Lead Director Network, April 2015
On March 17, 2015, Lead Director Network (LDN) members met in New York to discuss different approaches to refreshing the board. This ViewPoints presents a summary of the key points, along with background information and selected perspectives that members shared before and after the meeting.
Lead directors shared ideas and practices on three broad topics in their discussion of board refreshment:
Investors are putting more pressure on boards to think like owners as they oversee management. In response, boards are taking steps to ensure that they are composed of non-executive directors who can guide the company and its strategy into the future. In many cases, this means considering new directors who have different professional skills and experience or can enhance board diversity with respect to age, gender, and ethnicity. Directors highlighted the benefits of adding new members who can bring fresh perspectives to boardroom discussions.
A board must be small enough so that each director feels ownership of the strategy and responsibility for the major issues the company faces without being overwhelmed by the workload. In most cases, the size of the board is not constant and can grow or shrink to meet the needs of a company, its directors, and other stakeholders. When a company chooses to add a new director, the lead director plays a central role as part of a recruiting team that involves other directors and managers, often with the assistance of a search firm. Recruiting is a two-way process in which the board and the candidate must become comfortable with each other to preserve collegiality and board chemistry.
Assessment and turnover
As boards consider the skills and experience they need for the future, they must also question whether existing directors still provide enough value to remain on the board in an era in which average board tenure will increasingly come under the microscope of investors. Though age limits are still the leading mechanism for board turnover, board directors are open to alternative ways to refresh their ranks, including term limits and average tenure targets. Boards are also implementing more robust evaluation processes that often include individual director evaluations. The result is that in many cases underperforming directors are either improving or leaving the board.