Investors Identify Board Composition as a Top Priority and Concern

Investors focus on board composition

After a series of panels conducted by Boardroom Resources and PwC’s Governance Insights Center, the number-one concern of today’s institutional investors was crystal clear: board composition is what keeps investors and proxy advisors up at night. Panelists representing BlackRock, CalSTRS, Glass Lewis, and more expressed concerns that today’s business environment (i.e., technology, operations, marketing) is evolving faster than the skill sets in today’s boardrooms.

Almost invariably, where you find a problem at a company—or a company that’s not performing well—you focus on the composition of the board. The question is: ‘Why isn’t there a self-correction mechanism going on here to fix the problems with management or the strategy or the capital structure or the collection of assets? What’s missing?’ Often, those companies have a mismatch of skill sets on the board.

Indeed, Greg Taxin and other panelists in the Board Performance Review Series urged boards to focus on better alignment between director skill sets and emerging areas of board oversight, which are quickly becoming essential to long-term value creation.

New Risks. New Opportunities. New Faces.

Cyber security, ecommerce, sustainability, digital marketing—these are all emerging challenges and opportunities for today’s corporate boards and management. When seeking out candidates who possess these skill sets, boards must inevitably consider younger, often first-time directors. As CalSTRS explains, it’s important for boards to consider age diversity or generational perspectives as part of the larger picture:

At CalSTRS, we understand and look for boards that reflect diversity in a multitude of ways. One vital way is in age diversity and tenure, because we believe that an effective board should have both short- and long-tenured directors to ensure that fresh perspectives are provided and that experience, continuity, and stability exist on the board. Ultimately, it comes down to what supports the creation of long-term value for shareholders.
— Aeisha Mastagni, Portfolio Manager at CalSTRS Corporate Governance

As digital marketplaces, data privacy, and product innovation become central to the board’s long-term strategy for value creation, new faces are appearing on the list of board candidates. And companies that recognize the importance of generational diversity have been quick to reap the benefits.

At the age of 33, Caroline Tsay (chair of the Next Gen Advisory Council) joined the board of Rosetta Stone, where she has chaired both the Strategy and Business Advisory committees; an appearance on Inside America’s Boardrooms reveals her unique areas of expertise—from implementing new technology and customer segmentation to identifying growth opportunities.

Back in 2011, the Starbucks board was among the first to recognize the value of a digital native in its recruitment of then-29-year-old technology maven Clara Shih. (Since, the company has been credited with launching one of the most successful mobile payment and customer loyalty app programs to date.) Forward-thinking companies across various industries have taken similar steps by recruiting directors in their late 30s/early 40s (e.g., Papa John’s, Dun & Bradstreet, TEGNA, Ally Financial), which the Next Gen Advisory Council roster so aptly demonstrates.

Alignment is the Objective.

To suggest that boards should roll off tenured directors and refresh with digital mavens would be missing the point. In fact, to focus on the age of these directors also misses the point.

Board composition should be guided by the company’s long-term strategy. Boards that regularly evaluate their strategy and composition alignment will not only experience diversity of skill sets—but also diversity of age, gender, race, and so on. These things become natural outputs for boards with a healthy refreshment and evaluation process.

As we all know, there are inherent barriers to recruiting new directors, many in the form of relational networks, cost and time inputs, onboarding, or conventional practices. Next Gen Board Leaders was created to promote better alignment between director skill sets and emerging areas of board oversight – specifically by sparking discussion around the challenges and opportunities that face the next generation of board members.

We hope you’ll join us in the months ahead as we kick off our thought leadership blog, engage Advisory Council members, and begin connecting with a growing community of next-gen directors, investors, and governance professionals. The easiest way to stay abreast is simply to sign up for our monthly email and/or follow up on social media.

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