At the recent Board Leadership Forum, co-hosted by Equilar and Nasdaq in New York, a group of 120 investors, board members, general counsel and other executive leaders spoke about the most critical topics facing boards of directors at public companies. The discussions throughout the day looked deeper at these issues to provide perspective on expectations for the board and how they can take steps to engage with shareholders—especially around board composition and having the right people at the table.
Investors have become much more vocal in recent years when it comes to board composition and evaluation, as they are not only concerned with what decisions are being made in the boardroom, but also who is behind those decisions. A well-rounded and diverse board is more likely to relate to diverse shareholder, employee and customer bases.
One of the standout discussions at the event featured representatives from the National Football League and architects of the “Rooney Rule,” named after former Pittsburgh Steelers owner Dan Rooney. This initiative was implemented by the National Football League in 2002 to increase opportunities for diverse candidates in head coaching and front office positions. Now extended to the NFL’s corporate offices, the rule moved forward with a mandate for gender diversity hiring practices several years ago. This panel not only covered the legacy and the results of this initiative, but also shared valuable takeaways and relevant lessons for boards to improve their director recruitment efforts and ensure well-functioning, results-driven boards.
Former NFL Commissioner Paul Tagliabue aptly noted, “When you work within a closed network, you end up overrating the existing talent pool that is known and missing the rest of the talent pool.”
The quickening pace of activist settlements shows how dissident shareholders are reshaping boardrooms. Boards therefore must consider how shareholder activists may interact with and approach them, and then put in place policies to minimize becoming a target.
Of course, all activists are not created equal, just as a company’s “shareholder base” is not a monolith. It’s prudent to prepare for an activist, but it’s important not to be overly hung up on one or two. When it comes to diversity and angling for seats on the board in proxy contests, one panelist noted: “Activists have done a good job of making boards less stale, but not less male and pale. That’s a place where corporate boards can do better than any activist, and by building a genuinely diverse and constantly refreshing board, that disarms a lot of reasonable complaints by activists.”
Conducting evaluations and identifying who is the best fit for the board are critical—also taking into consideration the awkward likelihood that some directors will be asked to leave. With that in mind, attention to detail is critical. One director outlined several examples of board skills matrices gone badly, such as laying out the needed director traits and choosing a new member who checked just one box. There aren’t enough seats for someone who is not multidimensional.
Similarly, choosing someone just because they’re young and know social media can help, but that is not a significant enough contribution by itself. Finally, skills matrices can be abused by directors saying their experience on that board is one of their skills—then it’s tautology and useless.
Overall, one panelist said that governance professionals don’t realize it because they’re living it now, but shareholder outreach is in its infancy. What’s happening now was not happening in any similar capacity 10 years ago, and the ones having these conversations today are on the leading edge. This is just the beginning of what’s to come.
Dan Marcec is the editor-in-chief of C-Suite and the director of content at Equilar. He can be reached at email@example.com.