If You Are Considering Corporate Board Service, Part One
Here’s a quick update on landing a corporate board seat followed by a few questions to assess your readiness.
Senate Bill 826, California’s law mandating board gender diversity for public companies headquartered there, elevated the conversation about the importance of diversity in the boardroom. With the first deadline under the mandate now in effect—public companies headquartered in California and traded on the NYSE or Nasdaq were required to have at least one female director by December 31, 2019—KPMG took a look at the law’s early impact by studying the women who were added to previously all-male boards of companies headquartered in the state.
Among the findings in this study: There are 27 public companies that still had all-male boards at the end of 2019. Also, the concerns that were raised about mandating board members have turned out to be much ado about nothing.
So, this mandate has added more women to boards in California. What more can we do to encourage board diversity in other parts of the country?
I have been on a corporate board since 2003. It has been a terrific experience and I highly recommend it. If you are considering joining a corporate board let me encourage you to take the steps necessary to make that happen. It’s a great time to explore it. There are likely to be more opportunities going forward as the California experiment plays out.
As you ponder the possibilities, here are some questions to ask yourself:
1. Do you truly have the time to serve?
Saying “yes” to a seat can carry a commitment of five to ten years. In fact, it’s not unusual to serve for ten years or more. This includes attending, on average, six to eight meetings a year (and the travel time to and from those meetings), serving on at least one committee, and being “on call” when unexpected issues arise.
2. Is compensation a secondary motive for you in seeking corporate board service?
If to any degree you are driven by money to seek a seat on a corporate board, think again. There are probably far easier ways to earn it. Board service should ideally happen when you are financially stable and do not “need” the fees or stock.
3. Are you well-informed about board of directors liability?
Officers and directors of public companies always face the possibility that investors, regulators, and even criminal prosecutors might challenge their decisions. This increased scrutiny makes it more important than ever that you understand the obligations and potential liabilities inherent in public board service. Beginning in 2001, major corporate accounting scandals at Enron, WorldCom, and other large-cap companies cost investors billions of dollars when their share prices collapsed. This shook public confidence in the U.S. securities markets. Soon thereafter, on July 30, 2002, the Sarbanes-Oxley Act was enacted, which covers the responsibilities of a public corporation’s board of directors, adds criminal penalties for certain misconduct, and addresses issues such as auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure. Bottom line: Public board service comes with serious obligations. Proceed with caution.
4. Do you think like an entrepreneur?
The very best and the most successful companies in America (3M, for instance) have always managed to maintain an entrepreneurial spirit no matter how big they’ve become. A culture that encourages creativity and inventiveness instills in its people passion and an urgency to create, and in its leaders openness to entirely new ideas—many of which come from outside the firm’s respective industry.
5. Are you financially literate?
Financial acuity is an essential proficiency in a board director. While you don’t have to be a CFO or an accountant, you must have the know-how to analyze financial statements. Enron’s and other corporations’ scandals drove legislation to ensure this.
6. Are you a natural mentor?
The role of a director differs greatly from that of an operating executive who is accustomed to “running the show.” Most director time is spent reviewing and assessing strategy, risk, financial reporting, and management performance. Aspiring board members should be comfortable in the role of mentoring. On the Luby’s board on which I serve, we have used a “board buddy” system in which a board director and a senior executive are matched. In my case, I was paired with Scott Gray, the firm’s CFO. He and I meet periodically and exchange ideas. He’s taught me how to dig deeper into financial statements, and I’ve helped him build on his already savvy marketing acumen.
Next time: Part Two