Fresh Blood in the Boardroom
from
November/December 2007
by Dan Kaplan
It’s no secret that it has become increasingly tough to get a sitting CEO, just about everybody’s top choice for a director, to join your board. As an alternative, more companies have turned to seasoned directors to fill their board seats—but now that supply seems to be running short too. “Experienced directors are increasingly hard to find,” says Julie Hembrock Daum, head of the North American board-services practice at executive search firm Spencer Stuart. According to the annual Spencer Stuart Board Index, an analysis of proxy statements from S&P 500 companies, 30% of the people who have joined boards over the past two years had no previous experience as directors.
New blood is okay with 56.6% of the directors participating in the 2007
Corporate Board Member
/PricewaterhouseCoopers survey. They say their boards would have no reservations about bringing on a new member without previous board experience. Donald J. Law, managing director of the Chicago-based executive search firm Venerable Partners, says that adding inexperienced board members “has been a subject of many discussions we’ve had with our clients” and that “the vast majority are open-minded.” He points out that more stringent auditing and governance rules have significantly reshaped boards’ needs, making certain rookies—particularly those with financial experience—especially appealing.
Nell Minow of the Corporate Library governance-research firm considers the trend to hire rookie directors good news: “We’re seeing more board seats opening up to those beyond the usual suspects,” whom she describes as “overboarded” and “victims of old-school boardthink and really not suitable for the post-Sarbanes-Oxley world.”
One example of the new breed is Paul M. Mecray III, 69, a longtime consultant and securities analyst specializing in the trucking industry. With no experience as a director, he joined the board of trucking company Swift Transportation Co. in 2004. “The perspectives that I thought I brought to Swift were an understanding of the trucking industry from the perspective of an investor, and intimate knowledge of their competitors,” he says. Swift was taken private earlier this year, and the board was dissolved.
The view that director candidates’ related work experience can compensate for their lack of board experience is supported by attorney Linda Hayman, 60, a partner at Skadden Arps Slate Meagher & Flom LLP in New York City. She helped create DirectWomen, an organization that works to place female corporate lawyers on boards. Hayman argues that a lawyer who has had, say, “a restructuring practice has probably worked with boards in crisis for decades. She’s seen firsthand how boards work under pressure. She’s seen what makes them work well and what makes them not work well. If that attorney went onto a board, her experiences could be very valuable.”
The best boards, of course, should include members with various backgrounds, including service on other boards, notes Frank Byrne, 55, president of St. Mary’s Hospital in Madison, Wisconsin, and a director of Lincare Holdings, a home-medical-equipment company in Clearwater, Florida, and Steel Dynamics Inc., a Fort Wayne, Indiana, steelmaker. “Experienced board members understand the trajectory
of corporate governance, understand the old environment and its deficiencies,” he says. “They understand the regulatory issues from the last few years, and so they have a good understanding of where we’ve been and where we need to go.” On the other hand, in the era of Sarbanes-Oxley and other reforms, he says, “experienced board members run the risk of being set in their ways and may not be willing to do that which we need to do as we move forward in corporate governance.”
Thomas C. Wajnert, retired chairman and CEO of AT&T Capital and a director of financial-technology company Nyfix Inc., Reynolds American, and equity real estate investment outfit UDR Inc., agrees: “A diversity of experience is very important on a board. All too often what happens is, we get the same kind of experience.”
