When Stephen Hemsley took over as chief executive of United-Health Group in December 2006, he inherited a bit of a governance mess. Since March of that year, the company had been embroiled in an options backdating scandal, making it the target of both SEC and Justice Department investigations. The board had lost credibility when for months it refused to oust CEO William McGuire, even as dozens of other companies were dismissing chief executives over similar allegations. Hemsley, an insider who had been cleared of wrongdoing, was tasked with restoring trust at the Minneapolis health care company, and that included dealing with a board that had aligned itself, perhaps too closely, with the tainted image of its fallen chief.
In the nearly three years since, fully half of the board has turned over, with old-guard directors retiring their seats, and new independent directors, such as Robert Darretta, the retired vice chairman and CFO of Johnson & Johnson, and Michele J. Hooper, managing partner and cofounder of The Director's Council, a private company that helps boards increase their independence and diversity, coming on. The result is a largely independent and continually evolving board, possessing industry expertise and knowledge uniquely relevant to UnitedHealth's future success.
But it shouldn't take a governance crisis to prompt a review of board composition. As industry changes force shifts in corporate strategy, most CEOs will, at some point in their tenure, find it necessary to ask themselves whether they have the right mix of expertise, experience and business savvy to advise and challenge senior management on the path to success. A board that has served adequately, even exceptionally, during one phase of the company's life, may well be ill-suited for the next phase. "And it doesn't mean the board members aren't very good people. It just means that the company has moved to an entirely different place," says Jerre Stead, CEO of IHS, a provider of technical information, decision-support tools and related services.
Businesses that had been focused purely on domestic sales, for example, may need to recruit directors with international savvy as they plan to move into markets abroad. Even those without immediate plans to expand overseas need to understand how rapid globalization will affect their markets. "It's so critical today to have board members who have global views," says Stead. "It has to be people who have either led global organizations or lived abroad--or both. And they need to have stayed current because the world is changing so quickly." Gayle Mattson, EVP and global leader of the Board & CEO Practice at executive search firm DHR International, reports that an increasing number of companies are seeking out such expertise for their boards. "Globalization is the number one priority of every corporate board today that I've had the privilege of working with," she says.
In other fast-moving, competitive industries, CEOs need to make sure that at least some of their directors understand current trends and can evaluate not only where the company is, but where it needs to go. "That's especially true in our industry," says Dan Hesse, CEO of Sprint Nextel Corp. "Things change quickly in technology businesses, so it's important that the skills of the board keep up with the strategy of the company and the environment in which it operates."
Other CEOs may find they need help from a Washington insider as their companies navigate a newly regulated environment. "If you were in banking and you thought you were unregulated, now all of a sudden you're regulated," says Hesse. "And if you are a company that takes government assistance, your business plan and environment with respect to regulation has just changed a whole lot, very...