Serving on Boards
Despite busy careers and overstuffed personal lives, though, hundreds of professional men and women decide each year to sit on the boards of companies and nonprofits, public and private. While it can be a challenging, even a difficult experience, most participants claim that they wouldn’t trade their time for anything. From networking with peers to confronting complex ethical and economic questions, they say that their experiences as part of corporate governance boards gives them invaluable lessons for both their careers and their lives.
What does a board of directors for a company actually accomplish? And how can the experience of sitting on a governance board carry over into a professional and personal life?
“The board of directors are the eyes and ears of the real owners, who are the shareholders,” explains Dr. Ralph Walkling, the Stratakis Chair in Corporate Governance and Accountability, and executive director of Drexel University’s Center of Corporate Governance. “You want a diversity of expert opinions.”
“The board is responsible for measuring the progress of the company, for putting together a mission statement that reflects what the business entity’s strategic long-term plans are, and – of course – for hiring the chief executive officer and overseeing his hires in key positions, even succession planning” adds Joseph Salvucci, former board member for the Delaware County Regional Water Authority, and its current executive director. “They shouldn’t do day-to-day management, and it can be a problem when people on the boards try to get involved at that level.”
At one time in the not-so-distant past, an appointment to a corporate board was a perk of the old-boys’ network – a financially lucrative bone thrown to successful mid-career executives by golfing buddies and country-club pals that required little more than a token appearance at board meetings several times a year, something like a scene out of Mad Men.
“At one point, it was common for people to sit on six or seven boards, public and private. Today, it’s a huge time commitment. The most you can do is sit on three, and many [members] are regulated by contract to one,” explains Patricia Connolly, director of LeBow’s Center of Corporate Governance.
“It’s a challenging time to be a director,” Walkling agrees. “You’ve got to constantly monitor the business.”
The primary responsibility of a corporate board is to hire and fire the chief executive officer of the corporation, says Walkling, so it’s important that members “are able to work as a team for a common objective, but also have have independent managers who can help align the interests of owners and managers. Inside managers bring a particular expertise, but independent board members are providing an arms’ length view and looking from the outside in,” a particularly important service when there is a potential merger or conflict of interest.
Like any team, he adds, “You can observe the dynamics and get a feel for what’s going on.”
What was once a reward for a job well done has become a much more complicated – and rewarding – job.
“A lot of board memberships are [still] formed by networking. If you are comfortable with a person’s expertise, you’re more comfortable using them,” Walkling says, but he added that many companies now use a search firm to recruit the most talented and diverse board of directors to the table that they can.
“As a shareholder first, you want the best person at the table, on the board, overseeing the company,” Connolly says, “But at one point, that was pretty much seen to be only the CEO or CFO of another company. Historically, there weren’t a lot of women – or a lot of diversity – in that pool. Now, I think more boards are thinking about diversity, not only in color and gender, but in diversity of skills.”
That new diversity is important at a time when board members are being called upon to be ever more involved, and are being held responsible at every level.
“It’s an era of complexity,” Walkling says. “You want people who can do due diligence, who can recommend strategy, who have integrity, and the ability to speak up, to challenge when necessary.”
And, as these needs come to the forefront, Connolly says, “Boards look at more diverse skills, the traditional avenue of only looking at CEOs and CFOs will broaden, and as board improvement expands, so will the diversity of boards at every level.”
Adds Salvucci, “You want people who understand that [the Board] is responsible not only for the letter of the law, but its spirit. You want good, sound, ethical underpinnings, as well as good corporate governance. Boards are very important because they set the tone and standards of a corporation. They are responsible for setting standards high – at sustainable levels, but asking each stakeholder to stretch, to be better.”
In an era of multinational corporations and multilevel business mergers, membership on the board of directors can be a second – or third – fulltime job.
“In today’s world – I think one needs to be extremely thoughtful today if one is approached to sit on a public company board,” Connolly explains. The average member of a corporate board, after all, is now called on to devote over 200 hours each year to his or her duties as a board member. It can be an intimidating commitment, even as trends shrink the average sizes of corporate boards.
“There’s some indication that smaller boards are more nimble, more able to move,” Walkling says, “But you still want a board [that’s] large enough that the workload is not all on the shoulders of one person. Workloads on boards are growing and growing. It’s a countervailing force.”
New regulations, too, such as the Dodd-Frank Act, hold board members to higher standards and greater personal responsibility.
“It is a very huge time commitment, and now there’s a liability issue, too.” Connolly explains. “If you serve on a board today, you have some challenges.”
But most professionals called to serve on corporate boards are less worried about personal liability and more worried about doing the right thing for the companies which have called them to serve.
“You shouldn’t go into lightly, and you should prepare yourself for serving with self education and continuing education, through an entity like the National Association of Corporate Directors,” which provides materials and seminars for board member and potential board members, Connolly says.
“You have a duty to achieve good governance,” Walkling says. “However, there are many ways to achieve good governance. . . . most boards have a matrix, crossing their needs with their current positions. They try to recognize holes and weaknesses, and over time fill them in.”
It’s important to take a long-term outlook when you are called to sit on a board, and to recognize where your true commitment lies, says Salvucci.
“You are responsible for measuring [a company’s progress]. . . managing a business, to me, is a fine balance of what you put back into it and what you take out. . . you can’t put short-term profits over long-term goals.”
Sitting on a corporate board is a complex web of responsibility and ambition, but one of the more difficult aspects of it is trying to determine, over time, just how successful the board is at achieving those long-term goals.
“A corporate entity is something that’s meant to endure over time. In a competitive industry, that means that it has a stable and/or growing market share over time, that its returns on investment exceed its capital costs over time, that it has good, solid foundations and the best possible people in key positions,” Salvucci says.
Walking agrees.
“Companies that are creating shareholder wealth, acting the way the shareholders would want them to act, are successful. Their bottom lines [are] vibrant, thriving.” However, he adds, the bottom line is not the only measure of long-term success.
“It would appear that the board is doing a good job when the bottom line is increasing dramatically, but remember Enron – to really measure the success of the board, you have to be aware of how hard the board is pushing, is monitoring, is checking. Sometimes you won’t know that a board is inadequate until it’s too late.”
“Success is that your organization or corporation has a plan, over the long term, where they succeed and that the stakeholders are engaged,” Connolly says.
Stakeholders are not only shareholders, but anyone who has a interest in the business – shareholders, employees, customers, vendors, even the community. Indeed, many professionals measure the success of a corporate board by the company’s success as a corporate citizen.
“Every corporation should be a good corporate citizen. In the area of corporate responsibility and sustainability, there should be conversations taking place,” Connolly says, not only between board members, but also between corporations and communities.
“You have an ethical accountability to the stakeholders, and to be a good neighbor,” Salvucci says. It’s not only an ethical responsibility, but a practical one. “It ensures business sustainability in the long run. If you’re a bad neighbor, the community will find a way to make you fail.”
And being a good neighbor, and a good director, also means that you ultimately have to believe in the corporation that you serve.
“You can’t serve your public if your product is faulty,” Connolly says. “If you believe in this company, you are also an investor. It’s not just about you, it’s the success of the entire company, over a period of time. You have to show yourself that commitment. It’s over the long haul, the long term.”
“You have duties [as a member of a corporate governing board] – to the government, to the community and to the corporation itself,” Walkling says. “Duty of loyalty, duty of care, duty of disclosure.” All of which mean that you not only have to follow the letter and the spirit of the law, as Salvucci asserts, but “that you put company interests above all others, even your own.”
With a heavy ethical and economic burden, and a huge commitment of time, why do so many professionals find such satisfaction in serving as part of a board of directors, for public and private companies, and even for nonprofits?
“A lot of times, when you’re sitting on another board [as an outside director], you see the world from a different perspective,” Walkling explains. “You gain valuable experience because [your experience as a board member] is different from your everyday career experience, you have an opportunity to serve, and share your expertise,” and – even though the era of Don Draper is long over – “financial remuneration can still be quite high.”
“For me, it was a real learning experience,” Salvucci says. “I learned a lot, and I made my share of mistakes along the way, but I got to see the company grow, to see people that I [had a hand in] appointing grow in competence and capability. I did good in the community, and helped make popular changes over time.”
Salvucci recalls driving home from a meeting at the Delaware County Regional Water Authority and seeing a father and son standing knee-deep in Darby Creek, fishing.
“In the Seventies, that would never have been possible. That felt really good – you couldn’t take your son to fish in Darby Creek, and now you can. I did some good for the area.”
Finally, Connolly adds, serving on a board allows a person to make a solid and lasting contribution to the corporate world, and to society as a whole.
“If you really believe in the product or the company, it’s a privilege to serve. Not only as an investor, but you want it to succeed. To make sure the corporation is there to serve the shareholders. It’s a sense of duty to stakeholder and society at large to make sure that the corporation is successful.”
