A solid start for a spinoff board.

• Author: Daum, Julie H.
• Position: Spencer Stuart Governance Letter

Constructing a board for a spinoff presents a full agenda of challenges and opportunities. 'Start small and build' may be the best advice.

IN BOARD RECRUITING, each company presents a unique set of challenges and objectives. Variables ranging from the traditions and history of the company, its range of businesses and products, and strategic goals, must be carefully considered when helping companies determine the resources they need on their board and what they will require in the future. Creating a board for a spinoff -- when a board must be constructed, sometimes virtually from scratch, and is expected to be up, running, and attending to a company's business, all within a relatively brief span of time -- adds a number of new variables to the mix.

Spinning off a high-growth or non-core business is often a way of achieving two complementary goals: bringing energy and needed focus to a parent company while liberating one of its businesses to pursue growth unfettered by a parent's culture and priorities. When capitalized to its fullest potential, a separation promotes the transformation of company strategy, structure, operations, and performance.

Having the right board in place to help guide the spinoff in determining strategy, as well as overseeing management and fiduciary matters, can be a critical element in the ultimate success of the spinoff as a stand-alone business. We have worked with many spinoffs in helping them to create their boards -- including Accenture (Arthur Anderson & Co.), Agilent Technologies (Hewlett-Packard), Allegiance (Baxter International), EDS (General Motors), and Marathon Oil (USX) -- and observed many others. As in all other areas of corporate governance, there are best practices that correlate highly with success of the entity going forward as well as practices that are far less likely to produce desirable results.

Opportunity knocks

While the number of directors that must be recruited to create a board for a spinoff may appear overwhelming, if the task is approached systematically and relies on established best practices and common sense, with an eye on possible pitfalls, it should yield a successful board. In reality, a spinoff presents a rare opportunity to carefully plan for each director who will be added to the board and make sure that he or she brings the skills and experience that will be most relevant and valuable to the new company to the table. How often does a company have the chance to start the board recruiting process with a virtual blank slate, focusing on the company's strategy going forward and then carefully selecting directors to 611 each slot?

Of course, it is not likely to be a completely blank slate; it is standard practice for some directors of the parent board to migrate to the spinoff's board...