Are Boards Too Old?

I often get asked, "Where do you get your ideas?" It's a fair question, considering the decades that I have been editor of Directors & Boards.

Some ideas have a very long germination. Let me share the seedling of the idea for the cover story of the Q2 2011 edition of Directors & Boards — "Are Boards Too Old?"

It goes back to the early 1990s. These were tough years for American corporations. One great company that hit a particularly rough patch was IBM Corp. In fact, things got so dicey for Big Blue and investors got so restive that the board did the unthinkable — it eased out the CEO, John Akers, in 1993.

At the 1993 annual meeting, one especially vociferous shareholder got on his feet to charge the board with being "too old." This gent, no spring chicken himself (!), further denounced the directors: "Most of them come from an era of manual typewriters and carbon paper." Ouch!

That made a big impression on me at the time. I wondered: Does this fellow have a point? Could the computer giant have missed a crucial beat or two by not having some younger talent on the board? A study of the average age of the IBM board at that time showed it to be slightly over 61.

The seed was thus embedded.

Over the years I would come across other data, anecdotes, and text references re boards and age, and they all would be like watering this original seedling of an idea.

As the business world hurtles into a new global order, one driven in so many important ways by social media and advanced digital capabilities, the opportune moment has arrived for this seed of a story idea — "Are Boards Too Old?" — to burst forth.

Pictured is W. Clement Stone, business chieftain famous for his "Positive Mental Attitude" success philosophy, who served on a corporate board while in his 90s with Directors & Boards Publisher Robert Rock.

Women Directors: Survey vs. Survey

It has happened again. When I release the results of our quarterly Directors Roster report on new women joining corporate boards — which I did in my blog post of March 8th — I inevitably hear from one or more of the other trackers of board composition. They are puzzled — and, it appears, alarmed.

Their beef is that there is a big disconnect between the Roster numbers and their numbers. The Roster has been documenting for two years now elevated levels of women joining boards — in the fourth quarter of 2010, 38% of new directors were women; for 2010 as a whole, 34% of board appointees we tracked were women. Most if not all other major surveys point to board representation of women still stuck in the mid-teens range, where it has been for years.

"So what's up with your numbers?" I get asked. There is an underlying fear that prompts this question, which is this: the optimistic picture that we present could lull people into thinking that recruiting developments are going along just swimmingly, when in fact all the major surveys of board composition do not seem to bear that out.

I am moved to share my response to the challenge I received after this week's release of the Directors Roster report on women board recruiting:

Dear Colleague,

I do not see the disconnect or discrepancy that you see. Let me explain how I mesh the numbers.

Your data is a snapshot of board composition at a fixed point in time — an annual look at who is sitting on a defined universe of boards.

The Directors Roster data is a snapshot of a quarterly flow of activity at a random universe of boards — companies that happen to have added a new board member.

This is apples and oranges. There is no way to sync these two sets of data to make any sensible matchup.

What we are looking at is velocity — a moving target — and you are measuring an end point.

In looking at the Directors Roster that just hit the street this week, you can see for yourself the flow of activity that we tracked in the fourth quarter of 2010 and the new women directors that came to our attention.

It seems to me that we need both sets of measurements — yours and the Directors Roster — to properly gauge marketplace activity, and I don't really see any conflict in what these two sets of numbers report.

It is understandable that my counterpart is concerned about overly optimistic conclusions that might be drawn from the Roster data. That’s why I feel the urgency to bring other surveys to the attention of the Directors & Boards audience that show how sluggish the progress is of board diversity. Our Roster numbers are useful for adding an important dimension to the discussion of board diversity, but I agree that many questions are left unresolved about the enduring impact of this measure of velocity.

Perhaps it is a matter of time — and it will be a lot of time — before we see the cumulative impact of these elevated velocity levels. But something is going on, and that is where the Roster data plays an important tracking role.

Pictured is Ellen Kullman, chair of the board and CEO of DuPont Co., who has joined the board of United Technologies Corp.

New Directors: The 2010 Class

The numbers are crunched, and here is how year 2010 shaped up for director recruiting.

According to the Directors & Boards Directors Roster, the journal's quarterly and annual reporting of executives named to public company boards, we tracked a total of 420 new director appointments named to 359 company boards.

Here is where the new directors came from, ranked by predominance of backgrounds:

2010's New Directors

1. Retired Executives: 148 (35%)

2. Chairman/CEOs: 84 (21%)

3. Senior Officers: 67 (16%)

4. Finance: 43 (10%)

5. Academia: 30 (7%)

6. Consultants: 28 (7%)

7. Not for Profit: 10 (2%)

8. Legal: 5 (1%)

9. Miscellaneous: 5 (1%)

Total: 420 (100%)

Women: 142 (34%)

Source: Directors & Boards Directors Roster

The number of new women directors gets further comment in my blog post of March 8.

Further detail on the 2010 director class — including names and affiliations of the new board members displayed with the companies who added these individuals — will be provided in the "Governance Year in Review" special issue of Directors & Boards to be published in July. The Directors Roster is sponsored by our close colleagues at Heidrick & Struggles International. Kelly McCarthy is editor of the Directors Roster.

This is the first look at this data.

There are a number of interesting observations to be made about the 2010 director class, which will be the topic of follow-on "Boards At Their Best" postings.

Pictured is Stanley McChrystal, retired U.S. Army general who commanded the U.S. and NATO's security mission in Afghanistan and who is now a senior fellow and teaches a leadership seminar at the Jackson Institute for Global Affairs at Yale University; Gen. McChrystal joined the JetBlue Airways Corp. board in November 2010.

It Happened in Davos

We had great success with our "It Happened in Norway" issue — in which we devoted a sizable chunk of the Third Quarter 2010 edition to exploring the provocative move toward mandated gender quotas for corporate boards of directors. The movement got rolling in Norway and has begun extending into other European corporate sectors, including France and Spain. That particular edition was widely acclaimed for its thorough and balanced treatment of this hot-potato topic and has almost sold out all overrun copies.

Well, guess who else is hot on the issue of gender quotas? The powers that be that run the World Economic Forum (WEF), underway this week in Davos. The best report on this development comes from the U.K.'s Guardian newspaper, in its article "Davos Imposes Gender Quota." Here are a few key pointers from the article:

• In an attempt to improve the traditionally dismal gender balance at this month's event, the WEF has for the first time imposed a minimum quota of women.

• The forum's "strategic partners" — a group of about 100 companies including Barclays, Goldman Sachs and Deutsche Bank — have been told they must bring along at least one woman in every group of five senior executives sent to the high-profile event. Strategic partners account for 500 of the 2,500 participants expected this year.

• Relatively few women have benefited from this high-level schmoozing. Women made up only 9-15% of those present between 2001 and 2005. Progress has been made — last year 17% were women.

• Critics may argue that one in five is actually a pretty small achievement, and real progress would call for two or three. Just finding one suitably senior candidate this year, however — given the gender balance in the global business elite — may prove enough of a challenge.

A challenge, yes, but surely one that can be met. If a country like Norway has found a sufficient number of women to populate the 40% mandated gender quota of its major corporations' board seats, then so can the comparative handful of pooh-bahs that descend on Davos.

Of course, the big knock on this Swiss schmoozefest (try saying that five times!) is that it is "more talk and partying than action." Which raises the interesting question: Would the right kind and number of women leaders even be inclined to mosey on over to the WEF shindig, mandate or not? But that is a gender-balance — or, should we say, gender-difference — question for another day.

Directors & Boards cover illustration by Dave Gothard

Women on Boards Q3 2010

The torrid pace of women being elected to corporate boards has cooled off in the third quarter of 2010. Our Directors Roster data tracking of newly elected board members shows women comprising 27% of the total. This is down from 36% in the second quarter of this year and 34% in the first quarter. For 2009, women comprised 39% of newly elected directors, according to our closely watched Directors Roster data.

The third quarter — July through September — can often be the slowest quarter of the year for new corporate board elections. The Roster recorded 103 board additions in total, down a tad from 115 in the second quarter, but up from 90 additions in the first quarter.

Representative of the Q3 elections is Trudy A. Rautio (pictured), EVP and CFO of hospitality and travel company Carlson, who was elected to the board of Imation Corp., which offers data storage and security products, in July. (A noteworthy feature of the Imation board is that it has a woman as nonexecutive chairman — Linda W. Hart, vice chairman and CEO of the Hart Group, a diversified group of companies primarily involved in residential and commercial building materials.)

The full display of the July-September board elections will be in the Directors Roster that is published in the Fourth Quarter edition of Directors & Boards. That issue comes off press in early December.

Gone, Baby, Gone: Lawyer-Directors

The Directors Roster that is published in every issue of Directors & Boards is mostly well known for its tracking of newly elected women directors and the noteworthy data findings from that research.

But many other insights into director recruitment and board composition come out of our Roster research. Here is one such finding worthy of note: In the Directors Roster launch year of 1994, the percentage of lawyers taking a seat on corporate boards was 11%.

Can you guess the percentage total in 2009? The answer: 1%. That is a major ramping down.

A smart aleck might chime in and say, “Gee, I am surprised it was so high.” The common wisdom is, “Why would a lawyer choose to join an existing or potential client board? Why subject yourself to revenue-foreclosure possibilities for the firm? Or risk being tripped up by the director independence rules or potential conflicts of interest? Or the liability”

But as our Roster data suggest, there obviously was in governance days of old — not so old at that — a greater representation of lawyer-directors.

One of my favorite anecdotes relating to the role lawyers played as board members was told to me by Raymond Troubh.

Regular readers of Directors & Boards will be familiar with Ray Troubh. He is one of our favorite authors — always chock full of important insights on board leadership and generous with his wise counsel on being a good director. Ray proudly wears the mantle of professional director. A graduate of Yale Law School, he came to corporate directorship first as a lawyer and then as a banker, before hanging out his shingle as a fulltime director.

The background in law was a valued asset he brought to his board work. We talked about that when I interviewed him for the “Oral History of Corporate Governance” that I did in 2001, on the occasion of the 25^th anniversary of Directors & Boards. In reviewing his career trajectory from law school to the boardroom, here is a snippet of what he had to say:

“For board purposes the combination of my legal and investment banking experience was a great advantage. As a young lawyer I used to attend board meetings and draft minutes and prepare resolutions and watched how boards functioned — watched the chemistry among the directors. As an investment banker I made presentations to boards on doing financings or doing a tender offer or merger. And because I understood corporate law I was not as afraid of lawsuits and of standing up to the hostile bar.”

You can imagine what a comfort it was to his fellow board members to have a peer steeped in the rule of law, and procedures of law, and someone who is able to go toe to toe with inside and outside counsel as well as opposing counsel. Who would not want to serve on a board with a member like that?

For better or worse, the Directors Roster is documenting that those days are over. An option for knowledge sharing and “courage making” among the close circle of board members has been made moot — just as directors are being barraged by an unprecedented onslaught of new regulatory and investor aggressiveness.

What a time it would be to have within their ranks a member intimate with the law — the law as wielded by Congress and the White House, regulatory agencies, and the plaintiff’s bar.

It’s clear that, post-Dodd-Frank et al., boards need to embrace an ever-closer relationship with inside and outside counsel. For this Boardroom Briefing, we tapped many experts in the legal community who are close advisors to boards for their current best advice on a range of timely and pressing governance matters. Click here to access a copy.

A Not So Magic Number

We all like to be recognized for our expertise and accomplishments, and people in corporate governance welcome as eagerly as anyone the pat on the back.

My governance colleague, and past Directors & Boards author, Catherine Bromilow brought to my attention her selection (along with two of her PwC colleagues) for the latest "100 Most Influential People in Corporate Governance" list. This is a roundup assembled by the National Association of Corporate Directors that recognizes influencers in all spheres of corporate governance.

Good for Catherine. She is partner in PwC's Corporate Governance Practice. She advises clients on strategies to achieve enhanced transparency and greater director accountability and on providing shareholders with a voice in certain boardroom decisions. She has a long and impressive set of involvements in advancing governance best practices, from her consulting, writings and speeches, and director education engagements. Full disclosure: We also know each other from our service on the advisory council of the Center for Corporate Governance at Drexel University.

Now let me digress. This NACD Directors 100 list always bemuses me. I am never on it. How legit a list can this be if someone who has been engaged in corporate governance for as long as I have — a tenure lengthier than most everyone on the list — and contributed the vast thought leadership to the field that I have in three decades as editor of Directors & Boards — not make this list?

Okay, now let me get down off my high horse and unplant my tongue from where it was just now firmly planted in cheek.

The 100 list is worthy and appropriate recognition and is a good thing for the NACD to be doing.

Here is what is really interesting about this latest list.

Catherine is one of only 15 women on the list. By my count, that means women make up 15% of these 100 key influencers in governance. Why does that figure jump out at me? Because it exactly matches up against the 15% representation of women on the boards of the Fortune 500, according to the 2009 census by Catalyst.

What's up with this 15% figure for women board leadership? It's a not so magic number, that's what. And my tongue is not planted in cheek when I say that.

Pipeline to Nowhere

She's pretty — that's Katharine Weymouth, pictured at right, publisher of The Washington Post and CEO of Washington Post Media (and newly elected board member of the Washington Post Co.), who was the keynote speaker at a business leadership event in Philadelphia last week. But the report released at this event was anything but pretty.

The event was the unveiling of the annual survey of women on boards in the top 100 companies (by revenue) in the Philadelphia metropolitan region. This is a survey done by Philadelphia's Forum of Executive Women. The 2009 board composition tally was unveiled on Oct. 8. Here are some of the key findings:

• In percentages, women held 11% of board seats at Philadelphia's largest public companies, up slightly from 10% in 2008.

• In terms of the number of board seats, women held 90 of 844 total board seats at the 100 companies.

• 43 companies had no female board members.

• 8 companies had three or more female board members.

• 7 board seats were held by women of color.

The Forum survey also tallies women in the executive suite. There is no robustness in the numbers to be found there either:

• Women held just 11% of the top executive positions in 2009, the same representation as in 2008. That is, women were in 71 of the 645 top spots.

• 57 of the companies had no women among the top executives.

In reaching to find a "somewhat more encouraging" number, the Forum looked at five-year data. The meager finding:

• The number of women holding board seats increased from 84 in 2005 to 90 in 2009, a 7% rise.

• The number of women in C-suite positions increased from 62 to 71, a gain of 15%.

Concludes Forum President Ellen Toplin: "There have been some gains over time but the numbers point to a stubborn trend: While more women than ever are in the corporate talent pipeline, companies continue to tap mostly men for top positions."

Show of Support for Gender Quota on Boards

The majority of directors, both men and women, do not favor a gender balance quota on corporate boards. That is one of the major findings in a survey of nearly 400 male and female board members done earlier this year. The results were released on Oct. 6 at a briefing at the 21 Club in New York. The survey was conducted by Heidrick & Struggles International Inc., WomenCorporateDirectors (WCD), and Dr. Boris Groysberg of the Harvard Business School.

Now, here is who supported diversity quotas for boards: 25% of the women directors. And for the men? No surprise that it is a number that barely registers on the meter: 1%.

There were many other important findings that came out of this survey, which I will be citing in my blog and in Directors & Boards as time goes on. But this is the story that was buried in the overall report: That one-quarter of the women directors favor a board gender quota is an astonishing show of support for this controversial tactic.

This quota finding hits the market just as the new edition of Directors & Boards comes off press with our major examination of board gender balance and the pros and cons of a gender quota (front cover pictured).

A lead article offers up a Norwegian minister who walks the reader through his country's thinking on legislating a gender balance board quota and the process of how it got there — i.e., from women holding 7% of board seats in 2003 to today's mandated representation of 40%. That is quite a tale, one that is getting worldwide attention, providing the template for other efforts to institutionalize a quota system or contemplating a move in that direction.

Another article in this new edition takes our own informal poll on whether to mandate a board gender quota in the U.S. We asked a select group of directors, recruiters, and governance experts to write a brief essay attacking or defending the concept. Interestingly, that roundup of opinion mirrors the Heidrick/WCD survey.

"It is interesting to see in the survey and in our conversations with women directors around the world how the idea of quotas is gaining traction," says Alison Winter, co-founder and co-chair of WCD, which has over 700 members serving on over 850 boards in 27 global chapters. Look for more traction as this survey and the new issue of Directors & Boards roll out over the next few weeks.

Proxy Access: Brace Yourself

Approved by the SEC on Aug. 25, the proxy access rule, years on the drawing board, is now with us. Thus begins a new era in shareholder-board relations, and, perhaps, board composition.

We will have to wait and see if the dire predictions come true of those who fear that this rule will be a tool for unions and other politically driven and issues-oriented activists. Often the worst projections fail to materialize.

But Corporate America might well brace itself. Proxy access's impact could be huge.

Why do I suggest that? I am mindful of something that one of the preeminent shareholder activists said to me about the one thing that truly leads to change in board behavior and, consequently, in company performance: The addition of new members to a board.

This was a fundamental lesson learned by Nell Minow (pictured). She shared it with me when I interviewed her in 2001 for an "Oral History of Corporate Governance"-themed 25th anniversary edition of Directors & Boards. Here is what she had to say, and it is worth paying close attention to in light of proxy access's passage:

"If there is anything that I've learned in all that I've done, it's that what really matters is who is on the board. I saw that with Sears. After Bob Monks left ISS in 1990, I rejoined him a year later, in time for his second proxy fight with Sears. In settling the shareholder lawsuit, the company agreed to add two new independent directors — thinking, I imagine, that they would be two more patsies. It was the presence of those additional directors that I believe made more difference in what Sears did to restructure itself to unlock shareholder value than anything else that we could have done. I was to learn that lesson over and over again. The only thing that ever brought about change was adding new directors to the board."

That is a powerful bit of learning — for CEOs, boards, and shareholders. The prudent and foresightful will take this under advisement as the era of proxy access gets underway.

New Directors: The Numbers Are In

The numbers are crunched, and here is how year 2009 shaped up for director recruiting.

According to the Directors & Boards Directors Roster, the journal's quarterly and annual reporting of executives named to public company boards, we tracked a total of 424 new director appointments named to 326 company boards. Here is where the new directors came from, ranked by predominance of background:

1. Retired Executives: 170 (40%)

2. Senior Officers: 65 (16%)

3. Chairmen/CEOs: 57 (14%)

4. Finance: 47 (11%)

5. Academia: 39 (9%)

6. Consultants: 22 (5%)

7. Not for Profit: 14 (3%)

8. Legal: 6 (1%)

9. Miscellaneous: 3 (1%)

Total: 424 (100%)

Women: 165 (39%)

Source: Directors & Boards Directors Roster

The number of new women directors is worthy of further comment. See the follow-on blog post of July 12.

Seven pages of the Governance Year in Review special issue of Directors & Boards just coming off press are devoted to "Who's on Board 2009" — a sampling of this new director activity. The article displays the companies adding one or more (as in the government-mandated cases of AIG and General Motors, for example) new board members, who those new directors are and their titles and affiliations at the time of appointment. A superb mini-data base for those wanting more detail beyond the numbers. The Directors Roster is sponsored by our close colleagues at Heidrick & Struggles International.

Pictured is John Lechleiter, chairman, president and CEO of Eli Lilly & Co., who joined the board of Nike Inc. in 2009; he represents a declining category from which new directors are being successfully recruited, i.e., a sitting CEO. In 2008 Chairman/CEOs represented 21% of all new directors.