Board evolution: a new way to frame board succession.

• Author: Thompson, John T.
• Position: HEIDRICK & STRUGGLES GOVERNANCE LETTER - DigiCo

Few board issues are more sensitive than moving directors out to make room for new directors. How did these two technology companies manage their board transitions--smartly and without rancor? By adopting these principles and practices.

In little more than 10 years, the nine board seats of a global, cloud-based connectivity company (which we'll call CloudCo) have turned over entirely. No business crisis, no investor pressure, no scandal attended this remarkable transformation. Departing directors left without regret or rancor, happy to cooperate in the board's constant reshaping of itself in line with the company's rapidly evolving strategy. Similarly, a leading global provider of digital content (DigiCo) has recruited four new board members in the past five years, driven by a carefully phased-in makeover of its business model. This board transformation, too, has been drama-free.

Because the technology industry changes so rapidly, it offers a particularly good laboratory for examining board transformation and provides numerous examples of well-managed processes. Even large companies in the sector must often pivot sharply to grow and thrive (and, in some cases, survive). The need for CloudCo's board to change over the past decade was particularly acute. Ten years ago the company had revenues of $500 million and offered a narrow product solution.

Further, they found themselves operating in the shadow of an industry giant who might easily attack if its strategy were to take a sudden turn. The CEO and the board recognized that the company had to execute flawlessly to survive in the near term while moving toward a longer-term strategy of product diversification to drive growth. The company did so brilliantly, developing and executing on a compelling strategy, developing new product lines, successfully acquiring numerous companies, and increasing revenues to nearly $5 billion today--creating tremendous shareholder value along the way.

DigiCo also dramatically changed its strategy. The company radically altered its business model, moving from a consumer to a business-oriented solution set, requiring new go-to-market capabilities and superb execution to pull it off. Over the course of this multi-year transition, the company's stock price has quadrupled and earnings have increased five-fold. During these journeys, both technology companies smoothly altered the composition of their boards as the strategy, scale, and complexity of each company changed--along with the critical skills needed for board oversight.

A sensitive subject

Most corporate...