Looking Ahead: How Corporate Boards Can Avoid Common Mistakes

Inside Americas Boardrooms
As board members uphold their fiduciary responsibilities and make high-stakes decisions, they don't have to learn everything from first-hand experience. Particularly for avoiding common mistakes, history can be a great teacher, as can the experiences of other boards and governance professionals.

In this episode of Inside America's Boardrooms, host TK Kerstetter sits down with Katharine Martin, a partner and chair of the board at Wilson Sonsini Goodrich & Rosati, during Diligent's Directors Experience event in Napa Valley. Drawing from her work with startups in Silicon Valley, Martin shares common mistakes that hurt a company's long-term value, along with ways boards can keep up with future trends and complexities.

Don't get complacent (especially in critical areas like cyber)

According to Martin, one place where boards get into trouble is when they settle into a routine. Perhaps they've not been critical enough about strategy or potential risks, or they haven't been as proactive as they should be about engaging with management and unearthing information. This can be dangerous.

''If ultimately something happens and the board had been sitting idly and just sort of coming to the meetings and hearing what they've been told,'' she explained, ''it can end up in crisis.''

Boards need to continuously evolve information they're getting and the kinds of conversations they're having, she noted-especially in critical areas like cybersecurity.

''I think even the best companies with the best technologies and best advisors realize there are risks there,'' she said. She advised boards to educate themselves with external checks on what their companies are doing to learn best cybersecurity practices from others.

Keep an eye on business complexity and corporate culture

"As business evolves and the macro environment changes, it's all the more important that boards reflect on their current needs in terms of having the best mix of directors possible.'' - Katharine Martin, partner and chair of the board, Wilson Sonsini Goodrich & Rosati
Boards must also be vigilant of digital transformation overall. In today's disruptive environment, ''not keeping your eye on that ball, not moving quickly enough, missing a product cycle,'' can be disastrous, Martin said.

She cited the example of the software world's shift from on-premise to the cloud. Such a transition will have an impact on revenue, cash, and beyond. ''You really have to be transparent with your shareholders about what's happening and why, and even if you have a good plan about how you're going to get through, it's still a nerve-wracking experience for investors,'' she said. How a company handles this is pivotal to weathering the transition.

Meanwhile, companies worry they don't have the people they need in engineering or leadership. ''In Silicon Valley, where I work, there are a lot of job opportunities but there aren't a lot of people available to fill them,'' Martin said.

''That is a constant struggle, making sure you have a good culture and a good environment that attracts the right people who are committed and loyal and want to stay there,'' she said. ''If boards and the CEO take their eye off that, that can be a risk to the company.''

Recruit-and continually refresh-the right mix of skills

''You really want to plan to transition the board over time so that you have a mix of experienced directors-people who really know the company well and understand the business-and then rotate in a mix of new directors who have skills that are relevant to where the business is headed.'' - Katharine Martin, partner and chair of the board, Wilson Sonsini Goodrich & Rosati
Yet as companies respond to the pressure to keep pace and push innovation, ''sometimes we don't see boards doing the same,'' Kerstetter observed. ''They're not upgrading, they're not moving with the times, they're not bringing on people who are knowledgeable about AI and the future.''

Given the limited number of seats on the board, it's vitally important to have the right people in the room, Martin said. The board chair and nominating governance committee should take the lead in making this happen-and in making sure board composition evolves with company strategy and changing business conditions.

Create a process for addressing the gaps, she advised. This includes consideration of current directors' voting records, tenure, and shareholder input. Start having difficult conversations during a time when immediate action isn't needed. And take a long-term view. nomination and governance module

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