Corporate Director Pay Reflects More Risk

These days, executive level compensation is the subject of countless headlines. With CEOs earning wages in the tens of millions, people have a lot of opinions on the matter. Accordingly, the compensation for corporate directors (or non-executive directors) has also been rising.
corporate director pay

In fact, a recent article in The Wall Street Journal asserts, Pay for nonexecutive directors of S&P 500 companies rose nearly 50% between 2006 and 2014.” That’s quite a leap!

The median pay for directors in 2015 was $255,000 a year, which doesn’t sound quite as high as you might expect given that they’ve seen a 50% raise in a single decade.

When you consider that a director might spend about 5 hours per week on board related activities, the number becomes more impressive, though.

So why the sharp increase in compensation for board members? For one, the role has become more demanding in recent years. After the passing of the Sarbanes-Oxley Act in 2002, standards for board compliance were enhanced with stricter guidelines for reporting among public companies. Therefore, many board positions call for longer hours and deeper involvement. In addition, the rise of shareholder lawsuits has made the corporate director’s seat one that comes with more personal liability.

For these reasons and more, the corporate director role comes with more than just the gratification of sitting on an S&P 500 board—it also comes with a greater amount of responsibility. Many of the largest companies are willing to pay substantial figures to have the world’s most accomplished leaders serving on their board.
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Want to Be on a Public Company Board? Not So Fast!

Securing membership on the corporate board of a publicly traded company is no small feat. In fact, based on recent calculations, there are only about 70-80 board openings for NASDAQ-listed companies in the United States annually. That’s just a handful more people than were accepted into the NBA last year!
public company board

Historically, corporate boards have favored a very narrow type of board member: former CEOs from Fortune 500 companies or prominent CFOs who can be labeled an “audit committee financial expert” in adherence with the Sarbanes-Oxley Act of 2002.

These kinds of board members have long been identified as the “gold standard” for corporate director appointments.

However, the public company board membership selection process has become increasingly competitive over the past couple of decades. Former prominent CEOs and CFOs can no longer expect to slide easily into board membership at public companies. Boards continue to place value on more modern types of expertise—think entrepreneurs or tech experts.

More than ever, executives with unique backgrounds have a shot at obtaining the most exclusive of board appointments. But in order to have the very best chance at one of these opportunities, we encourage you to follow this advice:
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The Benefits of Diversity in the Boardroom

DiverseOver the last two decades, corporate board diversity has been growing steadily. In 2015 women held nearly 18% of the board positions at Fortune 1000 companies—a percentage that has doubled over the last 20 years.

As for racial minorities, they hold about 15% of board roles in Fortune 250 companies and are continuing to make gains.

Regardless of where the current statistics fall, though, the bottom line is that studies show diversity in the boardroom brings many benefits.

We’ve compiled a few of these benefits to share with you:

A diverse boardroom provides a diversity of thought

All board members bring their own personal background and experiences to their position in the boardroom. Each individual mind is capable of offering unique ideas, solutions, and strategies. For boards with a more diverse membership, the breadth of personal experience is wider and more comprehensive.

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Respectfully Removing a Board Member

According to the PwC Directors Survey we covered last week, 40% of board members believe that at least one member of their board needs to be replaced. With boardrooms standards rising higher than ever, it’s no surprise that some board members just aren’t measuring up.
removing board member

Removing a board member, however, is an extremely sensitive process that few are willing to undertake. Here are our tips for proceeding with the utmost respect and consideration. (Keep in mind that the procedures for companies vs. nonprofits will vary slightly according to individual rules of governance.)

Review your bylaws and follow them

Before taking any action, determine whether the member in question truly isn’t meeting the standard for his or her outlined duties. Make sure that you collect fact-based evidence only. Look at the bylaws for your organization, and utilize the processes it will likely lay out for this sort of scenario.

According to Sam Ashe-Edmunds of Demand Media, “Your bylaws might require the board to justify any removal based on fraud, conflict of interest, personal conduct, lack of fitness to serve or failure to perform.” You’ll need to establish exactly which aspects of the role the board member has not fulfilled or why their presence is no longer productive for the board.
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PwC’s Annual Board Survey Provides Board Insights

PwC Annual board surveyFortune 500 powerhouse, PwC, recently released the results from its annual Corporate Directors Survey. The assessment, which can be viewed here, offers a great deal of insight into how board priorities have shifted in recent years.

PwC also made it clear that they were interested in tracking a particular recent trend. In the report they explain, “We structured PwC’s 2015 Annual Corporate Directors Survey to gauge director sentiment on whether their boards have oriented themselves toward a longer-term governance focus in light of short-termism.”

They further explain the dichotomy between short term and long term focus by saying, “Most companies are looking down the road, focused on ‘enhancing long-term shareholder value.’

Yet they are simultaneously preoccupied with a need to look in the rear-view mirror and meet the short-term expectations of investors in the form of quarterly earnings.” The report is well worth the full read, but here are some highlights:

  • Corporate directors continue to rank financial expertise, industry experience, and operational expertise as the three most desirable attributes for board members.
  • Female board members continue to place importance on the development of board diversity at rates higher than their male counterparts (63% vs. 35% saying board diversity is “very important”).
  • Directors are overall more engaged with IT issues—with 83% saying their board is at least moderately engaged in overseeing/understanding the risks of cyber attacks.
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Four Questions About Board Surveys

The New York Stock Exchange requires listed companies to participate in some form of annual self-evaluation, so many organizations already have a board surveys in place. But for some of these companies, board self-assessments are met with an attitude of obligation instead of embracing the potential benefits of a well-executed survey. For other smaller companies, this practice has simply been overlooked in the past.
board surveys

However, there are many reasons why all boards should view annual self-assessments as an outstanding resource for bettering their overall functionality. For example:

  • Board surveys can help identify group strengths and weaknesses.
  • Willingness to self-assess sets the tone for the organization at large; it shows that board members are taking their roles seriously by reviewing their own performances through a critical lens.
  • Discussing board members’ responsibilities and goals can create a more unified and collaborative working environment.
  • Tracking year-over-year changes in board members’ responses can provide meaningful insight into a changing board landscape.

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Looking for Signs of Board Success

signs of board successSigns of board success can take any number of shapes, and the bottom line for measuring a board’s accomplishments will vary from organization to organization.

But when it comes down to overall effectiveness, there are some tried and true signs you can look for to better understand your board’s overall functionality:

Your board’s structure is clear and encourages efficiency

Boards vary in size and in structure, but experienced board member and Stanford GSB lecturer David Dodson has found one universal factor that he believes is a sign that boards are on the right track.

He writes that all boards—even small ones—need a clear, outlined structure for how meetings will be held, how often board members must be in attendance, and what is expected from them both inside and outside of board meetings. Dodson insists, “My strongest advice to a CEO or a board member is to put that scaffolding in place.”
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All Boards Need Tech Expertise

boards need tech expertiseAccording to Jean-Louis Bravard at Harvard Business Review, it’s simple: “All boards need a technology expert.” Bravard investigated the banking industry in England—an industry that relies heavily on technology—and found that only one bank had a tech expert serving on their board of directors.

He insists that many major banking leaders in the U.K. need huge tech overhauls but are afraid of the risks—both financially and from a data safety perspective. Bravard argues, “Only a multi-year, board-level sponsored effort can ensure a responsible IT overhaul. But without IT expertise at the director level, how can a board truly make an educated decision?”

To put it simply, get someone who works in high-level IT on your board, and do it quickly—especially if you want to follow a long term, adaptable IT strategy.

For Dambisa Moyo, an international economist, things are a little less cut and dry. She asserts, “The industry structure in which a business operates should also influence how a board assesses technology effects.” She follows that up with three viable paths forward for bringing tech knowledge to a board setting. The first is to “delegate technology tasks to management.”

In other words, let the responsibility of technological evolution stay in-house with a CIO or a CTO. The second option is to draw from the expertise of independent advice. This could mean hiring an outside IT consultant or forming a group of advisers that report to the board. The final option is the one we’ve already heard: creating a seat on the board for a “techie.”

She encourages boards to take a long look at their particular industry to weigh the pros and cons for each of these options.
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Boardroom Spring Cleaning

While some of our neighbors to the north are still dealing with the occasional snow flurry, down here in Birmingham we’re settling into a lovely spring. The flowers are blooming, the sunshine is splendid, and it’s just the right time for some good old-fashioned spring cleaning.
boardroom spring cleaning

While you’re on a cleaning kick, why not transfer some of that energy into your boardroom? No, we’re not talking about vacuuming the carpets or dusting the shelves: we’re talking about sparking efficiency and productivity!

Now is a great time to organize some of your board operations and make the move towards a tidier board experience overall. Here’s our step-by-step spring cleaning guide:

Clean up your communications

Let’s start with the issue that’s nearest and dearest to our Directorpoint heart: simplified and streamlined communications. Currently, your board of directors might connect via any number of methods: email, hard copy mail, phone calls, txts, and more. What if you could incorporate all of those touch points into a single, easy to understand hub?

Well, the great news is that you can!
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Being an Effective Board Chairman

effective board chairman

Effective leadership is a topic that has been visited and revisited by business publications, psychology magazines, and more. People have a lot to say about leadership and what makes a particular style of leadership great.

But when it comes to board leadership, what really puts a board chair a head above the rest?

Effective board chairs seek meaningful contact between board meetings

According to Harvard Business Review, “Impromptu discussions strengthen a board’s hand on the company’s pulse. Keeping board members informed also minimizes the time spent on background that slows up regular board meetings.” When board chairs take the lead to spark conversation outside of meetings, other board members are more likely to follow suit.

At Directorpoint, we encourage this sort of collaboration outside of the meeting with our member-to-member messaging system. Instead of clogging one another’s inboxes, board members can reach out to their cohorts quickly and easily both during and outside of meeting times.
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