Lead Director - Non-Executive Chair

Lead Director – Non-Executive Chair: Evolving

Today’s lead director and non-executive chair face a seemingly never-ending set of risks, governance decisions and strategic initiatives as a result of investors’ growing emphasis on board transparency, accountability, and independence. This insightful panel focused on the evolving roles of board leaders, specifically, the independent chair and lead director. Drive higher-performing boards through improved processes, strengthened director evaluation, recruitment efforts, and more effective shareholder engagement.

This was yet another great event sponsored by SVDX and Stanford’s Rock Center for Corporate Governance. I am so glad I only live 120 miles away, so can easily participate in these events. These are my notes, with no guarantee of accuracy. This one was more packed than usual with lots of on-point participation from the audience. Like a good lead director, Ms. Gomez-Russum did an excellent job moderating. Her job was made a little easier, since none of the panelists seemed compelled to dominate. Each had interesting insights.

Lead Director – Non-Executive Chair: Panelists

  • Eric BenhamouFounder & General Partner, Benhamou Global Ventures; Director, Cypress Semiconductor, Finjan Holdings, and Silicon Valley Bank
  • Karen Francis, Lead Director, Telenav; Director, AutoNation
  • Paula LoopLeader, Governance Insights Center, PwC
  • Belen Gomez-Russum, Senior Director of Board Services, Equilar (moderator)

Lead Director – Non-Executive Chair: Discussion

Leadership Roles on the Board – PwC survey 3/4 say their board is effective. 68% say doing a good job. 68% actually did something with their board assessment. 15% changed out a director. Another 15% coached a director. Someone needs to go 46% (uptick). Even uptick in those who believe someone needs to go among those serving 10 years or more. Board leadership isn’t pushing enough to address this perennial issue.

How does a lead director set tone? Set tone for board meetings and outside board meeting. Develop relationship of trust and respect with each individual board member and with the board as a whole. The lead director is the principle liaison between CEO and independent board members. Emotion is key. Someone who listens well. Pocket your opinion so that you can hear other voices. Coach.

How to keep engagement level up. Agenda setting to meet strategic objectives is critical. CEO choice, hiring, feedback. Creation of executive session (start and end with executive session). I have certainly seen use evolve over the last ten years. Board feedback, changing process, replacing director.

Soft skills – personalization, crafted outside. On-boarding process – series of conversations. Collect individual feedback. Discussions that don’t converge are problematic. Table such issues and wrap-up with next steps. Read the sense of the board without formality of vote. That helps quiet objections but allows everyone to feel they have been heard. Adapt to each personality. Good boards find their rhythm and their own culture.

Director sentiments. Increased desire for diversity over previous years. However, 59% say their board is diverse enough. 25% said ethnic diversity not needed. (95% of men… What the hell is wrong with those guys? Do they have their heads in the sand?)

Best way to approach is diversity of perspective. That is less threatening than raising the issue of gender or ethnicity.

It is difficult to find youth with experience. Use a table to profile discussion of skills, experience, and trade-offs. I think a good example can be seen at NYC Pension Funds Boardroom Accountability Project – Version 2.0.

There is a surge of candidates available. Not having a diverse board is now a ‘crime’ because there are no excuses. “I don’t know women candidates” [in my network] is a poor refrain. Lead director can help blend the directors together so they all contribute. Assign new directors a mentor to learn cultural nuances. The number of 1st time directors on S&P 500 boards is up — also at Russell 3000. Lead director needs to have intimate knowledge of business.

Third party facilitation of evaluation helpful, but especially for mature boards. Third party less likely to be seen as a threat to collegiality. However, using outside consultant can be bad if expectations not acted upon. Actual chair (not lead director) is better at addressing board issues… like replacing poorly performing directors.

25% shareholder engagements include a director. Directors have a fiduciary responsibility to shareholders … and you often can’t talk to them.  That doesn’t make any sense. Listen to shareholder activists. They have done the research. Not all directors are self-aware enough to be involved in a dialogue with shareholders. They must be able to exercise restraint. Important to convince key shareholders on say on pay… facilitated by chair of compensation committee. Determine likely issues in advance to know who should attend. It is not appropriate to discuss strategy or operations.

Read Larry Fink’s letter. I thought it was so good myself that I withdrew my shareholder proposal asking them to explain incongruities between statements and action. Doubling employees in the corporate governance office should help. Still, I will be looking to see if their proxy votes actually change. However, I was happy to see Fink be even clearer than in the past that high ESG metrics are associated with lower risk.

Cyber risk, which committee does it go to? Just make sure it is adequately covered.

Educating board about ISS score was discussed as an opportunity for improvement rather than as outside meddling. Competition is best way for lead director to approach. How do we compare to peers? That facilitates bringing governance issues to the board in a positive way, without threat. For those who want a quick glance, check out your firm’s QualityScore. For example, see Costco’s at the bottom of the Profile page at Yahoo! Finance. It was 9 as of January 1st.

Board evaluation starts with self-assessment from CEO based on goals for year. Questions to each board member re CEO performance. Match.

Check upcoming Rock Center  and SVDX events.


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