First-Time Directors Rev Up
from September/October 2008
by Randy Myers
Just a decade or so ago, Janu Sivanesan wouldn’t have triggered the radar in most director searches. With CEOs routinely stocking their boardrooms with peers and compliant insiders, thirty-something outsiders like Sivanesan, a corporate lawyer who emigrated to the U.S. from her native India at the age of 8, weren’t snagging many invitations to the ball.
How the landscape has changed. Finding a CEO to join your board today is about as easy as finding a contractor to rebuild your house in New Orleans: They’re around, but good luck landing one who has time to help you. Meanwhile, shareholders and regulators alike are putting increasingly tough demands on directors, particularly those who serve on compensation committees. This makes functional experts like the 36-year-old Sivanesan—who recently joined the board of Hurco Cos., an Indianapolis manufacturer of interactive computer controls and software—not just viable candidates for corporate board seats, but real catches.
No surprise, then, that this year’s class of rookie directors doesn’t much resemble those of the past. Instead of sitting CEOs, it’s packed with people who might eventually become CEOs, and others with particular skills. For examples, see the photo boxes on these pages.
Corporate Board Member has analyzed biographical data supplied by the Corporate Library, a shareholder watchdog and research outfit, for 140 men and women who were elected to their first public boards this year. It’s not a complete list of new arrivals, but it is representative. Of that group, 57 are up-and-comers currently toiling as presidents or chief operating officers of their companies, as CEOs of subsidiaries or divisions, or as CEOs of privately held concerns—all likely candidates, in other words, to become chief executives of public corporations someday. The rookies on the list also include executives like Sivanesan who are notable primarily for their functional expertise—some working in that role, some retired, and some now doing other things. Among them: 19 CFOs, six accountants, five general counsels, and two technology experts. The list also includes two senior human-resources executives, a specialty that’s increasingly in demand.
In addition, the rookie lineup identifies 11 board members representing hedge funds or private equity firms, people who got their board seats at the behest of activist investors bent on pressing for change in a company in which they own a significant stake. Corporate Board Member has called on traditional boards to make such newcomers welcome, but that’s not always an easy task. “As a rule, nobody likes to be told what to do,” says executive recruiter Michael Kelly, managing partner of CT Partners in New York City. “But it’s inevitable, and it’s something boards have to deal with.”
Companies that have gone through this experience include Capital Senior Living Corp., a Dallas-based operator of residential communities for seniors. In March it agreed to expand its board from seven members to nine in order to seat two new directors proposed by big investors: Harvey I. Hanerfeld, 46, a co-founder of West Creek Capital LLC, a Washington, D.C., hedge fund that owns about 6.5% of the company, and Peter L. Martin, 39, a portfolio manager at Matthes Capital Management in San Francisco, which owns nearly 2%.
Neither Hanerfeld nor Martin responded to requests for an interview, but West Creek has been pushing the company to put itself on the block. So it’s worth noting that when Capital Senior Living announced the appointment of the two directors, it disclosed that the board was forming a special committee to explore strategic alternatives—selling the company, perhaps, or taking it private. Whatever the board does, chairman James A. Stroud, 57, extended a welcome to the newcomers. “These directors will strengthen the board and provide valuable insight as shareholder representatives,” he said in a statement.
Only one sitting chief executive, John K. Morgan, 53, of the specialty chemical company Zep Inc. in Atlanta, is on the Corporate Library’s list of new directors. Morgan, who also serves as Zep’s chairman, joined the board of Wesco International Inc., a Pittsburgh distributor of electrical and industrial supplies, in March.
Just maybe, the scarcity of sitting CEOs among new board members is not all bad. “Having someone on the board who has been in the same position that I’m in has value, of course,” says Per Loof, 57, CEO and a director of Kemet Corp. in Simpsonville, South Carolina, which, among other things, manufactures ceramic capacitors used to store and regulate electrical energy. “But I would say a director’s functional expertise and breadth of experience geographically are equally if not more important.” When pressed, Loof admits that his views about what makes a good director may have changed. “Even though a CEO would probably understand me and my viewpoint better than a functional expert, I think the complexity of today’s world means that people with functional expertise really are quite valuable and can bring as much to the board as can a sitting CEO.”
Little surprise, then, that when Kemet Corp. went searching for two new directors earlier this year, it chose Wilfried Backes, 65, and Joseph V. Borruso, 68, both of whom had industry backgrounds and overseas experience too. Loof notes that over the past three years, the percentage of his company’s revenues generated outside the U.S. has risen from about 50% to about 75%. Backes, a German who holds both German and U.S. citizenship, had recently retired as CFO of Epcos AG, a German electronics company. Previously he’d served as CFO of a Massachusetts maker of lighting products and had held various jobs with Siemens AG, the German electronics and industrial-engineering giant. Backes’s background as a CFO, Loof says, “was a bonus.” More important, “he will add perspective on how one does business in Europe in particular, but also in Asia.” Borruso, president of AOEM Consultants LLC in Bloomfield Hills, Michigan, also has industry experience, having served as CEO of Hella North America Inc., a subsidiary of Germany’s Hella KGaA Hueck & Co., which manufactures lighting products.
Sivanesan’s experience in cross-border business transactions and familiarity with India, of course, explain why she looked so good to the Hurco board. The company is expanding its sales activities in both India and China.
Although Sarbanes-Oxley set almost every company scrambling for financially savvy directors to serve on the audit committee, the kinds of functional expertise that boards want in new directors can vary by industry. Says Robert S. Rollo, a partner with executive-recruiting firm Heidrick & Struggles: “Technology-driven companies are increasingly seeking out chief information officers for their boards, companies growing through acquisitions and mergers are looking for attorneys with deep M&A experience, and in the wake of the recent meltdown in the subprime mortgage market and its crippling of the credit markets, financial-services firms are looking for risk managers.” His outfit, he adds, is conducting a number of board searches focused on human-resources executives, both because of the challenges companies face in attracting and retaining employees globally and because of the critical role compensation committees play these days. HR types actually know how total comp packages for senior executives are put together, arcane know-how that directors can surely appreciate.
Executives who can demonstrate expertise in more than one converging industry are also in hot demand. Recruiter Michael Kelly says his firm was actively searching for experts in “new media,” a fuzzy term that can include everything from blogs to interactive television; in other words, board members who understand both technology and the media business. “These are not your cookie-cutter directors,” he says. “They’re typically younger—and younger could mean they’re in their late thirties—and they’re specialists in their arena.”
What are this year’s crop of new directors looking to gain from board service? Probably much the same things as those who came before them. Not the least of their motives is a desire to help their companies grow and prosper. Case in point: Tim Armour, 59, who retired as president and managing director of investment-research outfit Morningstar Inc. in March and joined the board of Janus Capital Group, a Denver mutual-fund and asset-management company, that same month.
Earlier in his career, Armour had held marketing jobs with General Foods Corp. and Citibank. His two areas of experience—mutual funds and marketing—made him an attractive catch for Janus, says Robert Rollo, who recruited him for the board position.
For his part, Armour has no doubt he can earn his keep on the board of Janus, a company he calls “a diamond in the rough” that could well double its size. “I’d love to be a contributor to the growth of Janus beyond where they are, getting into other areas geographically as well as expanding their lines of business,” he says.
Time will tell whether this new crop of directors measures up to the expectations of CEOs and the veteran directors who will be shepherding them through their first year of board meetings. But if Armour’s early contribution is any indication, it needn’t take long for a first-time director to get up to speed. Rollo says Janus Capital Group’s chairman found the new director “very fluid and contributory” at his first board meeting, especially when the directors turned their attention to marketing.
Read related story: Meet Eight New Board Members
