Searching for Bodies to Fill Empty Board Seats
from
November/December 2006
by Sasha Issenberg
For years Judith von Seldeneck’s job as CEO of Diversified Search Inc. in Philadelphia was a task roughly comparable to that of the papal talent scout or Supreme Court headhunter. She would get the call when a publicly traded company saw a seat at its boardroom table open up. Typically she’d be expected to rummage around for a highly decorated business-world veteran to fill the chair. These appointments usually lasted. “Once you were put on a board, you were there for life,” she says.
Since the turn of the millennium—an apocalyptic period of corporate scandals and fiercely vigilant governance in response—the work of Diversified Search and other director hunters has taken on a new urgency. There are a lot fewer directors-for-life and a lot more demand for candidates to fill the empty seats. Von Seldeneck estimates that in recent years her firm’s corporate practice has doubled.
The demand partly reflects a growing intolerance for bad directors; more boards, at times because of shareholder pressure, are choosing to ease out inactive or incompetent members. Directors who hold senior jobs at other companies are resigning as more of those companies impose restrictions on outside board service. Others are simply deciding that they don’t want to re-up for another tour of duty. “Where they once might have stayed on a board until retirement age, now they’re quietly cutting back,” says Julie Daum, leader of the North American board services practice at the Spencer Stuart search firm.
Being a director is certainly a less cushy job than it was just a few years ago. “It used to be a piece of cake,” says von Seldeneck, 66, who herself serves on the boards of Citizens Bank; Teleflex, a manufacturing company; and––appropriate to the image she just used––Tasty Baking Co. “It used to be very clubby and collegial. You would go to meetings and they would give you reports about everything going on; then you’d have a nice lunch. Then, with all the scandals and regulations, it became vastly different. You get tons of information that you have to review before the meeting, phone calls you have to make. You’re expected to be prepared. You’re expected to know the financials. You have to understand everything—you can’t just accept things like you did in the good old days.”
The
Corporate Board Member
/Pricewaterhouse-Coopers survey of directors found that the average number of hours per month directors spent on board matters in 2006 was 20.8, a major increase from 14.1 hours four years ago. For directors with arduous committee work, such as compensation and audit assignments, the scheduling demands were even greater.
Higher levels of scrutiny—from shareholders, activists, potential litigants, and the media—have created additional costs for board members. American courtrooms supply cautionary tales about prestigious directors whose board service turned out to be something worth burying on a résumé instead of highlighting.
The new mechanisms for pruning directors from boards, along with a growing reluctance to serve, challenge headhunters. Daum says, “We’re looking at people who in the past didn’t serve on boards: younger people earlier in their careers, when they’re general managers but not yet CEOs, or people who have more practical experience, someone who has a logistical background, or technology or marketing.”
Adds Kevin Klock, a corporate governance analyst for the National Association of Corporate Directors: “There is no shortage of qualified people willing to serve on boards. But the question is, will companies broaden their scope to consider these people? There are a lot of boards that still will consider only S&P 500 CEOs, but it’s up to boards to look at other sources.” Nell Minow, editor of the Corporate Library, a governance watchdog, finds the new climate invigorating. “Companies whine a lot about continuity,” she says. “But what are we continuing? If the board hasn’t done a good job, you’re just continuing negligence. Who’s to say we had the right people on boards to begin with? I’m not shedding any tears for the people who are leaving.”
Nor, in many cases, are they.
