Corporate boards are entering a perfect storm with more boards adopting majority voting as well as annual elections, which puts the entire board up for re-election each year. Shareholders are questioning boards on how their composition addresses the skills and experiences needed to develop the long-term strategies of the corporation.
Add to this the number of sitting directors who are nearing retirement, and boards are experiencing an environment that is unusual for them--a growing number of exceptional CEO and other director candidates who are declining to serve. Directors are investing over 240 hours annually for each board on which they serve, and this is before the call for directors to increase their engagement in this rapidly evolving business environment of technology and strategy disruption.
This provides an opportunity to expand the pool of candidates beyond the traditional categories to a group of senior executives below the CEO which includes a growing cadre of women and minorities who are experienced, qualified and interested in serving as board members. Nominating committees are seeing that adding members from this expanded pool can help boards better reflect the makeup and experiential background of their customers, employees and shareholder bases. Yet progress is glacial.
Artificial methods like term limits or age limits may open up slots but do not guarantee that they will be filled by diverse candidates. Unlike some European countries, we are a nation that is reluctant to impose diversity quotas in the boardroom. But we can no longer afford to marginalize women, who still occupy only 21% of board seats. Minority women lag even further behind, holding roughly 4% of board seats although demographics clearly show the shift in the United States toward minorities with the accelerating growth of Hispanics, Asians and African-Americans leading to a cultural gap in a younger, more racially diverse population.
This transition is not about political correctness; it is about the responsibilities of boards and long-term shareholder value. Boards need to tackle the fundamentals:
1) Understand the company's long-term strategies and drivers of value along with the skills and experiences needed on the board to support them. A lot of boards are using skill matrices to identify gaps in areas such as technology, public policy, building businesses in China, or in age, gender or ethnic diversity. This helps to shift the nominating discussions...