TRENDS IN BOARD RECRUITMENT
2016 Fourth Quarter – By David Shaw
To review these continuing trends in board recruitment, Directors & Boards spoke to David Chun, Founder and CEO of Equilar, and Judith M. von Seldeneck, Founder and Chairman of Diversified Search. These two experts represent the perspectives of a board intelligence service and a search firm, respectively.
Gender, Ethnic and Generational Diversity
Board recruitment needs have been changing over the past decade, driven by a focus on gender and ethnic diversity. And while the pace of increased diversity on boards has been slower than some have desired, it has been consistent.
“This is what investors want,” says Equilar’s David Chun. “There’s a lot of research that shows diverse boards lead to better financial outcomes, and that different points of view lead to better decisions. It’s a real hot button with our clients, and organizations such as The Business Roundtable would like to see boards become more diverse.”
“Diversity is even more important in today’s environment,” agrees Diversified’s Judee von Seldeneck. “It’s not only the right thing to do, but a board has to be reflective of the population. Not understanding the diversity of the consumer market is going to hurt corporate strategies for the future in terms of not understanding that constituency.”
There’s another type of diversity that boards now face—and that’s bringing in younger board members. For the past decade, Directors & Boards Magazine’s research has shown the average age of a director to be firmly pegged in the late 50s. But as desired director skillsets have begun to change, and more boards institute term and age limits, the need to recruit younger board members with direct experience in these areas has grown.
Equilar’s Chun sees this among his clients. “Boards are looking to bring on generational diversity, and millennials with the right skills can be great candidates,” he says. “We’ve seen an increase in younger directors. In our database, there are 767 board members under the age of 40 who serve on at least one public company board, and there are 4,400 directors between the ages of 40 and 50.”
Equilar’s database also shows a strong pool of potential younger director talent: there are 1,110 executives under 40 and 9,332 executives between the ages of 40-50 who don’t currently serve on a board but have the qualifications to do so. “The talent pool is there in those younger age groups,” adds Chun.
Diversified’s von Seldeneck encourages this trend toward younger directors. “Bringing millennials on board and having them involved sooner rather than later makes a lot of sense—they’re here to stay and will have an impact. The sooner you incorporate them into the equation, the better off you’ll be in the long term. Yes, this may change the culture of the board, but what’s wrong with changing your culture? Your business and your strategies have certainly changed.”
Adding New Skill Sets
The trend to increasing board diversity is driven not only by the desire to better represent the company’s customer base and bring new points of view into the conversation, it’s also the result of the changing skill sets boards seek.
While needed skill sets remain board-specific, Chun notes the principal areas his clients have been interested in: “Boards want strong technology backgrounds, given the pace of change, the rise of Big Data and cybersecurity issues. And many seek International experience as more business becomes global or has a global impact.”
For von Seldeneck, “Technology is a broad requirement. Boards are drilling down within this—looking specifically for social media and Internet marketing experience, as companies learn new ways to reach their customers. In addition, many boards are looking for directors who have been through successful business transformations—that experience is really valued. And M&A and Integration experience has risen on the list. It’s a good economy and there are a lot of transactions. Ultimately, financial experience is a must. Most boards want candidates with balance sheet and P&L experience.”
An emerging board skillset seen by von Seldeneck is the desire for candidates with government and political backgrounds. “People who can bring a perspective on how politics works should be more in demand in the future. And for global companies, former ambassadors can really help think through global business strategies.”
The Talent Pool and Board Expectations
The pool of potential directors is large, and will continue to grow. “Some directors have opted out of public company board service, saying it’s not worth the headache, but there’s still a large supply of qualified executives who want to join public company boards,” says Equilar’s Chun. “Opting out, in my view, is not a major trend. For directors with longer tenures, governance is a different world, and more difficult. But directors just getting started or who want to join a board for the first time realize that that’s what it takes.”
And boards have access to a variety of ways to identify new directors, including search firms, their own networks, and, increasingly, databases of available directors, which according to PwC’s 2016 Annual Corporate Director’s Survey, are now being used by 11% of boards looking for qualified candidates, up from just 4% in 2012.
Ultimately, though, the size of the potential talent pool for new directors depends on the board doing the recruiting. “Finding experienced and qualified people is not the challenge—finding those who are available and able to serve is,” asserts von Seldeneck. “The really good candidates are in high demand, and they’re very specific in what they’re looking for in a board. It’s one thing for a board to set priorities but the hard part is finding potential directors with the time and the interest.”
This requires that boards be willing to challenge themselves to seek broadly and deeply for new directors. As von Seldeneck puts it, “A board may say it wants a serving CEO, with tech experience, and a few other requirements. But being able to attract that profile for your average Fortune 1000 board is going to be a challenge. The criteria set by the board may be too high and too specific. Credentials are important, but the most important factor is ultimately culture fit.”