How Boards Should Do Research for the Board Refreshment Process

Board refreshment is a popular topic right now. There are many reasons for this, including:

• The rate of change in the global business environment is continually accelerating, due in large part to enormous developments in technology. Competition is continually bringing new surprises. Just witness the changing television and streaming landscape over the past couple of years. All this disruption means that expertise and skills necessary a short time ago become obsolete quite quickly. Board refreshment can help meet this challenge.
• Board diversity has also become a very hot topic. Study after study has confirmed that diverse boards make for a better-run company, and generate decisions that can capture a broader scope of a changing global business environment. To meet demands for diversity, boards must open board seats.
• It wasn’t that long ago that board appointments were treated as lifetime or tenured positions. This is no longer the case, as shareholders, state legislatures and regulators apply pressure for board refreshment and cutting-edge thinking. Board refreshment is on the minds of shareholders and regulators. Today, board refreshment is increasingly viewed as a best practice in company management.

What, then, are the steps that a company and its board can take to research the need for board refreshment and what is the best course to implement a viable program. While no path is the only right one, clearly a board must avoid quick and arbitrary decisions in this regard. Board refreshment cannot be some random formulaic activity. It must be judicious, thoughtful and relevant to the company’s overall objectives and strategy. Changing directors simply to change them makes no sense. As a first step, in conjunction with the C-suite, the board needs to establish a protocol for examining, in detail, the company’s markets and the anticipated competitive challenges that it will face over the next three to five years. Based upon this assessment, the board needs to develop an outline of the particular expertise that will be required on the board to meet these challenges. Of particular importance in this assessment is the anticipated disruptive impact that increasingly rapid technology advances will have on the company’s competitive edge and plan accordingly.

How to Assess the Current Board?

Based on near- and long-term goals and challenges determined during the above assessment, the board must now ask, “Does it have at its disposal the requisite skills to guide the company appropriately?” The competitive environment needs to be considered, as do investor expectations. To evaluate the board means to consider the risks the company will face and to make a determination that the board is equipped not only to plan for them, but also to react properly if the worst-case scenario comes to pass. Many discussions of board refreshment do not include board evaluation, as if they are separate aspects of the functioning of the board. To effectively refresh, one has to effectively evaluate first. Board evaluations can help pave the way for board refreshment. Creating a board matrix is a viable way to conduct a board evaluation. This matrix should lay out the individual directors on one axis and those directors’ competencies, expertise and skills on the other. This will help the board to develop a much deeper understanding of itself, its particular areas of excellence and proficiency, and its weaknesses. For example, if the company intends to enter a significant new geographical market at a definitive point in the future, does the board have a member with the knowledge, perhaps language skills, that can add true value to the effort to opening this environment. Similarly, cutting-edge technology Issues (e.g., cybersecurity, social media) may incentivize the board to develop expertise in these areas. At the end of this exercise, the board should have a pretty good sense of where and when new skills will be required.

What Does the Board Refreshment Process Look Like: Succession Planning

The board refreshment process is inherently tied closely to planning for board succession. Like board refreshment, succession planning is also a relatively new procedure for corporate boards. The Council of Institutional Investors (CII), a nonprofit whose members have combined assets in excess of $3 trillion, posits that “boards should implement and disclose a board succession plan that involves preparing for future board retirements, committee assignment rotations, committee chair nominations and overall implementation of the company’s long-term business plan.” Board succession planning, when done carefully and regularly, will become a natural and effective means of forcing the board and the company to focus on the future and the opportunities ahead. A strategic consideration of board succession will assist the board in its recruiting efforts and in its search for future members with the requisite skills to meet the many challenges ahead. “A board that is planning for succession is inherently planning for refreshment.”

Why Boards Should Pay Attention to Board Refreshment

The above discussion has focused on various important tools to develop a research plan for a viable refreshment process. Perhaps most important, however, is the need to recognize that a successful board refreshment process will likely also require a significant cultural shift. As mentioned above, up to this point, the general thinking on board membership was tied to assumptions. Many boards still operate with the understanding that board membership, if not lifetime appointments, are at least intended for the very long term. Parallel with these assumptions comes the perception that board replacement reflects personal failure. Educating the board on the importance of refreshment – in its own right – will help overcome these negative attitudes. Board members must come to appreciate the value of change. Adding new perspectives is important when boards attempt to address new challenges and to make critical decisions. There is no doubt that experience adds both clarity and wisdom. There is a balance to be struck between the old and the new. Combining both, while challenging, is necessary. Boards have not historically been recognized for proactive efforts in their own evolution. They are, however, very capable and well positioned to change this.