New Strategies for Board Composition: Qualities Over Personalities

There is a shift that is taking place in the boardroom from “who” should join to “what” is needed within the board to ensure solid oversight and readiness and help the organization maximize its success potential. Given the ever changing and complex business dynamics that have surged with the digital era, the introduction of disruptive technologies, the prevalence of M&As, global marketplace volatility, social and geopolitical instability and cyber fraud security being an immanent threat for large and small organizations, it has become more challenging for many companies to adroitly address shrinking strategic cycles, a nearly instantaneous global presence and, in times of crisis or falling short of expectations, to catch-up, recover, and reposition themselves. While there are incredible opportunities today, these competitive pressures are real and intensifying. A strategic approach to board composition is necessary.

On April 5^th 2016, I was speaking about board performance and effectiveness at Laval Universite’s annual board governance event in Montreal. I had been asked to share my invitation to boards to adapt a board composition strategy. (See more on this in my complimentary eBooks “Board Composition” and “Strategic approaches to Board Composition.”) Here are some considerations I recommended to Laval’s audience, all of which I have also shared with my board clients, that the modern board should be considering when choosing new members:

• Homogeneity with siloed domain expertise is becoming less the norm.
• Heterogeneous, diverse composition is in. Having a breadth of views leveraging deep experience, skills and talents is primordial.
• Having different perspectives with diversity of gender, age and ethnicity is a competitive-edge lever and addresses gaps that can no longer exist.
• Understanding of the company or organization’s strategy is mandatory for well-thought-out processes, optimal discernment, and swift decision making. There can’t be directors at the table who don’t understand the strategy when responsible for approving it.
• Proponent directors for long-termism over short-termism are assets essential to create long-term shareholder value.
• Consciousness must be elevated to address the needs of all stakeholders, as opposed to just shareholders. When all stakeholders (employees, customers, partners) are successful and the impact on the communities at large is positive, the shareholders win.

Strong board leadership is indispensable for ensuring that “what” is needed within the board is optimally represented, as well as being fully leveraged.

In February of this year, in his letter to the CEOs of S&P 500s, Larry Fink (the CEO of Blackrock, the world’s biggest investor with $4.6 trillion) “asked every CEO to lay out for their shareholders a strategic framework for long­ term value creation — one that provides a perspective on the future, articulates the impact of the ecosystem on their strategy, explains how changes in that ecosystem might force the company to change course and identifies metrics that support a framework for long­-term sustainability.”

Fink went further in his Chairman’s letter to shareholders in April, stipulating that “Boards should be deeply engaged, providing informed and frank guidance and feedback, and rely on an open dialogue with management, based on a clear understanding of short­ and longer ­term strategic plans.”

In essence, Larry Fink is saying that boards (along with their CEOs) need to have the right qualities to effectively navigate our ecosystem. There has to be a strategic reason for every board director to belong, well beyond personalities.

Don’t let me convince you of the importance that “substance” not be under-valued within our boards. Let’s not be quick to forget the board composition of Lehman Brothers at the time it was spiraling downhill towards collapse. “Lehman was the fourth-largest U.S. investment bank at the time of its collapse, with 25,000 employees worldwide.”

As communicated by Michel Magnan, one of my fellow presenters at Laval’s Seminaire Gouvernance Express 2016, and shared by Dennis K. Berman of the Wall Street Journal on September 15, 2008, who could have thought that Lehman’s board of directors who “carried the health of the world’s financial system on their shoulders” had incredibly weak links in its board composition: “Nine of them are retired. Four of them are over 75 years old. One is a theater producer, another a former Navy admiral. Only two have direct experience in the financial-services industry.”

Having a board composition suited to the times, and directors being astute are critical for the current and future strategic roadmap of every organization. In the case of Lehman Brothers, “a number of the members did have past financial-markets expertise, but most of their working lives were tied to a different era: The one before massive securitization, credit-default swaps, derivatives trading, and all the risks those products created.”

All of the people I interacted with at Laval’s governance event– my fellow speakers, the hosts leaders and our attentive audience– concurred that a strategic approach to board composition is needed, and the heart of Larry Fink’s message was present in my own sharing and in the ideas shared by others. I invite those in board leadership positions to take the earliest possible opportunity to evaluate the “what is absolutely needed” within the board composition of their boards to then aim recruiting the “who” to strengthen the board, and to consider working with an expert adviser in this process!