiveness in North America for Korn Ferry, the first question I have is, how does a board know if it is [00:03:00] effective?
Anthony: I think that’s a great question, Joe, and I would answer that in a couple of different ways. First of all, I think one would potentially judge the board on the outcome, so how involved is the board in the strategy? I don’t think it’s fair to judge the board entirely on whether the strategy is successful or not, because it’s going to be developed and executed by management.
But how involved has the board been in helping to develop the strategy and overseeing the strategy? How involved are they in risk management and identifying and making sure that risks are being dealt with? How effective have they been in hiring and firing CEOs? That’s another major responsibility they would have. Have the transactions that they’ve approved value adding or value destroying, and are they regularly refreshing themselves so that they are keeping [00:04:00] pace with, if not ahead, of where the company’s strategic evolution is headed?
I think those are some of the things you could look at to say how is the board doing on each of those things, but at the end of the day, if you want to know whether you’re effective or not, and this is true for any of us in our jobs, you have to get feedback. Now, the question is who can the board get feedback from? And often it’s just within the board itself, but you could, for instance, ask senior managers whether the board is actually adding any value to them. Is it providing guidance? Is it providing challenge? Do they feel stretched by this board or not?
You could ask your investors. You could ask your audit firm. You could ask your law firm. There are a number of stakeholders that are in and around the boardroom that observe how the board is doing.
[00:05:00] Finally, of course, you can bring in a third party to conduct an independent evaluation and they will tell you how you’re doing. But I think there are ways boards could be much smarter about evaluating their effectiveness than they currently are.
Joe: Do many boards go about determining their effectiveness in the ways you just suggested primarily by looking to outside or third parties, even though it may be internal, such as senior management, do many boards actually do that?
Anthony: Not that many, no. I think among the larger cap public companies, I think that’s more common than other types of boards. It takes a certain amount of courage to ask for an outside-in view of the board. It’s much easier to do than an inside-out view and just ask the other directors how you’re doing.
Oftentimes, even the way you do that is a bit antiquated. [00:06:00] If the way you’re getting that feedback is just by doing the survey, perhaps administered by your corporate secretary and you’re answering questions on a one-to-five scale and there may be a box to comment, but who wants to put in a thing in writing these days? That’s probably not a very effective way of finding out how you’re doing, but that’s what a lot of boards do.
Joe: One of the things you said on a number of those points was how engaged or how active is the board in certain things like strategic planning, which makes sense to me. Is active and engaged enough for a board to consider itself effective? I mean, just being active in helping create a strategic plan doesn’t seem to rise to the level of, is this a good plan? What have we done to make it better?
Anthony: Yes, exactly. What are the skills and experiences of the board members that are going to add value when you’re spending time on the strategy? There [00:07:00] are boards today still where the board meeting is a peremptory two-and-a-half to three-hour meeting four or five times a year. We thought maybe those boards all have to change, but not all of them have.
When you look at those boards, you often find that the directors themselves, there’s nobody on the board who actually really knows anything in depth about that business, and so if you’re the CEO, why would you want a longer board meeting? I mean, what value is that going to create for you?
You’ve got to know something about something, I think, in order to be able to be active and engaged. Just getting excited and asking lots of questions may or may not be useful, but asking them because you’ve seen it before or because you’ve had this experience or because you’ve sat on other boards that had the experience is going to give much more weight to what you’re doing.[00:08:00]
Joe: I guess a question, we say in our intro that board of directors can be one of the most valuable assets of any company or organization. Is there, in fact, a link between what we would consider successful companies and effective boards?
Anthony: I think it’s a tenuous link. I think we’ve all liked to say that the very best companies that are performing really well have fabulous boards, and that’s not always the case. I’ve also worked with companies where I thought the board was absolutely fantastic. It was superbly diverse. It had wonderful skills and experiences. This was in a retail environment and it completely missed the omni-channel change.
I think it’s very hard to draw a straight line between an effective board and an effective company, [00:09:00] but I think when the board is ineffective, that does start to erode what the company can do, what kind of strategic opportunities it has, the quality of the people it can recruit into senior management. A bad board, I think, can create a lot of havoc inside a company, but a good board doesn’t necessarily make for a good company.
Joe: Interesting. We sort of know what’s supposed to happen if there’s a relatively effective board and they view the CEO as someone that’s not particularly effective, he or she gets fired and they find a new CEO. What about the situations where there’s a great company, a strong CEO and maybe senior management team, but the board is basically ineffective, and it kind of rides on the coattails and if they look at the stock price and things are great with the market and investors love them, but [00:10:00] it has nothing to do with the board’s performance. It’s really something about what management has done, or maybe what the culture that this particular board inherited. How does that play out?
Anthony: Boards are often lagging indicators around strategic change. They’re not always leading indicators and we often see companies where the board is quite a way adrift of where the company has evolved to. I’ll give you a very stark example. A few years ago, I was working for an oil field services company that had made a decision that it really wanted to be in the shipbuilding business, and so this was quite a big strategic pivot, and they had started to make that pivot. They have brought people into the management team to help with that.
But when you look to the board, everyone on the board was an oil-and-gas expert, nobody was a shipbuilding expert and the board was like the last piece of the jigsaw [00:11:00] that was changed. I think companies and boards miss a trick that if they are going to be changing the strategy, if they’re going to be doing some form of transformation in the business, actually changing the board ahead of the change, or at least at the same pace as the change, would give you a much better chance of being successful, because you’ll have people there who can ask the right questions, who can share their experience, who can provide coaching and mentorship to management, who can help inform the other board members.
But in the absence of that, the board is actually really captive to management because there’s nobody on the board that can successfully challenge management. I think getting boards to recognize much earlier on that they need to change as well and thinking through what that change looks like and executing it, I think would be very, [00:12:00] very helpful to a lot it.
Joe: That makes a lot of sense. When a company goes through a merger, one of the things that I think we all would agree is that it’s important to look at culture. Are these two companies compatible? Because when they aren’t, it’s highly likely there are going to be problems and it may not work at all, and I would say the Boeing McDonnell-Douglas example is probably a good one. Without necessarily commenting on that particular situation, how do you address that if you were brought in at a time when you could actually do something about a merger of cultures that didn’t look right or might present problems, what would you advise?
Anthony: I think the question that comes to my mind here is accountability, so how is the board holding management accountable for building the culture. Now, of course, that implies that they’ve had some kind of conversation [00:13:00] about what they want the culture of the one company to be, and I think a lot of boards have only in the last few years started talking about organizational culture as a board issue. Prior to that, it was always a last management’s responsibility.
But the board is always challenged in the area of culture in the organization because, think about it a bit, part time they come in four to six times a year, maybe a little more often in Europe to have a meeting. Oftentimes they’re meeting in the corporate headquarters or a nice hotel somewhere, and they don’t really see the company. Good companies will spend time doing site visits and try and get directors in front of employees, but it’s a bit like when the queen mother comes to go and visit a town, the whole town would get painted before she arrived and she would think that every town in Britain just look beautiful.
The same thing happens when the board comes to [00:14:00] town, so it’s very hard for boards to get a handle on culture, but they’ve got to try and they’ve got to at least have management talking about it in the boardroom, and they’ve got to understand, well, what are the metrics? How are you going to measure whether or not you’ve created the right culture? How does that feed through into how you’re going to reward management who gets promoted?
There are a lot of levers that management can pull to impact on the culture. Are they doing that? And what kind of dashboard could be created for the board so they can have some kind of a handle on what’s going on, but we’ve seen culture problems cause issues for lots of companies; banks, oil companies, it is an issue and it isn’t just when there’s a merger. It can be where you’ve got groups of employees that are fundamentally different to each other. how do you treat those employees?
The compensation committee, I think, has increasingly taken [00:15:00] this on for a lot of boards. Many of them are being renamed, as you know, compensation, talent development, compensation and human resources as a way of getting the board to spend more time going much more deeply into what is the talent. How are we attracting, developing, rewarding, retaining the talent that we have. And of course the great resignation has just made that a much bigger issue. It’s very hard now for boards not to be talking about these issues.
Raza: Anthony, there’s a lot of momentum now behind the ESG conversations. How have you seen boards dealing with that conversation now?
Anthony: Yeah. Look, I think the talking point is there. Boards want to talk about ESG. I think many of them are still questioning how to organize themselves to do that, and they’re starting to ask questions about what kind of expertise do [00:16:00] we need in order to have these conversations. If you take the organization side of it first, the inevitable question we’re asked is, is this a full board issue or should one of our committees deal with this, or should we have a new committee just to do ESG?
I think for each company, the answer will probably be slightly different, but the idea that ESG is not going to impact the entire board and every committee is a mistake. If you think about ESG as it’s supposed to be, it is about the company’s strategy and its risk management, because what you’re really asking is, what are the material risks and opportunities of ESG. Now, whether that’s climate change, whether that’s societal change, whatever the issues are for your company, how is it going to affect our strategy and how are we going to manage the risks? That’s a full board issue.
At the same time. The idea that you could [00:17:00] just kind of pigeonhole this into non-gov and that somehow the audit committee doesn’t need to be involved when we hear investors saying, if the audit firm doesn’t mention climate risk as one of the critical audit matters in their report, that’s a red flag that the board is not providing proper oversight. If the comp committee is not asking about these KPIs that we’re setting around ESG for management, how are we compensating people? Do we need to change anything?
Raza: Does that mean that the board itself needs a new set of skills and tools, and what are some of those skills and tools that they should be looking at for overseeing ESG?
Anthony: That is a great question. I think the SEC’s proposed rule on climate related, actually I think, is going to make more intense scrutiny around this in the years ahead. First of all, I think the easy answer is [00:18:00] that boards are going to say, “Oh, we now need a climate expert of some sort. We need an ESG expert on the board.”
My response to that is it didn’t help ExxonMobil defeat Engine Number 1, and interestingly, when you look at that situation from last year, ExxonMobil actually did have a climate scientist on its board. It had one there since I think 2017 and what Engine No. 1 did was put people who had more industry knowledge on the board. There’s a lesson there I think , that’s the first thing.
I think what boards need to do, first of all, is understand what are the material risks and opportunities for our company, and when they have done that assessment, or management has done that assessment for them, then the next question they need to ask is, “As we look at these issues that we need to provide oversight of now, do we have the skills and experiences on the board to do that?
If there’s something glaringly [00:19:00] missing, how do we get that skill into the board? But maybe it’s about the whole board upskilling. Maybe it’s about the fact that everyone on the board actually needs to understand what the material risks to the business are, or it may be about bringing in consultants or setting up an advisory board. I think there’s lots of potential answers once you’ve done your homework and you’ve understood what the issues are.
Raza: I think what you also refer to, I think the SEC regulations/requirements will also drive as a trigger or a mechanism for boards to kind of up their ESG game, and will require disclosures and other things that the boards will need to come up to speed with.
Anthony: Interestingly, they also came out with a proposal a few months earlier around cyber risk and they asked, are we going to need to disclose the expertise of directors around [00:20:00] cyber security?
I have colleagues at Korn Ferry who then said to me, “Oh, this is a great opportunity to put more chief information/security officers on board and yes it is, but at the same time, do those people add value to all of the work of the board, because I think the last time we had a cyber security focus, maybe five, six years ago, there were CSOs put on boards and there was some buyer’s remorse by non-gov committees that many of those people were not well-rounded enough to be able to contribute to CEO succession, broader strategic issues, other risk issues, and what they found was that if you put people on the board who say it led to digital transformation, but they were a business leader who led a digital transformation, those people often actually had a really good [00:21:00] working knowledge of technology, including cybersecurity, and they can add value across the board, whereas the one-trick expert doesn’t necessarily, you already have to have a financial expert if you’re going to have a cyber security expert and an ESG expert, and given what we just said about having human capital expert on the board.
Michelle Edkins who runs the stewardship team globally at BlackRock has this wonderful saying when she said, “A board made up of one trick ponies is a circus.”
Joe: Well said.
Raza: Just finishing up on this, the common thread between the cyber things and even ESG is the notion of risk, and I think that’s where it kind of relates to how you tell your ESG story to investors, how can boards be more effective, and because now investors are [00:22:00] demanding and they view it as a risk to the organization. How can boards be more effective in telling their ESG story?
Anthony: Well, the one thing I would say is, and if you listen to investors carefully, they usually use some formulation where they talk about ESG-related risks and opportunities. I do think the opportunities piece is quite important. We were doing some work for a company in the automotive industry and they provided auto parts and it emerged that actually every single one of these parts was created using businesses that were using exclusively geothermal energy, so they could be claiming that every single auto part produced by this company is produced with clean energy, and I think that would be a very attractive opportunity to the OEMs who are all trying to get us to drive cleaner and [00:23:00] greener cars. But the board didn’t know. I’m actually new. We found out by accident looking in the small print of one of their reports that hadn’t gone in front of the board and we sort of flagged this up, and now of course, it’s something that will get mentioned in the proxy when they talk about ESG.
I think it comes down to a question of thinking about the balance of risks and opportunities here, but being clear, it is about both, and being really clear what the company is doing, like I think disclosure, the investor point of view, is really about, can you tell us what you’re actually doing?
The problem is, when you write stuff that you’re not doing, greenwashing, because the whole point of the disclosure is that it should be a forcing mechanism that just forces the company to do something because they’ve got to say something.
Joe: In your bio, it talks about Korn Ferry working with [00:24:00] companies on ESG enablement. What does that mean?
Anthony: ESG enablement, yeah. Look, we talk very much about how, if you decide that you’re going on an ESG journey, and I think every company is on an ESG journey, somewhere on that journey, some are further ahead than others. I doubt anyone ever arrives because we’re continuously evolving our strategies and our businesses and hopefully they’re growing.
But as you embark on that journey, ESG enablement is really about the people and culture aspects of that. Do you have the right people that you need? Do the people you have understand what their roles and responsibilities are? How are you compensating people, including at the top level, but all the way through the organization? Does the organizational culture support this ESG journey that you’re on?
It’s really a whole series of things that [00:25:00] companies need to do once they’ve identified their ESG strategies, how are we going to execute this, and the answer is always through people and if you do anything with people, it has an impact on your culture, and so how are you going to transform your organization to deliver.
Joe: Let’s talk a little bit about board composition. One of the biggest topics for a while, and rightly so, has been diversity. Talk a little bit about the momentum that’s gained and what is going on with the efforts of both public and private companies to diversify their boards.
Anthony: Just to go back a little bit, so why is there this focus on diversity? A lot of it actually came via the investors, the investor community. Why did they want boards to become more diverse? What they’re really trying to do I think is to [00:26:00] make sure that boards are cognitively diverse, but that is something that is really hard to do from outside.
You can’t assess whether a board is cognitively diverse from the outside, and by the way, there’s nobody trying to assess whether they’re cognitively diverse on the inside either. What do investors say? They’ve said, “Okay, if we knew that the people on the board who definitely come from different backgrounds and different approaches to life, then we could imagine there might also be cognitive diversity.
If we got more women and people of color and people from different socioeconomic backgrounds and younger people on the board, we could hope that there would be diversity of thought in the boardroom. At the end of the day, those people who argue, “Well, I’m not interested in diversity around gender or people of color. I’m only interested in diversity of thought,” [00:27:00] it’s the same discussion. It is putting women on board, putting people of color on the board because you want more diversity of thought than you could get from 11 white men.
That’s kind of the background to this. What we’ve seen is boards have made extraordinary efforts to get more women on. We know that there are very few in the large caps now. I think none in the S&P 500, all male boards. As you move down the long tail of public companies, the picture’s not quite so good when you get down to the small caps in terms of people of color, probably a similar picture.
But there was a huge impetus after George Floyd was murdered and a lot of companies has made public commitments to do more around diversity in the company, as well as on the board.
Our own practice, our board practice over the last couple of years, has been running at about 55% of all the people we put on [00:28:00] boards in the US are women or people of color, I think that’s pretty consistent across all the search firms that that’s what it’s looked like so the new directors are coming on boards are more diversed.
They also tend not to have been on boards before, and I think one of the challenges we’re going to face over the next few years once we start meeting in person again after the pandemic is that we’re going to have, I think, a bit of an inclusion problem in the boards, because a lot of these first-time directors, women and people of color, are not perhaps being heard as much in the boardroom as they would have liked. I think a lot of board chairs probably think they’re doing a good job trying to get everybody’s voices to be heard, but I think that boards have to work quite hard to be inclusive and to make sure everyone feels comfortable in the boardroom.
Joe: [00:29:00] One of the things you said earlier was, interestingly, that boards are a lagging indicator, the last thing to change, whereas my instinct is, it should be the first thing to change. What are boards doing? What should boards be doing in order to be ahead of the curve?
Anthony: Yeah, I think boards ought to be doing board succession planning. Now, we know that they do in their own reckoning. When you look at these polls, they feel they’re doing a fairly mediocre job of management of succession planning. They’re doing an even worse job when it comes to board succession planning.
But thinking ahead, they ought to be looking at the strategy of the company, thinking about where it’s heading over the next three to five years, and then looking at the skills and experiences that they have today and understanding the gaps. Let’s say 10 years ago, the company might’ve been a purely domestic company. Now it’s made a number of acquisitions globally, and there’s nobody on the ward with [00:30:00] international experience. Nobody has actually lived and work.
That’s just a small example of digital transformation. The more obvious one on it now, every company is going through a digital transformation, but not every company has got a board with a lot of experience in digital transformation, because if the last time you were an operating executive was 10, 15 years ago, your experience is a lot less useful now than it was then, so taking an inventory of skills and experiences and backgrounds and matching that to the strategy and figuring out what the gaps are, and then not thinking about board searches are one-off, so what’s the next director going to look like?
But thinking about what next three, four, five directors are going going to look like, and wouldn’t it be great if out of those five, at least two, maybe three were going to be women [00:31:00] that a certain number would be people of color, a certain number of them would be under the age of 56. In that way, if we land on some fantastic former CEO today, happens to be a white male and doesn’t check any of those other boxes, we can still have that person on our board because we know we’ve got four more slots to fill, and we’re going to make sure that in that batch of five people that we’ve got all the skills, experiences, and backgrounds that we want as opposed to trying to load them all on one person.
Because when that happens, you get what we call the sort of purple unicorn factor, which is you asked your search firm or your poor old non-gov chair to do it on their own to go out and find somebody who cannot possibly meet all of those criteria and you can spend a lot of time and meet a lot of people and still not find anybody for [00:32:00] your board and you want to kind of end that paralysis and be able to make swift decisions.
People have got a lot of choices these days, the idea that boards were the buyer, actually no, boards now have to sell themselves to candidates, particularly good candidates who are women, who are people of color, who are digital natives, because those are the people everyone want on their board, and the real question is, why should they want to come on your board? But a lot of boards have not got to the point yet where they’ve realized it’s not a gift that we’re giving you, come and be on our board, it’s the candidates who are assessing two or three offers at the same time, trying to draw out what’s best for them.
Raza: Anthony, it sounds like that for newer board slots that are opening and getting filled, there is a lot of momentum in the positive direction of having diverse candidates being placed. But we also know that [00:33:00] new slots actually come up rare. I think we heard from one of the last guests that they figured that actually it’s statistically more likely to be hit by a lightning than to be placed on a Fortune 500 board. How can there be a capacity increase? I mean, it also relates to term limits and the culture around that. Boards like each other. How can there be some capacity increase to make room for more skills, more diversity and more modern skills to be as part of the board?
Anthony: Raza, I think you’re probably more likely to be hit by a lightning than asked to leave a board once you’re on it. If we go back to the process that we were talking about, this board succession planning approach, I think part of that actually has to be an honest assessment of who’s on our board now, and somebody who was adding tremendous [00:34:00] value a decade ago may not be the right person for our board today.
I think we’ve all got to be grownups about this, that sometime it’s just our time and we have to be willing to let go, but I think a lot of people’s personal identity is tied up with being a board director, and if this is your last public company board, you’re going to try and hang on to it as long as you can. Otherwise, what are you going to tell people down at the golf club that you do? You’re a board director.
I think it’s hard for people to let go and it’s very hard for boards to tell people to go. They’ve spent 10, 12, 15 years in this person’s company. It’s probably a man, so they know this person’s wife. They’ve played golf together. I sometimes say collegiality is a mask that covers up a lot of problems underlying in the board, and one of them is the inability to let go and allow people to make a dignified exit [00:35:00] from the board.
I think dignity is important here. I think there are ways to do it gently. I think there are ways to do it using evidence, having a third party come in and do that assessment for you. It makes it easier because then they can be the bad cop and you can be the good cop. But at the end of the day, we’ve got to be a lot better at asking people to leave and retirement age as a blunt tool, investors don’t like it particularly.
I was literally talking to a director today and their board retirement age is 72, and I said to him, “If Warren Buffett said, ‘I’m wanting to invest in your company and come and sit on your board,’ you’d change that retirement age tomorrow and get rid of it, wouldn’t you?” Of course, the answer is yes so age has nothing to do with it. I think tenure in many ways is more important.
One of the things I find fascinating, I mean, I have a British accent, and in the UK, in nine years you’re no longer [00:36:00] seen as independent. I’m not trying to make that case, but look at American non-profit boards, almost all the big ones have term limits. You can do three-year terms and you can have three or four three-year terms, and then it’s time to leave the board. But we don’t adopt that idea in public companies, and I sometimes think we should give it more consideration that we do.
In Canada, they’re starting to look at this, and they’re looking at 10 years. If you’ve been on the board 10 years, A, are you losing your independence? And B, are the skills and experiences that brought you to the board still things that we need, and are you as up-to-date as you could be? In all of this, let me just say this to tie a bow on it, I wouldn’t do retirement ages. I wouldn’t do term limits if boards really took [00:37:00] changing directors seriously doing serious board evaluations, including individual director assessment and getting really good at knocking on people’s doors or tapping them on the shoulder when it’s time to go, you wouldn’t need these other things.
Raza: Yeah.
Joe: Yeah, it makes sense. I would say that your argument about age limit and Warren Buffett works the other way with term limits. Warren Buffett is on your board, you have term limits of 12 years, and now you have to go tell Warren Buffett to leave. You’re right, age is a blunt instrument. Term limits might be slightly better, but the reality is that the only thing that’s really going to work is to have a better board culture around future planning. Like every other strategic plan, here’s what we plan to do in the next three to five years and let everyone in on it and let everyone have a voice in on it, and so no one feels like they’re being singled out. We’re all in [00:38:00] this to make the company better and you can help us do that by helping us plan what our board of the future is going to look like.
Raza: Joe, it all starts with when they’re being recruited onto the board with those expectations, like onboarding is such a crucial element of that, because that’s where that, “Hey, one time on the board, I’m never going to leave things.” It comes from, nobody told him, “Hey, you may have to leave.” But yeah, it’s a great, great topic to consider that as time passes, are we going to see more capacity on US boards coming up so that we can freshen up our collective boards and the state of boards?
Anthony: But also let’s talk about that expectations thing, because I was once having a meeting with a stewardship team of a large investor and they raised that very point. They said, “Look, you’re a search firm. Presumably, you tell the candidates for the board that they are only going to be on the board for[00:39:00] 10 years, whatever the number is,.” and we said, “No, that’s not our job. That’s really to signal that.” But, the fact is, I don’t know any candidate that’s ever had that conversation with a board chair or a non-gov chair that said to them, “Hey, sometime around the 8- to 10-year mark, we might tap you on the shoulder and say, it’s time, and you should expect that it’s going to happen.
It would be so much healthier if we could set that expectation, and think about this, boards are trying to put sort of younger, more digitally savvy people on. You’ve got a board director that are aged let’s say it’s a 52-year-old board director so about 10 years younger than the average age of being appointed to a board, and your retirement age is 72. Are you really telling that director you expect them they’re going to be [00:40:00] on the board for 20 years? It’s absurd, and when you say it like that, it sounds absurd. But have you told that director, “Our retirement age is 72, but somewhere around the 10-year mark, we’re going to come and have a chat and we may keep you on. We may ask you to leave.”
It would be a lot healthier if we were willing to do that, and by the way, look, we talked about collegiality. I want to give you another C-word that boards should be thinking about and that’s courage. If we had courageous conversations between board chairs and board directors, between non-gov chairs and board directors, this would be so much easier, but collegiality often trumps courage, and I think that’s a big problem for boards.
Joe: That’s a great way to end it. Collegiality trumps courage. Anthony. It’s been great speaking with you. What a terrific conversation. Thanks for joining us today.
Anthony: Thank you, [00:41:00] Joe. Thank you, Raza.
Joe: And thank you all for listening to On Boards with our special guest Anthony Goodman.
Raza: We have a request for our listeners. Please take a moment to rate and review On Boards on the Apple P odcast app if you enjoyed listening to it. It really helps others discover our podcasts. Also, you can visit our website at OnBoardsPodcast.com. That’s OnBoardsPodcast.com. We’d love to hear your comments, suggestions, and feedback.
Joe: Please stay safe, take care of yourselves, your families, and your communities as best you can, and Raza, you and your family, take care as well.
Raza: You too, Joe.
Joe: Thanks. Take care.