Five Actions that the Best of the Best Board Members Do

Illustration courtesy of Sean MacEntee on Flickr

Illustration courtesy of Sean MacEntee on Flickr

Rob Swystun, Pristine Advisers

To be the best, you’ve got to beat the be — no, wait, that’s not what I’m trying to say here.

To be the best, you’ve got to … ah, forget it. Here are five actions that the best of the best board members consistently do, as identified by NYSE Governance Services’ Laura J. Finn from last month’s 10th Annual Boardroom Summit in New York City.

Engagement topped the list of the things that the top board members do.

Chemtura Corp. and Lear Corp. board member Jonathan Foster espoused the merits of company board members visiting some of their top shareholders each year, much to the chagrin of some other corporate board members in attendance who found the proposition worthy of an eye roll. Foster’s reasoning for board members visiting important shareholders? Because proactive boards can more easily advance their compensation agendas. (Now it’s my turn to roll my eyes.)

Evaluation came second on Finn’s list, specifically, evaluation of each other.

Flinn cited GrafTech International lead director Mary B. Cranston, who said one of her duties is to evaluate the board annually. Cranston also apparently said that all of the five boards she sits on perform board evaluations with the understanding that nobody is simply entitled to a board seat. But it’s not just the board as a whole that needs evaluation. The majority of Fortune 500 companies do that. But what approximately two-thirds of them don’t do is evaluate individual board members, according to the 2012 Spencer Stuart Board Index. About one third of companies evaluate boards as a single entity, at the committee level and at the individual level while about 2% of Fortune 500 companies eschew board evaluation altogether.

The value in evaluating individual board members is pretty obvious; it tells you which board members have earned a spot on the board (and, thus, who should stay) and who is simply taking up a spot. Boards that rely on age limits or term limits to decide who goes can make people feel entitled to their spot and neither of them address performance. Are there any other circumstances that a company wouldn’t address performance based on evaluation? So why would a board be any different?

Planning comes in third of the best board best practices list. And planning in this context is specific to board succession planning.

When a board member is ready to step down (either from age, term expiration or underperformance) there should be a plan in place to plug a new board member in there. Having a plan in place to replace outgoing board members will allow the board the necessary time to make sure new board members bring new skills to the table rather than a skill set that is already represented on the board.

Interestingly, Chicago-based executive search consulting firm Spencer Stuart wrote in its aforementioned 2012 Board Index that the average age of board members is creeping up. It now sits at 62.6, which is up from 61.0 in 2007 and 60.1 in 2002. However, this is not due to boards bringing on older new members, but rather, it’s caused by directors staying on boards for longer than in the past.

Plan ahead for board turnover with a focus on bringing in new skill sets that will improve the board’s value and, in turn, improve the company’s value.

Diversifying ranks in at number four on Flinn’s list, with a focus on bringing in more women.

Cranston said that all the boards she sits on aim to increase the number of women board members since women cut across all other diversity demographics. In some cases, those boards have even gone ahead and added a seat to help diversify.

Going back to the Spencer Stuart 2012 Board Index, 61% of S&P 500 companies have two or more women on the board, up from 55% in 2007. Twenty percent of companies on the S&P 500 have three or more. But, still a full 9% of S&P 500 companies do not have any female directors.

Board succession planning is a great time (the best time, really) to guarantee a board diversifies.

Strategizing rounds out the list of top actions taken by the best board members.

Obviously strategy plays a huge part in any business success. That includes being able to recognize upcoming trends, knowing how to keep the company in shareholders’ good books, how to keep employees satisfied and how to keep the company safe from cyber attacks, among other things. The board will also keep an eye out for potential merger and acquisition opportunities.

If board members are not exactly up to date on the company’s cyber security risks and how it handles those, it behooves board members to make themselves familiar with those risks and security measures. And advanced age and computer illiteracy are no longer viable excuses for not doing this if you’re sitting on a board at this point in time. Because if these now-everyday things completely escape you, then you’re taking up a valuable seat that should go to someone else.

Follow these five action items to have the best possible board that your company can. You owe it to your shareholders.

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3 responses to “Five Actions that the Best of the Best Board Members Do

  1. Pingback: Shoestring activism proves to be a thorn in the side of reluctant companies |·

  2. Pingback: Le Spencer Stuart U.S. Board Index 2013 | Gouvernance | Jacques Grisé·

  3. Pingback: Harvard Law School urges boards to battle back against proxy advisors |·

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