Take This Job and Love It
from
What Directors Think 2003
by Nelson Wang
Help Wanted
Part-time position for experienced executive. Requires
attendance at periodic meetings and performance of related assignments. Must work well with others, manipulate egos, and enjoy dealing with a morass of details at some personal risk. X-ray vision to see through deception a plus. Applicants should be gluttons for punishment.
With all the added responsibilities and potential liabilities brought about by new legislation, serving on a corporate board just isn’t the plum job it used to be. “Without a doubt, it’s harder to recruit directors,” says Joie Gregor, who heads the board practice at the executive search firm Heidrick & Struggles. She calculates that she has to talk to at least twice as many people as in the past in order to assemble a list of qualified and available candidates. “There’s a lot of skepticism about serving on a board,” she says. “Before Sarbanes-Oxley, I had to talk to 20 or so people to come up with two or three candidates. Now it’s 50 or 75.”
One of the main problems is that greater scrutiny and reporting requirements have significantly increased board members’ workload. According to the National Association of Corporate Directors (NACD), the average time a director spent on board activities in 2002 was between 200 and 250 hours a year, up from 125 hours just three years earlier. NACD president and CEO Roger Raber says he expects the numbers to be even higher when the organization does its survey for 2003. Among those who are putting in extra hours: Robert Smialek, the retired CEO of Applied Innovation and an outside director of General Cable Corp. The time he’ll spend on board work this year will almost double, to about 200 hours. Smialek would like to find a second board position, he says, but the hours he invests and the potential liability directors face mean that he’d be extremely cautious before signing on.
These numbers exclude the amount of time directors devote to the additional work that comes with committee assignments. The NACD doesn’t keep tabs on this, but it’s obvious that those hours are also increasing, especially for people serving on audit committees.
Outside directors who are still active CEOs, traditionally much sought after as board members by other companies, are not as readily available as they once were. For one thing, they have increased workloads too. For another, their own boards may now frown on their taking on extracurricular activities. So recruiters and governance committees must go further down the organizational chart to fill board openings, to the likes of chief operating officers, chief information officers, heads of major divisions, recently retired CEOs and presidents—and particularly CFOs, because of the special skills they can deliver to audit committees. According to the Investor Responsibility Research Center, active CEOs made up 13.66% of independent directors of companies listed in the S&P 500, MidCap, and SmallCap indices in 2003, down from 15.54% a year earlier.
For their part, board candidates are more scrupulous in doing their due diligence on companies they’ve been asked to join. In particular, they want to know about any investigations or lawsuits pending against a company, and whether it has had past legal problems. Joe Goodwin of the Goodwin Group, a search firm that specializes in placing directors, says that a candidate he recently met with wanted to spend time with the client company’s outside auditor, CFO, and audit committee head to be sure that the accounting and reporting were sound. “In the past, that never would have happened,” says Goodwin. The candidate spent the time and then signed up.
Finding people to serve on and chair audit committees presents special challenges. Sarbanes-Oxley requires a board to include at least one member with financial expertise on the audit committee, or explain why it does not. (For more, see the following story.) Consequently, many boards have been going after chief financial officers and former partners at the big accounting firms, people who traditionally were not recruited for directorships. And they are often too busy, or too skittish, to serve. As one attempted remedy, Heidrick & Struggles’ Joie Gregor says her company has been assembling a database of recently retired CFOs and those nearing retirement age, as well as retired partners at accounting firms.
Among the industries searchers find the hardest to recruit for are energy and telecommunications, the sectors most tarnished by the recent accounting scandals. Directorships at airline companies have also proved difficult to fill because of the intense financial pressures on the industry. Easier propositions are seats on boards of manufacturing companies with long and stable histories. “They may not be high-growth companies, but they’re not high-risk, either,” says Goodwin. These days, that clearly matters.
