John T. Montford and Joseph Daniel McCool, Authors, BOARD GAMES: Straight Talk For New Directors And Good Governance
Board memberships are no longer a “safe harbor” for college fraternity brothers and high-powered friends a CEO or board chair may have met during his or her career.
Today’s boards and their directors now face unprecedented scrutiny related to their composition and succession practices, their focus on ever-increasing regulatory compliance requirements, and frankly, whether they really give a damn about shareholders.
So why is it that so many up-and-coming executive leaders across all industry sectors and management functions aspire to a public company board appointment or some other high-profile selection to a company or not-for-profit board director seat?
Mary Kay Ash, founder of Texas-based Mary Kay Inc., the global cosmetics giant, had her own distinct take on the most human of desires that drive this near-universal desire within accomplished business leaders: “There are two things people want more than sex and money… recognition and praise.”
An appointment to a company or institutional board of directors ticks almost every box for successful businessmen and businesswomen in terms of recognition. It is, for many of us, the pinnacle of the modern-day business career and a public demonstration of your ability to navigate complex business issues.
But earning praise once you land in the director’s chair is an entirely different matter. As Herb Kelleher, co-founder, Chairman Emeritus and former CEO of Southwest Airlines, explains, getting “invited to the party” is something entirely different than knowing “how you should behave at the bar once you are there.”
That is not to say that “behaving” is something any new or experienced director should prioritize in today’s high-pressure boardrooms and governance environment.
Just to the contrary, effective directorship in times like these requires a willingness to boldly challenge governance conventions when it is in the best interest of shareholders, employees and the long-term interests of the organization. It also requires a determination not to get bowled over by consultants, by “one-hit wonders” (fellow directors who only know one topic and raise it at every board meeting) or by undue pressure from a CEO also serving as board chairman (particularly when it comes to his or her compensation, which is becoming an increasingly transparent and controversial topic).
Push too hard, though, and you will be isolated and marginalized by your fellow directors. Don’t push hard enough and you will be seen by shareholders, employees, activists and media as a “go along to get along” director who isn’t interested in improving the company or institution’s long-term sustainability.
Yet what is critical for new and long-serving directors to understand more now than ever before is that the odds may actually be stacked against you from the start.
Lawyers, auditors and compensation advisors will confound you with an array of business acronyms that have had the effect of turning the most vital of boardroom discussions into a new, complex language that only they understand.
Technology leaders and consultants will severely test your knowledge of cyber-security and data protection best practices when they step into the boardroom asking for multimillion-dollar investments in upgrades to enterprise infrastructure.
And the sheer demands on your time to review board agendas, research the topics to be discussed, and, most importantly, to conduct your own due diligence on a wide range of key governance issues in keeping with your role as an independent director of the board will stretch your schedule and learning abilities perhaps as never before.
Today’s board directorships have become the equivalent of part-time jobs requiring as much as 20-30 hours of focus per week, and it will not be long until they are on par with the typical 40-hour workweek. This dynamic alone will require many boards to re-think their relationships with, and compensation of, their board directors.
So how can you be best prepared to fulfill your responsibilities to shareholders and avoid the complacency that could potentially land your company into bankruptcy and you on the wrong side of serious legal or regulatory entanglements? These are some early-warning indicators you would be wise to keep tabs on throughout your tenure as a director of any organization:
- Ensure the company is well-managed with a visionary strategic plan and roadmap to profitability
- Watch corporate expenses
- Advocate for an ambitious return on invested capital (ROIC)
- Advocate for share repurchase (in the case of a public company, and the following items)
- Advocate for increased dividends
- Consider a stock split
Service on a corporate or not-for-profit board exemplifies not only a successful career and others’ belief that you have major things to contribute toward the good of these enterprises. It also reflects the very best of the American economy in action: The appointment of a capable man or woman to a position of major governance oversight is one of the keys to a prosperous economy, freedom and our independent pursuit of profits.
If you want to be a better, wiser and more independent board director – either in service to your existing board or the one you may join in the future – it is your responsibility to learn whatever you can about the human dynamics that so often define the board’s unique operating environment and culture as well as the regulatory and fiduciary requirements you will be signing up to take on as your own.
About the Author
John T. Montford, current Audit Committee Chairman of Southwest Airlines and Chancellor Emeritus of Texas Tech University, is currently CEO of JTM Consulting LLC, a government relations and advisory firm he founded in 2010. He is co-author of BOARD GAMES: Straight Talk For New Directors And Good Governance.
Joseph Daniel McCool is one of the world’s most widely recognized experts on executive search, management succession and the board Nominating function. He is CEO of The McCool Group, a former BusinessWeek columnist, and author of Deciding Who Leads. He is co-author of BOARD GAMES: Straight Talk For New Directors And Good Governance.
For more information visit www.BoardGamesBook.com.