April 2, 2019 – Roughly 50 percent of S&P 500 companies will be replaced in the next 10 years — a reality that reflects a complex landscape of emerging risks, as well as the immense pressure on today’s companies to innovate or be left behind. As investors and market pressures drive organizations to become more digital, more global and more sustainable, boards are finding that today’s discussions necessitate new perspectives and areas of expertise.
Generational or age diversity is gaining merit in today’s boardrooms as the skill-sets boards need are increasingly found among younger generations, according to a new report by Spencer Stuart’s Next Gen Board Leaders, created in response to the digital complexities and shifting demographics impacting today’s companies.
As younger, less-experienced directors arrive in the boardroom, the extent to which they can add value to board discussions depends on how quickly their boards can get them up to speed — a process known as onboarding. Yet, as the profile of today’s new directors begin to change, are onboarding programs keeping pace?
In decades past, said the Spencer Start report, new members of a board were typically recruited from the same small talent pools: CEOs, CFOs, or existing directors from the board’s network. For these new members, the onboarding process was merely an overview of the company, as they were already familiar with board and committee dynamics.
Fast forward to today, and the new director landscape is shifting, said the leadership provider to top organizations around the world. “Shareholder pressures and threats of disruption on multiple fronts are pressing boards to seek new perspectives and specialized skill-sets,” said the study. “Boards are increasingly tapping new talent pools for expertise ranging from cybersecurity and digital marketing to e-commerce and business-model transformation.”
In 2018, one-third of new S&P 500 directors were first-time directors, meaning they joined their first public company board, according to the Spencer Stuart board index.
Often referred to as “next generation” directors (i.e., next-gen directors), this new cohort of first-time directors is also more likely to be younger and working active day jobs with backgrounds in technology related fields. As these traits become more common, we’re starting to see an evolving director profile— one that has a new set of challenges, needs and expectations.
“There was a time when new board members were expected to be quiet the first year, and that’s no longer the case,” said Julie Daum, North American board practice leader at Spencer Stuart. “Boards expect people to contribute right away, and new directors want to contribute. But there’s a lot they need to learn before they can really be effective. We’re seeing next-gen directors request more onboarding and a very different kind of onboarding than they have in the past.”
No longer do new board members have the luxury of time. Their onboarding needs have grown more complex, said Spencer Stuart. As a result, the boards that are tapping into this next generation of board talent face greater risk — but also, a potential greater reward.
Bringing on Inexperienced Directors
Next-gen directors typically arrive in the boardroom with little to no board experience. Often recruited from SVP- and management-level positions other than the CEO and CFO, their interaction with boards of directors throughout their careers is usually limited, says Spencer Stuart. For this reason, next-gen directors frequently can benefit from additional aspects of onboarding (e.g., overview of board mechanics, fiduciary duties, roles and responsibilities), which the company is usually well-positioned to provide.
The corporate secretary is typically charged with overseeing the onboarding of new directors on behalf of the organization, often working closely with board leadership. Behind every good onboarding experience is a corporate secretary who first gauges the background and needs of the incoming director, said Spencer Stuart.
New Generation of Directors
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The corporate secretary can assess the knowledge gaps of next-gen directors and serve as a valuable connector of people and resources across the organization, but also externally, said the search firm. Recommending industry publications or a favored board-readiness program can be immensely helpful to new directors who may be struggling to discern which resources and programs can offer the most value.
Next Generation of Board Talent
As the next generation of board talent is recruited to fill specific skills gaps in the board’s long-term strategy, an effective onboarding program becomes a matter of board performance. After recruited by a search firm, how quickly can boards get next-gen directors up to speed and contributing to board discussions?
The designer and driver of the onboarding process should be board leadership (i.e., the independent board leader and/or nominating & governance committee chair), said Spencer Stuart. While the onboarding format and priorities will differ slightly for each company, board leadership is ultimately responsible for ensuring the program is structured, multidimensional, interpersonal, and ongoing.
For next-gen directors in particular, it can be difficult to know what kind of information they should collect during the onboarding process. This is where board leadership comes in to fill knowledge gaps, set expectations and provide guidance.
For many next-gen board leaders, it was one-on-one conversations with board leadership that served as their primary window into company strategy, often adding a valuable historical perspective that extended over many years, said the search firm. Also the “tone-setter” in the boardroom, board leadership is ultimately responsible for establishing a board culture that accepts, values and welcomes new perspectives in the boardroom — the mark of a high-performing board.
Founded in June 2017 by Spencer Stuart, Diligent and Boardroom Resources, Next Gen Board Leaders was created in response to the digital complexities and shifting demographics impacting today’s companies. This new community is designed to highlight the value that a younger generation of board members can bring to emerging areas of board oversight including e-commerce, digital marketing and cybersecurity.
At the core of this community is an advisory council comprised of 10 directors in their 30s and 40s, all currently serving on public company boards. This diverse group of directors meets a few times a year to learn from one another’s experiences and tackle governance challenges through a generational lens. Advisory council members will also contribute to Next-Gen thought leadership content throughout the year.
For most next-gen directors, the greatest boardroom challenges are not skills-based, but confidence-based, said Spencer Stuart. This can be an odd notion for tenured directors to consider given how much success these young directors have achieved in their day job. Yet, the boardroom can be a foreign and intimidating place — particularly when an age gap of more than 20 years exists.
As one Next Gen Board Leader said, “We don’t need our hand held, but the outreach means a lot. The boardroom can be a lonely place.” Outside of board leadership, other members of the board typically have no formal role in the onboarding process; yet, next-gen directors find great value in these interactions. To supplement board leadership, tenured directors can add context around company strategy and key board decisions, as well as offer guidance on how next-gen directors can navigate and add value to the board.
The questions below represent just a sampling of what Next Gen Board Leaders found valuable — or would find valuable — when engaging with existing members of their board:
- What are the key issues uniting or dividing the board?
- On which board topics should I be prepared to contribute?
- Are there any tensions between board members or other dynamics that would help me navigate my first few meetings?
- What publications or external resources should I invest in to ensure I’m versed on governance trends?
Although still the minority, more boards today are formalizing mentorship in the form of a “board buddy” or an assigned mentor on the board. Spencer Stuart said that this practice is highly valued by next-gen directors. Yet, existing directors need not be “assigned” in order to add value during the onboarding process. Oftentimes, it was the directors who took it upon themselves to decide who had the greatest impact.
Grooming Better Executives
Board service is a big leap. It is hard for new directors to truly know the level of time and preparation involved, said Spencer Stuart. Still, members of Next Gen Board Leaders frequently emphasized the value they’ve gained: “Board service has made me a better executive,” said one. “It allows me to see how other companies are approaching value creation. It forces me to get out of the weeds and operate from a 30,000-foot perspective.”
U.S. Boards Seen as Slowly Evolving
Responding to rapidly changing business challenges, emerging risks and increasing attention to director relevance and quality by investors and other stakeholders, Standard & Poor’s 500 boards are adding directors with new skills, qualifications and perspectives.
Get “board ready.” Before the formal recruiting process even begins, next-gen directors are largely responsible for getting themselves “board ready”—that is, versed on governance trends and familiar with board, committee and finance fundamentals, said Spencer Stuart. Members of the Next Gen Board Leaders had several suggestions for achieving board readiness, from subscribing to board/governance publications to seeking external mentors to enrolling in a well-regarded director training program. Oftentimes, existing board members can make valuable recommendations for courses or publications that will be worth the time and cost investment.
Establishing expectations is a recurring theme throughout the report, since this step of the recruiting process is too often overlooked, said the search firm. If expectations aren’t communicated at the outset, then the next-gen director should not hesitate to pose these questions to the CEO and board leadership:
- How quickly do you expect new directors to get up to speed and begin contributing?
- How does this board define “value”?
- Specifically, how does this board expect me to add value in the months ahead?
Fill in the gaps. Once the new director has been recruited by the search firm the onboarding process is already underway, next-gen directors should be focused on “filling in the gaps,” whether that’s seeking the rationale behind key strategy documents or requesting additional meetings. The key is to acquire context, or an “insider’s perspective,” on everything from past board evaluation results to director communication styles. While other sections of the document were intended to make recommendations for boards/companies, Spencer Stuart said that next-gen directors should use the entire publication as a roadmap and request information anywhere they see holes.
Today’s most effective boards are prioritizing the recruiting and onboarding process to get their newest talent up to speed and contributing quickly. In turn, these boards are reaping the benefits of richer discussions, wider perspectives and competitive advantages at a time of great business disruption and change.
“The most effective boards today are hungry for feedback — for the kind of insights that challenge complacency and drive performance,” said Brian Stafford, CEO of Diligent Corp. “If boards glean anything from this publication, it should be that onboarding and board performance will be inextricably tied in the years ahead as boardrooms continue to diversify and the stakes continue to rise.”
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Andrew W. Mitchell, Managing Editor – Hunt Scanlon Media